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

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  • Lamberts-Van Assche, Hanne
  • Lavrutich, Maria
  • Compernolle, Tine
  • Thomassen, Gwenny
  • Thijssen, Jacco J.J.
  • Kort, Peter M.

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.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:jeeman:v:122:y:2023:i:c:s0095069623001201
    DOI: 10.1016/j.jeem.2023.102902
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    Cited by:

    1. Su, Qing & Zhou, Peng & Ding, Hao, 2025. "Portfolio optimization of diversified energy transition investments with multiple risks," Renewable and Sustainable Energy Reviews, Elsevier, vol. 219(C).
    2. Leary, Nick & Zunino, Michael & Wagner, Jeffrey, 2025. "The marginal abatement cost function with secondary waste markets," Ecological Economics, Elsevier, vol. 228(C).
    3. Chen, Yiwen & Paulus, Nora & Wan, Xi & Zou, Benteng, 2025. "Timing carbon capture and storage (CCS) deployment across borders: A game-theoretic analysis," Economic Modelling, Elsevier, vol. 151(C).
    4. Wang, Junjin & Zhang, Baiyu & Zhu, Qinghua & Liu, Jiaguo, 2025. "Emission surcharge in the European Union Emissions Trading System: A competitive analysis for shipping companies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 202(C).
    5. Sievert, Katrin & Stefanescu, Alexandru Stefan & Oeuvray, Pauline & Steffen, Bjarne, 2025. "The impact of financing structures on the cost of carbon dioxide transport," Energy Economics, Elsevier, vol. 143(C).
    6. Noshchenko, Olga & Hagspiel, Verena, 2024. "Environmental and economic multi-objective real options analysis: Electrification choices for field development investment planning," Energy, Elsevier, vol. 295(C).
    7. Moreaux, Michel & Amigues, Jean-Pierre & van der Meijden, Gerard & Withagen, Cees, 2024. "Carbon capture: Storage vs. Utilization," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    8. Aghajani, Daniel & Bratvold, Reidar B. & Hagspiel, Verena & Noshchenko, Olga & Toutain, Vincent K.G., 2025. "A multi-objective decision-making framework for the choice between mutually exclusive alternatives under uncertainty: Assessing the competitiveness of offshore wind for a gas field electrification on the NCS," Energy Economics, Elsevier, vol. 141(C).

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