IDEAS home Printed from https://ideas.repec.org/a/wly/greenh/v12y2022i6p698-711.html
   My bibliography  Save this article

The effects of policy subsidy on the investment decisions of carbon capture and storage—A real‐options approach

Author

Listed:
  • Weiwei Zhang
  • Tianci Qing

Abstract

Carbon capture and storage (CCS) plays an important role in promoting developing countries to reduce carbon emission and meet the requirement for carbon reduction under carbon neutral and carbon peak targets. To evaluate the incentive effect of subsidization mechanisms on CCS investment, the paper incorporates two incentives into the model, considers the effects of the carbon trading price, electricity price, and other uncertain factors on the investment behaviors for CCS projects under uncertainty and explores incentive intensity of two policies on investment based on the real option method. The results show that even in the case of full operating cost subsidies and double electricity price subsidies, the power plant still delays CCS investment due to the imperfection of carbon market. The most appropriate policies for supporting immediate investment in CCS project are identified in the paper by considering the critical carbon price and electricity price in different scenarios. Additionally, the findings show that it is more efficient for the electricity price subsidy than cost subsidy with same subsidy proportion under single policy condition, while the minimum subsidy amount required to invest immediately is 32.86 million CNY in the combination of the two policies. This provides environmental policymakers with valuable insights on promoting CCS deployment under the context of carbon reduction. © 2022 Society of Chemical Industry and John Wiley & Sons, Ltd.

Suggested Citation

  • Weiwei Zhang & Tianci Qing, 2022. "The effects of policy subsidy on the investment decisions of carbon capture and storage—A real‐options approach," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 12(6), pages 698-711, December.
    • Handle: RePEc:wly:greenh:v:12:y:2022:i:6:p:698-711
    DOI: 10.1002/ghg.2186
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ghg.2186
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ghg.2186?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
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Abadie, Luis M. & Chamorro, José M., 2008. "European CO2 prices and carbon capture investments," Energy Economics, Elsevier, vol. 30(6), pages 2992-3015, November.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. Mo, Jian-Lei & Agnolucci, Paolo & Jiang, Mao-Rong & Fan, Ying, 2016. "The impact of Chinese carbon emission trading scheme (ETS) on low carbon energy (LCE) investment," Energy Policy, Elsevier, vol. 89(C), pages 271-283.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    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. Mo, Jianlei & Schleich, Joachim & Fan, Ying, 2018. "Getting ready for future carbon abatement under uncertainty – Key factors driving investment with policy implications," Energy Economics, Elsevier, vol. 70(C), pages 453-464.
    9. Thomas Aspinall & Adrian Gepp & Geoff Harris & Simone Kelly & Colette Southam & Bruce Vanstone, 2021. "Estimation of a term structure model of carbon prices through state space methods: The European Union emissions trading scheme," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 3797-3819, June.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. Lin, Boqiang & Liu, Zhiwei, 2024. "Assessment of China's flexible power investment value in the emission trading system," Applied Energy, Elsevier, vol. 359(C).
    15. Wang, Xingwei & Cai, Yanpeng & Dai, Chao, 2014. "Evaluating China's biomass power production investment based on a policy benefit real options model," Energy, Elsevier, vol. 73(C), pages 751-761.
    16. 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.
    17. 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.
    18. 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.
    19. 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).
    20. Zhang, M.M. & Zhou, D.Q. & Zhou, P. & Liu, G.Q., 2016. "Optimal feed-in tariff for solar photovoltaic power generation in China: A real options analysis," Energy Policy, Elsevier, vol. 97(C), pages 181-192.

    More about this item

    Statistics

    Access and download statistics

    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:wly:greenh:v:12:y:2022:i:6:p:698-711. 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: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)2152-3878 .

    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.