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Does the carbon price floor policy promote CTL-CCS investment? A real options and sequential investment model

Author

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  • Zhang, Weiwei
  • Dai, He
  • Wang, Yunxiang
  • Li, Yunzhuo
  • Wang, Yuanrong

Abstract

The coupling of Coal-to-Liquid (CTL) technology with Carbon Capture and Storage (CCS) can significantly reduce CO2 emissions from coal use by transporting captured CO2 for storage in geological formations, yet economic barriers hinder its widespread application. To address this, the study incorporates a carbon price floor policy into a sequential investment model for the CTL-CCS project and employs real options analysis to evaluate how the policy incentivizes CTL-CCS investment under uncertainties in oil, coal, and carbon prices. Taking the Shenhua project in China (with an annual oil output of 1.08 million tons) as a case study, the findings indicate that implementing a carbon price floor increases the value of the CTL-CCS project from 8.24 to 10.18 billion yuan, elevates the investment probability from 37.1 % to 74.2 %, and reduces the critical carbon price threshold from 217.43 to 156.74 yuan. The optimal carbon price floor to incentivize immediate investment is identified as 125 yuan per ton. These results underscore the effectiveness of carbon price floors in accelerating low-carbon investment in high-emission sectors and provide quantitative insights for carbon market design in China.

Suggested Citation

  • Zhang, Weiwei & Dai, He & Wang, Yunxiang & Li, Yunzhuo & Wang, Yuanrong, 2026. "Does the carbon price floor policy promote CTL-CCS investment? A real options and sequential investment model," Utilities Policy, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:juipol:v:99:y:2026:i:c:s0957178725002486
    DOI: 10.1016/j.jup.2025.102133
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