Integrating real options analysis with ε-constraint optimization for multi-objective decision-support: A case study on investment in offshore electrification

• Integrating real options and ε-constraint supports multi-objective investment. • Firm-level emission targets alter flexibility and investment value under risk. • Marginal abatement costs vary with timing and emission target strictness. • Taxes and subsidies influence investment but may not secure full decarbonization. This paper introduces a novel multi-objective real options approach for optimal investment planning, focusing on economic and environmental aspects of polluting projects’ decarbonization under market uncertainty. The approach integrates real options analysis with the multi-objective optimization method, where emissions are treated as an ε-constraint, a predefined upper limit representing an emission limit set by the company. By using such an integrated approach, the research addresses the dilemma between a project’s profitability and environmental performance. The proposed methodology is applied to a case study of offshore platform electrification on the Norwegian Continental Shelf, where offshore wind power electrification is considered a key strategy to meet emissions reduction targets. The model aims to identify optimal investment decisions allowing to balance emissions constraints and project profitability while considering fluctuating commodity and CO 2 allowance prices. The results highlight the potential for decarbonization and the effectiveness of setting and committing to environmental targets at the firm level. Meanwhile, the sensitivity analysis of different renewable energy technology scenarios underscores the critical role of technological development in driving further decarbonization.