Timing is everything: a real options approach for CCUS investment in the presence of market and technology uncertainty

14 Pages Posted: 29 Nov 2022

See all articles by Hanne Lamberts-Van Assche

Hanne Lamberts-Van Assche

University of Antwerp

Maria Lavrutich

Norwegian University of Science and Technology

Tine Compernolle

University of Antwerp - Department of Economics

Gwenny Thomassen

University of Antwerp - Department of Engineering Management; Flanders Make; Ghent University - Research Group Sustainable Systems Engineering (STEN)

Jacco Thijssen

University of York

Peter M. Kort

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER)

Date Written: November 24, 2022

Abstract

Carbon Capture and Storage and Carbon Capture and Utilization are essential solutions to reduce GHG emissions worldwide and to mitigate climate change effects. While CCS is mature and ready to install, CCU is still in the R&D phase. The rising CO2 prices in the EU Emission Trading System encourage firms to invest in emission abatement technologies. To find the optimal timing to invest in CCS and CCU, we employ a real options approach that allows for flexibility in the timing of the investment decision. This study shows how the investment in CCS is delayed, compared to traditional investment analysis, due to the anticipated CCU arrival and the CO2 price uncertainty. Surprisingly, the expected arrival rate of CCU barely affects the current investment threshold for CCS. The trend and variance of the CO2 price, on the other hand, significantly influence the CO2 price threshold triggering investment in CCS and CCU. The real options model developed in this study can also be adapted to reflect multiple CCS and CCU adoption strategies, using the steps described in this article.

Keywords: real options, Carbon Capture and Utilization, Carbon Capture and Storage, technological uncertainty, R&D

Suggested Citation

Lamberts-Van Assche, Hanne and Lavrutich, Maria and Compernolle, Tine and Thomassen, Gwenny and Thijssen, Jacco and Kort, Peter, Timing is everything: a real options approach for CCUS investment in the presence of market and technology uncertainty (November 24, 2022). Proceedings of the 16th Greenhouse Gas Control Technologies Conference (GHGT-16) 23-24 Oct 2022, Available at SSRN: https://ssrn.com/abstract=4285597 or http://dx.doi.org/10.2139/ssrn.4285597

Hanne Lamberts-Van Assche (Contact Author)

University of Antwerp ( email )

Prinsstraat 13
Antwerp, 2000
Belgium

Maria Lavrutich

Norwegian University of Science and Technology ( email )

NO-7491 Trondheim
Norway

Tine Compernolle

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium

Gwenny Thomassen

University of Antwerp - Department of Engineering Management ( email )

Flanders Make ( email )

Ghent University - Research Group Sustainable Systems Engineering (STEN) ( email )

Jacco Thijssen

University of York ( email )

Heslington, York YO10 5DD
United Kingdom

Peter Kort

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

HOME PAGE: http://center.uvt.nl/staff/kort/

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

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