Valuation and investment strategies of carbon capture and storage technology under uncertainties in technology, policy and market

Abstract

Although developing renewable energy sources is the best way to reduce carbon dioxide emissions and deal with climate change, fossil fuels are currently the most important energy sources. To counter climate change and reduce carbon dioxide emissions from fossil fuels, scientists are developing new carbon capture and storage (CCS) technologies. In this paper, we discuss existing and future CCS technologies, compare the values of three CCS investment strategies in the real options framework under uncertainties in technology, policy and market, and consider the effect of learning curves on investment values. Generally, uncertainty can increase investment valuation, but we find that uncertainty in CCS technology reduces its investment valuation. Finally, we calculate the probability that the optimal investment strategy will be implemented.

Keywords:

• OR in environment and climate change
• real options
• carbon capture
• decision analysis

Acknowledgments

The authors would like to acknowledge the financial support from the funding for philosophy and social science research project of Jiangsu university (2017SJB0154), we thank Patricia Sabolsky for her help.

Disclosure statement

No potential conflict of interest was reported by the authors.