New Carbon Economy in Valuation of Energy Projects

The national and global efforts in limiting greenhouse gas emissions have led to control mechanisms like the creation of emissions markets. In Europe, for example, the emission trading market has shown effective means of limiting the aggregate release of CO2. While such aggregate long-term goals are promising, their effect on economics of individual energy projects are rarely studied. The new carbon economy potentially redefines a project’s costs and benefits. It could lead to decisions that within the older economic regimes were unfeasible. Likewise, some earlier value creating decisions could now become invalid. With such new dynamics, what are the proper valuation frameworks? How could project decisions reflect the cost and benefits in the new carbon economy? As the industry considers new low-emission solutions—including the CO2 enhanced oil recovery or the renewable electrification of platforms—such valuation decision support become increasingly important.

This PhD research aims to devise a project valuation and decision framework that incorporates the dynamics of the new carbon economy. Compared to traditional models, new constraints are in place, yet at the same time, novel ways of value creation have also appeared. If a project saves on CO2 emissions by using (usually less efficient and more expensive) renewable solutions, then we should consistently account for all the costs and benefits, including the benefits of savings on CO2 allowances. With the inherent technical complexities of upstream petroleum projects, their respective uncertainties, and the added environmental dimensions, devising an effective valuation scheme could be challenging. The research then focuses on key sources of uncertainty and aims to develop useful decision support systems.

Developing an effective and useful decision support system is challenging, yet both the industry and policy makers reap the benefits of such a research. The merits of the study go even beyond the support of specific decisions; an in-depth study of the economic project dynamics generates valuable insights about the outlook of energy investments in the future. Beyond the petroleum industry, such aggregate valuation schemes open new windows to the adaptation of joint energy solutions.

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