The effects of policy subsidy on the investment decisions of carbon capture and storage—A real‐options approach

Abstract Carbon capture and storage (CCS) plays an important role in promoting developing countries to reduce carbon emission and meet the requirement for carbon reduction under carbon neutral and carbon peak targets. To evaluate the incentive effect of subsidization mechanisms on CCS investment, the paper incorporates two incentives into the model, considers the effects of the carbon trading price, electricity price, and other uncertain factors on the investment behaviors for CCS projects under uncertainty and explores incentive intensity of two policies on investment based on the real option method. The results show that even in the case of full operating cost subsidies and double electricity price subsidies, the power plant still delays CCS investment due to the imperfection of carbon market. The most appropriate policies for supporting immediate investment in CCS project are identified in the paper by considering the critical carbon price and electricity price in different scenarios. Additionally, the findings show that it is more efficient for the electricity price subsidy than cost subsidy with same subsidy proportion under single policy condition, while the minimum subsidy amount required to invest immediately is 32.86 million CNY in the combination of the two policies. This provides environmental policymakers with valuable insights on promoting CCS deployment under the context of carbon reduction. © 2022 Society of Chemical Industry and John Wiley & Sons, Ltd.