IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v132y2019icp1229-1240.html
   My bibliography  Save this article

How can carbon capture utilization and storage be incentivized in China? A perspective based on the 45Q tax credit provisions

Author

Listed:
  • Fan, Jing-Li
  • Xu, Mao
  • Yang, Lin
  • Zhang, Xian
  • Li, Fengyu

Abstract

Carbon capture utilization and storage (CCUS) technologies are crucial for achieving long-term climate change goals in China. Drawing on the 45Q tax credit provisions enacted by the U.S., three subsidy modes, two scenarios and two carbon emission reduction options are developed in this study, in which the real options approach combined with a trinomial tree model is employed to evaluate investment decisions made by coal-fired power plants (CFPP) in China. The results show that offering a 12-year CO2 storage subsidy to full-chain CCUS CFPP provides the motivation needed for CCUS investment during the 12-year subsidy period; however the economic benefits of such investment cannot be sustained over the 40-year lifetime. It's economically viable for CFPP to capture 90% CO2 emissions and sell them to oil enterprises for enhanced oil recovery (EOR) over a 40-year period. Besides, for full-chain CCUS CFPP the incentive effects of the 45Q subsidy mode and the full initial investment plus operation and maintenance (I + O&M) subsidy mode are much more suited to the 40-year emission reduction option, whereas the simple O&M subsidy mode is more suitable for the 12-year emission reduction option. However, for CO2-EOR projects, there is no significant difference between the three subsidy modes.

