Profitability of CCUS Projects Amid Price Volatility: A Real Options Analysis of Carbon Credits in EOR Scenarios

Jean-Noël Ory (), Wafaa Azira () and Hery Razafitombo ()
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Jean-Noël Ory: IAE Nancy - IAE Nancy School of Management - UL - Université de Lorraine, CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine
Wafaa Azira: CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine
Hery Razafitombo: CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine

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Abstract: The United Nations emphasizes the urgency of deploying carbon capture, utilization, and storage (CCUS) technologies to achieve carbon neutrality. CCUS refers to processes that capture CO2 emissions, transport them, and either store or repurpose them, with enhanced oil recovery (EOR)—using CO2 to increase extraction from mature oil fields—being a primary application. This paper assesses the impact of carbon trading mechanisms on the valuation of CCUS projects using a real options framework. Real options provide a flexible approach to investment under uncertainty, considering both compound and exclusive options. Results indicate that high carbon and oil prices are key drivers of the economic viability of CCUS projects, with policy frameworks playing a pivotal role. When EOR is eligible for carbon credits under the EU-ETS, additional revenue streams enhance project value and accelerate breakeven, whereas their absence delays profitability and increases reliance on cost reductions. This study highlights the importance of aligning regulatory environments with market dynamics and demonstrates the utility of real options in evaluating sustainable projects under uncertainty.

Keywords: Carbon capture utilisation and storage (CCUS); Enhanced oil recovery (EOR); Real option (search for similar items in EconPapers)
Date: 2025-05-26
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Published in 41st International Conference of the Association Française de Finance (AFFI), AFFI; IAE Dijon, May 2025, Dijon, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05549884

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