Optimal design of carbon utilization business model and dynamic investment decision-making in complex conditions

Wei Han and Linlin Liu ()
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Wei Han: Southwest University of Political Science and Law
Linlin Liu: Southwest University of Political Science and Law

Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, 2025, vol. 27, issue 10, No 12, 23590 pages

Abstract: Abstract Carbon utilization is a crucial integrant in carbon capture utilization and storage (CCUS) projects that has not been discussed in detail in carbon capture and storage domains. Combining four uncertain factors as complex conditions, this study builds a two-stage investment decision-making model based on real option theory with four options embedded in the model. Using least-squares Monte Carlo simulation, we find that embedded options can significantly improve the investment potential of power plants in CCUS projects. When the switch option is considered, the investment value of the CCUS project increases $$28.76 \times 10^{12}$$ 28.76 × 10 12 CNY and $$40.74 \times 10^{12}$$ 40.74 × 10 12 CNY for geological utilization and biochemical utilization patterns, respectively; the investment threshold drops by 65.6%; and the optimal investment time shifts forward by at least 5 years. When the utilization scheme is constructed as $$\eta_{GEO} :\eta_{CHE} :\eta_{BIO} = 0.3:0.14:0.56$$ η GEO : η CHE : η BIO = 0.3 : 0.14 : 0.56 , the investment threshold of power plant CCUS projects drops to the lowest level, $$3.48 \times 10^{12}$$ 3.48 × 10 12 CNY, and the earliest investment time is the 13th year. The government should formulate targeted financial policies to accelerate the research and development of carbon utilization technologies.

Keywords: Carbon utilization; Investment decision; Complex conditions; Real option (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10668-023-03825-6

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