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The Energy Journal
Volume 45, Special Issue



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Mitigating Climate Change While Producing More Oil: Economic Analysis of Government Support for CCS-EOR

Hossa Almutairi and Axel Pierru

DOI: 10.5547/01956574.44.SI1.halm

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Abstract:
By storing CO2 captured from the atmosphere or point sources into oil fields, carbon capture and storage with enhanced oil recovery (CCS-EOR) increases the fields' output by raising reservoir pressures. Since CO2-EOR has been experimented with for decades and the revenues from the additional oil production improve projects' economics, CCS-EOR is the most readily deployable CCS technology. However, government support for CCS-EOR projects is sometimes contested on the grounds that the resulting increase in oil production undermines their environmental benefits. Addressing this concern requires determining the effects of implementing CCS-EOR on global CO2 emissions. This paper presents a simple approach based on a marginal reasoning consistent with economic decision-making. It produces analytical formulas that account for the effects on the global oil market of incentivizing CCS-EOR. In addition, we quantify the volume of oil that can be decarbonized by storing a ton of captured CO2 through EOR from different perspectives. We produce numerical results based on a first-cut calibration. They suggest that, from an economic perspective, CCS-EOR is a technology that mitigates global emissions. However, after accounting for the need to decarbonize the EOR oil, the reduction in emissions is significantly less than the stored quantity of CO2. If fully allocated to oil production, the environmental benefits of capturing a ton of CO2 and storing it through conventional EOR can allow the oil producer to decarbonize 3.4 barrels on a well-to-wheel basis and 14.4 barrels when offsetting its oil-upstream emissions only. Fiscal incentives granted by governments to support CCS-EOR as a climate-change mitigation technology should be sized accordingly. We compare our findings to the size of the subsidy in the revised Section 45Q of the 2022 United States Inflation Reduction Act.




Net-Zero Policy vs Energy Security: The Impact on GCC Countries

Simona Bigerna, Maria Chiara D’Errico, Paolo Polinori, and Paul Simshauser

DOI: 10.5547/01956574.44.SI1.sbig

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Abstract:
Gulf Cooperation Council countries have accumulated large oil portfolio revenues. However, the world economy is seeking to reduce carbon emissions, and in turn, its reliance on fossil fuel resources through investments in renewable energy resources. The aim of this research is to analyze oil portfolio risk from an exporters' perspective, highlighting how relevant determinants, such as the increasing penetration of renewables in the importer counterparties, and financial and policy uncertainty, increase the volatility of oil export portfolios.We construct oil portfolios for four Gulf Cooperation Council countries (Kuwait, Oman, Saudi Arabia, United Arab Emirates) from 2008 to 2018, and compute volatility spillovers à la Diebold and Yilmaz. Then, the effects of policy and economic variables on volatility spillover indices are estimated using different panel linear regression models.We find rising renewable market shares significantly affects oil export portfolio risks and reduces adverse impacts on importing countries of oil market fluctuations.




 

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