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CO2 storage or utilization? : A real options analysis under market and technological uncertainty

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  • Assche, Hanne Lamberts-Van
  • Lavrutich, Maria

    (Tilburg University, School of Economics and Management)

  • Compernolle, Tine

    (Tilburg University, School of Economics and Management)

  • Thomassen, Gwenny
  • Thijssen, Jacco J. J.

    (Tilburg University, School of Economics and Management)

  • Kort, Peter M.

    (Tilburg University, School of Economics and Management)

Abstract

Carbon Capture and Storage (CCS) and Carbon Capture and Utilization (CCU) are considered essential solutions to reduce greenhouse gas (GHG) emissions worldwide. A crucial difference between the two is that CCS is already a mature technology, while CCU is still in the R&D phase. Hence, firms are confronted with a dilemma, where they have to choose between either the mature CCS, the emerging CCU, or the installation of both in a Carbon Capture Utilization and Storage (CCUS) system. In this study, we analyze different strategies that the firm can pursue and determine the optimal investment timing. In doing so, we take into account both technological uncertainty, i.e. the unknown time-to-market of CCU, and market uncertainty, i.e. the CO2 price. Three different CCUS value chains in the cement industry are analyzed. We find that the anticipated arrival of profitable CCU technologies in the future does not delay investments in CCS in the current period. Investments in CCS and CCU can be accelerated by reducing the volatility of the CO2 price, or by increasing the growth rate of the CO2 price. Finally, we find that a higher fraction of CO2 emissions that can be used in CCU, results in sooner adoption of CCS today.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Assche, Hanne Lamberts-Van & 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," Other publications TiSEM d0025c98-b331-4b0f-813b-1, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:d0025c98-b331-4b0f-813b-1abb74d482cd
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    References listed on IDEAS

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    1. Valentina Bosetti & Carlo Carraro & Massimo Tavoni, 2012. "Timing of Mitigation and Technology Availability in Achieving a Low-Carbon World," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(3), pages 353-369, March.
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    4. 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.
    5. Deeney, Peter & Cummins, Mark & Heintz, Katharina & Pryce, Mary T., 2021. "A real options based decision support tool for R&D investment: Application to CO2 recycling technology," European Journal of Operational Research, Elsevier, vol. 289(2), pages 696-711.
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