Financial Decision-Making Criteria and Sustainable Finance for Advancing CCS

Abstract

This study examined whether promoting CCS is feasible through private sustainable finance. We employed the real options method to evaluate CCS investments. Specifically, we consider the options to withdraw from CCS, assuming that utilizing sustainable finance could reduce capital costs. We assume that capture costs could decrease from the current ¥ 4,000/t-CO₂ to ¥ 2,000/t-CO₂ in 5 years, and further to ¥ 1,000/t-CO₂ due to technological development, but they may remain at ¥ 4,000/t-CO₂. Without considering withdrawal options, CCS should be promoted if the reduction in costs of capital from sustainable finance (WTP) exceeds 3.8％. When considering the withdrawal option, CCS should be promoted if WTP is at least 3.7％. Considering the withdrawal option reveals that CCS can be promoted even with a lower WTP. This demonstrates that incorporating real options can further advance CCS, a technology with high innovation uncertainty. Furthermore, the 3.7％ WTP represents an upper bound from the prior research, and an 80％ success probability is also high. While CCS could be promoted through private sustainable finance, the current likelihood is not high. Combining the development of private sustainable finance with carbon pricing is expected to further advance CCS.