Using Real Options Thinking to Value Investment Flexibility in Carbon Capture and Utilization Projects: A Review

Hanne Lamberts- Van Assche and Tine Compernolle
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Hanne Lamberts- Van Assche: Department of Engineering Management, University of Antwerp, Prinsstraat 13, 2000 Antwerp, Belgium
Tine Compernolle: Department of Engineering Management, University of Antwerp, Prinsstraat 13, 2000 Antwerp, Belgium

Sustainability, 2022, vol. 14, issue 4, 1-24

Abstract: Carbon capture and utilization (CCU) is one of the key technologies that may help to reduce industrial emissions. However, the deployment of CCU is hampered by various barriers, including high levels of technical, policy and market uncertainty. The real options theory (ROT) provides a method to account for these uncertainties and introduce flexibility in the investment decision by allowing decisions to be changed in response to the evolution of uncertainties. ROT is already being applied frequently in the evaluation of renewable energy or carbon capture and storage (CCS) projects, e.g., addressing the uncertainty in the price of CO 2 . However, ROT has only found a few applications in the CCU literature to date. Therefore, this paper investigates the specific types of uncertainty that arise with the utilization of CO 2 , identifies the types of real options present in CCU projects and discusses the applied valuation techniques. Research gaps are identified in the CCU literature and recommendations are made to fill these gaps. The investment decision sequence for CCU projects is shown, together with the uncertainties and flexibility options in the CCU projects. This review can support the real options-based evaluations of the investment decisions in CCU projects to allow for flexibility and uncertainty.

Keywords: real options; carbon capture and utilization; carbon capture and storage; investment under uncertainty (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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