A novel efficiency-based, tiered carbon storage incentive approach for CCUS through CO2 enhanced oil recovery and storage

• We integrate reservoir simulation , life cycle emissions analysis, and economic modeling. • Without carbon storage incentives, economic and environmental gains are misaligned. • Incentives below breakeven improve economic profitability but yield limited environmental benefits. • Uniform incentive systems often require unrealistically high incentives and fail to distribute incentives equitably. • We propose a tiered, performance-based metric that links incentives to storage efficiency. Carbon Capture, Utilization, and Storage (CCUS) through CO 2 Enhanced Oil Recovery (CO 2 -EOR) supports energy production while reducing atmospheric CO 2 emissions. Economic profitability, not environmental effectiveness, typically drives operators’ decisions. The objective of this paper is to examine the relationship between economic and environmental benefits under various flood designs (continuous CO 2 injection and Water-Alternating-Gas (CO 2 -WAG) injection scenarios) and economic conditions, proposing operational and policy solutions to simultaneously optimize both. Net CO 2 emissions and Net Present Value (NPV) serve as indicators of environmental and economic outcomes, respectively. We integrate a reservoir simulation, a life cycle emissions analysis, and an economic model. Results show that continuous CO 2 injection maximizes environmental benefits. Without carbon storage incentives, economic and environmental gains are misaligned, with operators favoring practices that maximize net CO 2 emissions. A dynamic breakeven carbon storage incentive, sensitive to oil prices and CO 2 acquisition costs, is essential for alignment. Incentives below breakeven improve economic profitability with limited environmental gains. Operator responsibility for mitigating climate change, along with CO 2 availability, also influences this alignment. Uniform incentive systems, such as the 45Q tax credit system in the U.S., present challenges, often requiring unrealistically high incentives and tying total incentives to the volume of net CO 2 stored, rather than the actual environmental impact. To address these issues, we propose a novel alternative tiered, performance-based metric that directly links incentives to environmental outcomes through storage efficiency, defined as the amount of CO₂ effectively stored after accounting for upstream, gate-to-gate, and downstream emissions per barrel of oil produced.