A Carbon Price Model With Game Theory for CCUS

Abstract

Carbon dioxide capture, utilization, and storage (CCUS) are widely expected to play a significant role in decarbonization efforts. In discussing the commercialization of CCUS, it is essential to consider various factors, including the revenue and cost associated with CO2 utilization, carbon dioxide capture and storage (CCS), governmental subsidies, and carbon pricing. Among these, carbon pricing is particularly crucial for offsetting the costs of CCUS and enabling its commercialization. Carbon prices vary depending on factors such as the method of carbon credit issuance (e.g., forestry, solar, and wind energy), transaction mechanisms (e.g., cap-and-trade systems), carbon markets (e.g., voluntary markets), and country-specific regulations. Previous studies have investigated the impact of carbon pricing on carbon emissions; however, the pricing mechanisms are largely contingent on the method of carbon credit issuance. For instance, carbon credits generated through CCUS differ from those issued via forestry regarding associated costs, technologies, and subsidies. Therefore, carbon price models focusing on CCUS would be useful for the stakeholders, such as governments, firms, and investors. A significant challenge in developing an optimal carbon pricing model for CCUS lies in the complexity arising from uncertain parameters (e.g., carbon prices in voluntary markets, and revenue from CO2 utilization) across these stakeholders. This study presents a game theory-based model to provide an index of carbon credit revenue, i.e., the carbon price, to consider entry into the CCUS business. Our model aims to analytically simplify this complex problem with uncertain multi-parameters among several stakeholders and provide an index of the carbon price for CCUS in the voluntary carbon markets.