A more efficient subsidy policy for CO2 enhanced oil recovery: Insights from a vertically integrated business model

Although carbon dioxide enhanced oil recovery (CO 2 -EOR) is a technically and economically viable option within carbon capture, utilization, and storage (CCUS), its transition from demonstration to commercial application still requires subsidies. Existing research mainly focuses on carbon capture, overlooking the impact of stakeholder interest distribution and subsidy demand differences across the industrial chain. To address this issue, we first investigated the factors influencing subsidy requirements for CO 2 -EOR projects under a vertically integrated business model. Utilizing the dynamic feedback relationships among these factors, we developed a system dynamics model to assess subsidy demand. Considering CO 2 -EOR decision flexibility, we used real options analysis to evaluate the value of flexible decisions. Simulation identified three key factors for subsidy stratification: capture method, reservoir depth, and oil displacement efficiency. By calculating from the economic break-even point, we defined subsidy thresholds and developed a graded scheme linked to crude oil prices, considering their impact on policy effectiveness. Using the subsidy intensity of Section 45Q tax credit as a reference for simulation, the results indicate that when crude oil prices reach a certain level, the subsidy demand for projects can drop to zero. Differentiated subsidies reduced the amount required to achieve the same policy objectives by 25%, significantly enhancing policy efficiency.