Business model design for the carbon capture utilization and storage (CCUS) project in China
Introduction
Carbon capture and storage (CCS) has been acknowledged as an important option to reduce CO2 emissions in recent decades (Seigo et al., 2014, Leeuwen et al., 2013, Cormos, 2012). In China, CCS based on coal-fired power generation plants is significant because over 65% of the power in China is generated by coal, which produces a large amount of carbon emissions. Thus, China requires the large-scale commercial deployment of CCS technology to achieve its emission reduction goals. However, recently, there has been increasing interest in and expenditures on renewable energy, improved energy efficiency, new nuclear energy sources and lower emissions of fossil fuels, whereas CCS technology has developed slowly (Best and Beck, 2011). Globally, CCS technology is also in a poor state.
According to the Global CCS institute, by the end of August 2017, there were 17 large-scale CCS projects in operation worldwide. The combined CO2 capture capacity of these 17 projects is approximately 30 million tons per annum (Mtpa). Four more CCS projects are currently under construction and are expected to be in operation by 2020. The current CCS scale is lower than the expected scale proposed by the IEA in 2009, which highlighted the need to develop 100 CCS projects from 2010 to 2020 and store approximately 300 MtCO2/yr (IEA, 2009). Zhou et al. (2010) propose that the high cost of CCS and the uncertainty associated with its technological development are obstacles to the rapid diffusion of this technology, particularly in developing countries such as China. To solve this problem, the utilization of captured CO2 has been widely discussed in recent years, highlighting the economic value of CO2.
In this context, the Carbon Sequestration Leadership Forum (CSLF) changed the term ‘CCS’ to ‘CCUS’ (carbon capture, utilization and storage) (Rodrigues et al., 2015). Generally, if the economic value of captured CO2 is high enough to cover its capture and transportation costs, CCUS projects can be profitable. Therefore, the key to CCUS projects is now the CO2 value chain, which requires a feasible business model because it is not only an emission reduction activity but also a business activity. According to Hayek's spontaneous order theory (Hayek, 1967), business models emerge spontaneously from business activities. However, due to inadequate incentives from the government, few companies will take the initiative to adopt CCUS technology because there is no profit in it, which makes this technology currently unfeasible (Višković et al., 2014). In addition, CCUS involves a complicated combination of technologies from industries such as the coal, chemical, power generation, transportation, oil and gas, food, and drink industries. The development of CCUS is limited by a long industry chain, which makes collaboration among industries difficult. Without engineering practices and business activities, it is difficult for a business model for a CCUS project to emerge spontaneously. Hence, there is a pressing need to put forward an appropriate business model for CCUS with corresponding policy incentives that will help the deployment of CCUS projects. However, Kheshgi et al. (2009) noted that there is currently no broadly viable business model for the large-scale deployment of CCS. In addition to its high cost, the lack of a feasible business model for CCUS is now hindering the development of CCUS technology. What is more, many studies predict that the future cost of carbon capture will decrease greatly with increased learning effects (Li et al., 2012; Rubin et al., 2007b),which has been confirmed by engineering practices (GCCSI, 2016). Thus, the adoption of CCUS technology at an early stage is particularly important.
However, to date, major studies have focused on evaluating CCS at the technical level (Rubin et al., 2007a; Spek et al., 2017; Li et al., 2012; Hammond et al., 2011) while little research has investigated the business level of CCUS projects. To fill the above mentioned gaps, this paper aims to design and evaluate business models for CCUS projects from the perspective of cooperation among multiple stakeholders. We propose a full CCUS chain evaluation among multi-stakeholders combined with the business model. The evaluation method can consider multiple uncertainty factors, and thus, the risk distributions of return for each stakeholder can be obtained. Four potential business models that are essential for the future development of CCUS are introduced and evaluated.
This study is organized as follows: Section 2 reviews the literatures about business model analysis in the energy sector, and the current CCUS business framework. Section 3 introduces the cost accounting method used in this study and the designs of four business models based on different types of cooperation among stakeholders. Section 4 describes a simulation and discussion of the cost and benefit results, followed by a conclusion in Section 5.
Section snippets
The business model in the energy sector
Business models affect firms’ possibilities for value creation and value capture (Amit and Zott, 2001). There is no generally accepted definition of the term "business model". Because this concept is considered at different levels by researchers, its definitions differ (Stewart and Zhao, 2000, Mayo and Brown, 1999, Morris et al., 2005, Zott and Amit, 2010). In this paper, we adopt the definition of Zott and Amit (2010): “the business model is a structural template that describes the
Cost accounting for CCUS technology
CCUS may involve stakeholders from the power generation, coal, chemical, oil and gas, transport and other industries. Therefore, in this section, the cost accounting is divided into 4 parts, capture, transport, storage and utilization. The power generation sector has the greatest potential scope for CCS (Kheshgi et al., 2009). Here, we consider a typical power plant that requires a retrofitting of carbon capture technology due to the constraints of carbon emissions. Referring to Zhu and Liu
Parameter settings
Here, to make the four business models comparable, the parameter settings for their baseline scenarios are the same. A 600 MW power generation plant is considered, and the oil field is assumed to be sufficiently large to receive all the captured CO2 in the lifetime of the power plant. Appendix B shows the parameter settings for the cost accounting, which calculates the costs for capture, transport, EOR and storage. Table 2 shows the parameter settings for the business model comparison, which
Conclusions and policy implications
The overall aim of this paper is to determine which business models are appropriate for China's deployment of CCUS projects, particularly in their early stage. Similar to other projects in energy sector, CCUS project has a huge initial investment with a long investment recovery period. Due to low EOR rate in its initial stage, particular attention should be paid to relevant companies in the first 6–10 years of CCUS project. A tax concession policy or low-interest loans can somehow achieve the
Acknowledgements
The authors gratefully acknowledge financial support from the National Natural Science Foundation of China, Nos. 71673019, 71203008, 71690245, 71210005, 71503242, 71273253, the Clean Development Mechanism Fund (2014075), and the Financial Roadmap for CCUS in China (2021502400005). All remaining errors are the sole responsibility of the authors.
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