A novel efficiency-based, tiered carbon storage incentive approach for CCUS through CO2 enhanced oil recovery and storage

Abstract

Carbon Capture, Utilization, and Storage (CCUS) through CO₂ Enhanced Oil Recovery (CO₂-EOR) supports energy production while reducing atmospheric CO₂ emissions. Economic profitability, not environmental effectiveness, typically drives operators’ decisions. The objective of this paper is to examine the relationship between economic and environmental benefits under various flood designs (continuous CO₂ injection and Water-Alternating-Gas (CO₂-WAG) injection scenarios) and economic conditions, proposing operational and policy solutions to simultaneously optimize both. Net CO₂ emissions and Net Present Value (NPV) serve as indicators of environmental and economic outcomes, respectively. We integrate a reservoir simulation, a life cycle emissions analysis, and an economic model.

Results show that continuous CO₂ injection maximizes environmental benefits. Without carbon storage incentives, economic and environmental gains are misaligned, with operators favoring practices that maximize net CO₂ emissions. A dynamic breakeven carbon storage incentive, sensitive to oil prices and CO₂ acquisition costs, is essential for alignment. Incentives below breakeven improve economic profitability with limited environmental gains. Operator responsibility for mitigating climate change, along with CO₂ availability, also influences this alignment. Uniform incentive systems, such as the 45Q tax credit system in the U.S., present challenges, often requiring unrealistically high incentives and tying total incentives to the volume of net CO₂ stored, rather than the actual environmental impact. To address these issues, we propose a novel alternative tiered, performance-based metric that directly links incentives to environmental outcomes through storage efficiency, defined as the amount of CO₂ effectively stored after accounting for upstream, gate-to-gate, and downstream emissions per barrel of oil produced.