Suggested Citation

  • Fan, Jing-Li & Xu, Mao & Yang, Lin & Zhang, Xian & Li, Fengyu, 2019. "How can carbon capture utilization and storage be incentivized in China? A perspective based on the 45Q tax credit provisions," Energy Policy, Elsevier, vol. 132(C), pages 1229-1240.
    • Handle: RePEc:eee:enepol:v:132:y:2019:i:c:p:1229-1240
    DOI: 10.1016/j.enpol.2019.07.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421519304525
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2019.07.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zhu, Lei & Fan, Ying, 2011. "A real options–based CCS investment evaluation model: Case study of China’s power generation sector," Applied Energy, Elsevier, vol. 88(12), pages 4320-4333.
    2. Durmaz, Tunç, 2018. "The economics of CCS: Why have CCS technologies not had an international breakthrough?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 95(C), pages 328-340.
    3. Fan, Ruguo & Dong, Lili, 2018. "The dynamic analysis and simulation of government subsidy strategies in low-carbon diffusion considering the behavior of heterogeneous agents," Energy Policy, Elsevier, vol. 117(C), pages 252-262.
    4. Zhang, Xian & Wang, Xingwei & Chen, Jiajun & Xie, Xi & Wang, Ke & Wei, Yiming, 2014. "A novel modeling based real option approach for CCS investment evaluation under multiple uncertainties," Applied Energy, Elsevier, vol. 113(C), pages 1059-1067.
    5. Rubin, Edward S. & Yeh, Sonia & Antes, Matt & Berkenpas, Michael & Davison, John, 2007. "Use of experience curves to estimate the future cost of power plants with CO2 capture," Institute of Transportation Studies, Working Paper Series qt46x6h0n0, Institute of Transportation Studies, UC Davis.
    6. Pringles, Rolando & Olsina, Fernando & Garcés, Francisco, 2015. "Real option valuation of power transmission investments by stochastic simulation," Energy Economics, Elsevier, vol. 47(C), pages 215-226.
    7. Wu, Ning & Parsons, John E. & Polenske, Karen R., 2013. "The impact of future carbon prices on CCS investment for power generation in China," Energy Policy, Elsevier, vol. 54(C), pages 160-172.
    8. Zheng, Li & Dongjie, Zhang & Linwei, Ma & West, Logan & Weidou, Ni, 2011. "The necessity of and policy suggestions for implementing a limited number of large scale, fully integrated CCS demonstrations in China," Energy Policy, Elsevier, vol. 39(9), pages 5347-5355, September.
    9. Marie Renner, 2014. "Carbon prices and CCS investment: comparative study between the European Union and China," Working Papers 1402, Chaire Economie du climat.
    10. Cristóbal, Jorge & Guillén-Gosálbez, Gonzalo & Kraslawski, Andrzej & Irabien, Angel, 2013. "Stochastic MILP model for optimal timing of investments in CO2 capture technologies under uncertainty in prices," Energy, Elsevier, vol. 54(C), pages 343-351.
    11. Riahi, Keywan & Rubin, Edward S. & Taylor, Margaret R. & Schrattenholzer, Leo & Hounshell, David, 2004. "Technological learning for carbon capture and sequestration technologies," Energy Economics, Elsevier, vol. 26(4), pages 539-564, July.
    12. Zhou, Wenji & Zhu, Bing & Fuss, Sabine & Szolgayová, Jana & Obersteiner, Michael & Fei, Weiyang, 2010. "Uncertainty modeling of CCS investment strategy in China's power sector," Applied Energy, Elsevier, vol. 87(7), pages 2392-2400, July.
    13. Rolf Golombek & Mads Greaker & Sverre A.C. Kittelsen & Ole Røgeberg & Finn Roar Aune, 2011. "Carbon Capture and Storage Technologies in the European Power Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 209-238.
    14. de Coninck, Heleen & Stephens, Jennie C. & Metz, Bert, 2009. "Global learning on carbon capture and storage: A call for strong international cooperation on CCS demonstration," Energy Policy, Elsevier, vol. 37(6), pages 2161-2165, June.
    15. Fuss, Sabine & Szolgayová, Jana, 2010. "Fuel price and technological uncertainty in a real options model for electricity planning," Applied Energy, Elsevier, vol. 87(9), pages 2938-2944, September.
    16. Fan, Jing-Li & Xu, Mao & Li, Fengyu & Yang, Lin & Zhang, Xian, 2018. "Carbon capture and storage (CCS) retrofit potential of coal-fired power plants in China: The technology lock-in and cost optimization perspective," Applied Energy, Elsevier, vol. 229(C), pages 326-334.
    17. Zhang, M.M. & Zhou, P. & Zhou, D.Q., 2016. "A real options model for renewable energy investment with application to solar photovoltaic power generation in China," Energy Economics, Elsevier, vol. 59(C), pages 213-226.
    18. Duan, Hong-Bo & Fan, Ying & Zhu, Lei, 2013. "What’s the most cost-effective policy of CO2 targeted reduction: An application of aggregated economic technological model with CCS?," Applied Energy, Elsevier, vol. 112(C), pages 866-875.
