Power plant replacement and carbon capture and storage investment in Japan: real options approach

摘要

This paper focuses on possible thresholds for investment in carbon capture and storage (CCS) systems in Japan. Based on Japanese cost parameters (current technology basis, and less suitable site within the area of Japan), the threshold could be 165 US_(2007)$/tCO2 avoided under the assumed parameters. In addition, future climate policies and energy prices are uncertain, which affects firm's decision making for CCS investment. Using a real options approach we found the threshold between wait and investment in coal and gas plant (w/ CCS). The simulation results indicate that the overall thresholds could reach the level from 230 to 250 US_(2007)$/tCO2 avoided under uncertainties in carbon and LNG prices. This is because option values for invest in multiple power plants (w/ CCS) are very high under the uncertainties. RD&D efforts and reducing uncertainties in climate policy are important for large-scale implementation of CCS.