An uncertainty analysis of subsidy for carbon capture and storage (CCS) retrofitting investment in China's coal power plants using a real-options approach

Carbon capture and storage (CCS) is an attractive option to help reduce China's carbon emission. This paper analyzes the impacts of subsidy for electricity generation on CCS retrofitting investment and carbon abatement in China's coal power plants, considering the coaction of carbon market and subsidy policy. To this end, this paper builds up a real option model, considering carbon prices, electricity prices and coal prices' uncertainties. For decision of CCS investment, we consider two important aspects: whether to invest and when to invest, i.e. CCS investment's potential and timing. Some major findings include: 1) The impacts of subsidy on CCS investment and carbon abatement are affected by carbon market conditions: initial carbon price can determine the magnitude of subsidy's impacts, while carbon prices' uncertainty level can determine subsidy's marginal impacts. 2) Subsidy from $0.01 to $0.05/kWh can raise CCS investment potential by 9.66%-39.18%, shorten CCS investment period by 0.39-1.95 years and bring carbon abatement potential of 0.10-1.89 GtCO2, considering different carbon market conditions. 3) With the benchmark carbon market and affordable subsidies, triggered CCS investments in coal power plants have an economical-efficient carbon abatement potential up to 20% of China's carbon emission in 2030.