    19. Ottmar Edenhofer , Brigitte Knopf, Terry Barker, Lavinia Baumstark, Elie Bellevrat, Bertrand Chateau, Patrick Criqui, Morna Isaac, Alban Kitous, Socrates Kypreos, Marian Leimbach, Kai Lessmann, Bertra, 2010. "The Economics of Low Stabilization: Model Comparison of Mitigation Strategies and Costs," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    20. van Alphen, Klaas & van Ruijven, Jochem & Kasa, Sjur & Hekkert, Marko & Turkenburg, Wim, 2009. "The performance of the Norwegian carbon dioxide, capture and storage innovation system," Energy Policy, Elsevier, vol. 37(1), pages 43-55, January.
    21. repec:dau:papers:123456789/12983 is not listed on IDEAS
    22. Martinsen, Dag & Linssen, Jochen & Markewitz, Peter & Vogele, Stefan, 2007. "CCS: A future CO2 mitigation option for Germany?--A bottom-up approach," Energy Policy, Elsevier, vol. 35(4), pages 2110-2120, April.
    23. Renner, Marie, 2014. "Carbon prices and CCS investment: A comparative study between the European Union and China," Energy Policy, Elsevier, vol. 75(C), pages 327-340.
    24. Nicholas Stern, 2008. "The Economics of Climate Change," American Economic Review, American Economic Association, vol. 98(2), pages 1-37, May.
    25. Abadie, Luis M. & Chamorro, José M., 2008. "European CO2 prices and carbon capture investments," Energy Economics, Elsevier, vol. 30(6), pages 2992-3015, November.
    26. Eto, R. & Murata, A. & Uchiyama, Y. & Okajima, K., 2013. "Co-benefits of including CCS projects in the CDM in India's power sector," Energy Policy, Elsevier, vol. 58(C), pages 260-268.
    27. Rammerstorfer, Margarethe & Eisl, Roland, 2011. "Carbon capture and storage—Investment strategies for the future?," Energy Policy, Elsevier, vol. 39(11), pages 7103-7111.
    28. Luke Reedman & Paul Graham & Peter Coombes, 2006. "Using a Real‐Options Approach to Model Technology Adoption Under Carbon Price Uncertainty: An Application to the Australian Electricity Generation Sector," The Economic Record, The Economic Society of Australia, vol. 82(s1), pages 64-73, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gu, Changwan & Li, Kai & Gao, Shikang & Li, Jiayu & Mao, Yifan, 2024. "CO2 abatement feasibility for blast furnace CCUS retrofits in BF-BOF steel plants in China," Energy, Elsevier, vol. 294(C).
    2. Li, Zezheng & Yu, Pengwei & Xian, Yujiao & Fan, Jing-Li, 2024. "Investment benefit analysis of coal-to-hydrogen coupled CCS technology in China based on real option approach," Energy, Elsevier, vol. 294(C).
    3. Fan, Jing-Li & Xu, Mao & Yang, Lin & Zhang, Xian, 2019. "Benefit evaluation of investment in CCS retrofitting of coal-fired power plants and PV power plants in China based on real options," Renewable and Sustainable Energy Reviews, Elsevier, vol. 115(C).
    4. Hamid M. Pouran & Seyed M. Karimi & Mariana Padilha Campos Lopes & Yong Sheng, 2022. "What China’s Environmental Policy Means for PV Solar, Electric Vehicles, and Carbon Capture and Storage Technologies," Energies, MDPI, vol. 15(23), pages 1-13, November.
    5. Liu, Feng & Lv, Tao & Meng, Yuan & Li, Cong & Hou, Xiaoran & Xu, Jie & Deng, Xu, 2023. "Potential analysis of BESS and CCUS in the context of China's carbon trading scheme toward the low-carbon electricity system," Renewable Energy, Elsevier, vol. 210(C), pages 462-471.
    6. Yang, Lin & Xu, Mao & Fan, Jingli & Liang, Xi & Zhang, Xian & Lv, Haodong & Wang, Dong, 2021. "Financing coal-fired power plant to demonstrate CCS (carbon capture and storage) through an innovative policy incentive in China," Energy Policy, Elsevier, vol. 158(C).
    7. Li, Jingjing & Wang, Zhaoxin & Li, Hui & Jiao, Jianling, 2024. "Which policy can effectively promote the formal recycling of power batteries in China?," Energy, Elsevier, vol. 299(C).
    8. Pavel Tcvetkov, 2021. "Climate Policy Imbalance in the Energy Sector: Time to Focus on the Value of CO 2 Utilization," Energies, MDPI, vol. 14(2), pages 1-22, January.
    9. Liu, Jiangfeng & Zhang, Qi & Li, Hailong & Chen, Siyuan & Teng, Fei, 2022. "Investment decision on carbon capture and utilization (CCU) technologies—A real option model based on technology learning effect," Applied Energy, Elsevier, vol. 322(C).
    10. Fan, Jing-Li & Shen, Shuo & Wei, Shi-Jie & Xu, Mao & Zhang, Xian, 2020. "Near-term CO2 storage potential for coal-fired power plants in China: A county-level source-sink matching assessment," Applied Energy, Elsevier, vol. 279(C).
    11. Jiang, Kai & Ashworth, Peta & Zhang, Shiyi & Liang, Xi & Sun, Yan & Angus, Daniel, 2020. "China's carbon capture, utilization and storage (CCUS) policy: A critical review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 119(C).
    12. Hanne Lamberts-Van Assche & Tine Compernolle, 2022. "Using Real Options Thinking to Value Investment Flexibility in Carbon Capture and Utilization Projects: A Review," Sustainability, MDPI, vol. 14(4), pages 1-24, February.
