Pricing contracts under uncertainty in a carbon capture and storage framework

Abstract

Carbon capture and storage (CCS) has been demonstrated as a viable option for reducing carbon emissions to the atmosphere. We consider a situation where a tax on emissions is imposed on carbon dioxide (CO2) producers to encourage their participation in CCS. Operators of CO2 transportation pipelines and storage sites enter into individual contracts with emissions producers to store CO2. We study the problem of selecting the optimal price andvolume of these contracts under both cost and emissions uncertainty to optimize the storage operator's expected profit.