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Using Real Options Thinking to Value Investment Flexibility in Carbon Capture and Utilization Projects: A Review

Author

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  • Hanne Lamberts-Van Assche

    (Department of Engineering Management, University of Antwerp, Prinsstraat 13, 2000 Antwerp, Belgium)

  • Tine Compernolle

    (Department of Engineering Management, University of Antwerp, Prinsstraat 13, 2000 Antwerp, Belgium
    Geological Survey of Belgium, Royal Belgian Institute of Natural Sciences, Jennerstraat 13, 1000 Brussels, Belgium)

Abstract

Carbon capture and utilization (CCU) is one of the key technologies that may help to reduce industrial emissions. However, the deployment of CCU is hampered by various barriers, including high levels of technical, policy and market uncertainty. The real options theory (ROT) provides a method to account for these uncertainties and introduce flexibility in the investment decision by allowing decisions to be changed in response to the evolution of uncertainties. ROT is already being applied frequently in the evaluation of renewable energy or carbon capture and storage (CCS) projects, e.g., addressing the uncertainty in the price of CO 2 . However, ROT has only found a few applications in the CCU literature to date. Therefore, this paper investigates the specific types of uncertainty that arise with the utilization of CO 2 , identifies the types of real options present in CCU projects and discusses the applied valuation techniques. Research gaps are identified in the CCU literature and recommendations are made to fill these gaps. The investment decision sequence for CCU projects is shown, together with the uncertainties and flexibility options in the CCU projects. This review can support the real options-based evaluations of the investment decisions in CCU projects to allow for flexibility and uncertainty.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:4:p:2098-:d:747969
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    References listed on IDEAS

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    1. Lamberts-Van Assche, Hanne & Lavrutich, Maria & Compernolle, Tine & Thomassen, Gwenny & Thijssen, Jacco J.J. & Kort, Peter M., 2023. "CO2 storage or utilization? A real options analysis under market and technological uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 122(C).
    2. Aleksandr Babkin & Nadezhda Kvasha & Daniil Demidenko & Ekaterina Malevskaia-Malevich & Evgeny Voroshin, 2022. "Methodology for Economic Analysis of Highly Uncertain Innovative Projects of Improbability Type," Risks, MDPI, vol. 11(1), pages 1-20, December.
    3. 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).

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