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Mitigation and Adaptation Strategies for Global Change

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04-01-2020 | Original Article

Evaluation of cooperative mitigation: captured carbon dioxide for enhanced oil recovery

Authors: Lei Zhu, Xing Yao, Xian Zhang

Published in: Mitigation and Adaptation Strategies for Global Change | Issue 7/2020

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Abstract

Robust mitigation options will play significant role in achieving the target of limiting global change to below 1.5 °C above pre-industrial levels by 2100. To support cooperation for mitigation development, we establish a real options-based model to evaluate the rational decisions of exercising the abandon option for carbon capture and storage-enhanced oil recovery (CCS-EOR) projects under oil market and geological uncertainties. Three possible cooperative mechanisms (fixed carbon dioxide (CO₂) price, oil-indexed CO₂ price, and joint venture contracts) among CO₂-EOR stakeholders are evaluated. The results show that the conflicts in profit maximization targets for different stakeholders in cooperative mitigation are to a great extent unable to be avoided. A joint venture business model is preferred in cooperative mitigation as it can effectively weaken such conflicts. And it is more reasonable to provide incentives to the downstream of the CO₂-EOR chain than compensating the adoption cost of carbon capture technologies in the upstream. From a global perspective, the inefficient cooperation can be a main barrier that hinders the development of deep-cutting options. Global mitigation strategies should not only focus on promoting technology progress but also the design of innovative business models to balance the benefits among stakeholders. A joint venture business model is recommended in both the developed and developing countries for seizing the early mitigation opportunities.

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We first take expectation to oil price during the lifetime of the EOR project according to its geometric Brown motion, which is used as the mean value of the oil price in our simulation.\( {\mathrm{Po}}^{\mathrm{benchmark}}=E\left(\mathrm{Po}\right)=\frac{\sum \limits_{t=1}^TE\left(\mathrm{Po}(t)\right)}{T} \) and \( E\left(\mathrm{Po}(t)\right)=\frac{\sum \limits_{i=1}^ME\left(\mathrm{Po}{(t)}_i\right)}{M} \) where M is the total simulated paths. Then, Pco₂^benchmark is set to be 100, 200, and 300 yuan/ton. As the dynamics of the CO₂ settlement price are entirely influenced by the oil price, through this method, the expected CO₂ commodity price is therefore 100, 200, and 300 yuan/ton.

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Title: Evaluation of cooperative mitigation: captured carbon dioxide for enhanced oil recovery
Authors: Lei Zhu
Xing Yao
Xian Zhang
Publication date: 04-01-2020
Publisher: Springer Netherlands
Published in: Mitigation and Adaptation Strategies for Global Change / Issue 7/2020
Print ISSN: 1381-2386
Electronic ISSN: 1573-1596
DOI: https://doi.org/10.1007/s11027-019-09906-0

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