Although CO2 Capture and Storage (CCS) is considered a key solution for CO2 emission mitigation, it is currently not economically feasible. CO2 enhanced oil recovery can play a significant role in stimulating CCS deployment because CO2 is used to extract additional quantities of oil. This study analyzes the investment decision of both a carbon emitting source and an oil company separately by adopting a real options approach. It is shown that when uncertainty is integrated in the economic analysis, CO2 and oil price threshold levels at which investments in CO2 capture and enhanced oil recovery will take place, are higher than when a net present value approach is adopted. We also demonstrate that a tax on CO2 instead of an emission trading system results in a lower investment threshold level for the investment in the CO2 capture unit. Furthermore, we determine a minimum CO2 selling price between the two firms and show that CO2-EOR has the potential to pull CCS into the market by providing an additional revenue on the capture plant. However, when CO2 permit prices are above an identifiable level, the EU ETS does not necessarily result in the adoption of CCS but stimulates oil production.

h i g h l i g h t sPSS IV, a techno-economic model for simulating CO 2 -EOR projects, is presented. Investment risk and uncertainty play a central role in our methodology. A North Sea case study for the Claymore and Scott field is developed. Case study results show a 30% value increase for the cluster approach.