Strategic Decision-Making for Carbon Capture, Utilization, and Storage in Coal-Fired Power Plants: The Roles of Pollution Right Trading and Environmental Benefits

Promoting investment in Carbon Capture, Utilization, and Storage (CCUS) is essential for mitigating carbon emissions and combating climate change. This paper explores the uncertainties and environmental benefits associated with CCUS, integrating the frameworks of pollution right trading and carbon trading. A model for coal-fired power plant investment decisions on CCUS is developed and solved using the Least Squares Monte Carlo method, with results being robust beyond approximately 6000 simulation paths. Applied to a 600 MW ultra-supercritical coal-fired power plant in Shaanxi, China, our findings indicate that investment leads to a loss of CNY 1200.4 million in the absence of both environmental benefits and market trading mechanisms. A positive investment value of CNY 462 million with an optimal timing in the 10th year is achieved only when both environmental benefits and trading mechanisms are present. Furthermore, with only carbon trading, the option value is marginal (CNY 64.8 million), and investment remains unprofitable without government subsidies. Sensitivity analysis highlights that government subsidies significantly impact investment motivation. An initial carbon price of approximately CNY 95 per ton triggers immediate investment, while higher capture proportions and utilization levels positively affect decision-making. This study provides analytical tools for investment decisions in CCUS across multiple scenarios, serving as a reference for policymakers in designing emission reduction strategies.