    13. Xiaowan Yang & Xiaoyu Guo & Yanan Wang, 2023. "Characteristics of Carbon Emission Transfer under Carbon Neutrality and Carbon Peaking Background and the Impact of Environmental Policies and Regulations on It," Sustainability, MDPI, vol. 15(9), pages 1-20, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fan, Jing-Li & Xu, Mao & Yang, Lin & Zhang, Xian, 2019. "Benefit evaluation of investment in CCS retrofitting of coal-fired power plants and PV power plants in China based on real options," Renewable and Sustainable Energy Reviews, Elsevier, vol. 115(C).
    2. Herui Cui & Tian Zhao & Ruirui Wu, 2018. "An Investment Feasibility Analysis of CCS Retrofit Based on a Two-Stage Compound Real Options Model," Energies, MDPI, vol. 11(7), pages 1-19, July.
    3. Yang, Lin & Xu, Mao & Fan, Jingli & Liang, Xi & Zhang, Xian & Lv, Haodong & Wang, Dong, 2021. "Financing coal-fired power plant to demonstrate CCS (carbon capture and storage) through an innovative policy incentive in China," Energy Policy, Elsevier, vol. 158(C).
    4. Yang, Lin & Lv, Haodong & Wei, Ning & Li, Yiming & Zhang, Xian, 2023. "Dynamic optimization of carbon capture technology deployment targeting carbon neutrality, cost efficiency and water stress: Evidence from China's electric power sector," Energy Economics, Elsevier, vol. 125(C).
    5. Fan, Jing-Li & Xu, Mao & Li, Fengyu & Yang, Lin & Zhang, Xian, 2018. "Carbon capture and storage (CCS) retrofit potential of coal-fired power plants in China: The technology lock-in and cost optimization perspective," Applied Energy, Elsevier, vol. 229(C), pages 326-334.
    6. Zhang, M.M. & Wang, Qunwei & Zhou, Dequn & Ding, H., 2019. "Evaluating uncertain investment decisions in low-carbon transition toward renewable energy," Applied Energy, Elsevier, vol. 240(C), pages 1049-1060.
    7. Xiping Wang & Hongdou Zhang, 2018. "Valuation of CCS investment in China's coal‐fired power plants based on a compound real options model," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 8(5), pages 978-988, October.
    8. Romano, Teresa & Fumagalli, Elena, 2018. "Greening the power generation sector: Understanding the role of uncertainty," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 272-286.
    9. Xiping Wang & Hongdou Zhang, 2018. "Optimal design of carbon tax to stimulate CCS investment in China's coal‐fired power plants: A real options analysis," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 8(5), pages 863-875, October.
    10. Xiping Wang & Shaoyuan Qie, 2018. "Study on the investment timing of carbon capture and storage under different business modes," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 8(4), pages 639-649, August.
    11. Zhang, Xian & Wang, Xingwei & Chen, Jiajun & Xie, Xi & Wang, Ke & Wei, Yiming, 2014. "A novel modeling based real option approach for CCS investment evaluation under multiple uncertainties," Applied Energy, Elsevier, vol. 113(C), pages 1059-1067.
    12. Zhang, Xinhua & Yang, Hongming & Yu, Qian & Qiu, Jing & Zhang, Yongxi, 2018. "Analysis of carbon-abatement investment for thermal power market in carbon-dispatching mode and policy recommendations," Energy, Elsevier, vol. 149(C), pages 954-966.
    13. Zhang, M.M. & Zhou, D.Q. & Zhou, P. & Chen, H.T., 2017. "Optimal design of subsidy to stimulate renewable energy investments: The case of China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 71(C), pages 873-883.
    14. Zhou, Wenji & Zhu, Bing & Chen, Dingjiang & Zhao, Fangxian & Fei, Weiyang, 2014. "How policy choice affects investment in low-carbon technology: The case of CO2 capture in indirect coal liquefaction in China," Energy, Elsevier, vol. 73(C), pages 670-679.
    15. Zhu, Lei & Fan, Ying, 2013. "Modelling the investment in carbon capture retrofits of pulverized coal-fired plants," Energy, Elsevier, vol. 57(C), pages 66-75.
    16. Mo, Jian-Lei & Schleich, Joachim & Zhu, Lei & Fan, Ying, 2015. "Delaying the introduction of emissions trading systems—Implications for power plant investment and operation from a multi-stage decision model," Energy Economics, Elsevier, vol. 52(PB), pages 255-264.
    17. Rochedo, Pedro R.R. & Szklo, Alexandre, 2013. "Designing learning curves for carbon capture based on chemical absorption according to the minimum work of separation," Applied Energy, Elsevier, vol. 108(C), pages 383-391.
    18. Mingming Zhang & Dequn Zhou & Hao Ding & Jingliang Jin, 2016. "Biomass Power Generation Investment in China: A Real Options Evaluation," Sustainability, MDPI, vol. 8(6), pages 1-22, June.
    19. Zhang, Xinhua & Gan, Dongmei & Wang, Yali & Liu, Yu & Ge, Jiali & Xie, Rui, 2020. "The impact of price and revenue floors on carbon emission reduction investment by coal-fired power plants," Technological Forecasting and Social Change, Elsevier, vol. 154(C).
    20. Yao, Xing & Fan, Ying & Zhu, Lei & Zhang, Xian, 2020. "Optimization of dynamic incentive for the deployment of carbon dioxide removal technology: A nonlinear dynamic approach combined with real options," Energy Economics, Elsevier, vol. 86(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:132:y:2019:i:c:p:1229-1240. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.