The Cost of Carbon: Sensitivity Analysis and Emission Reduction Potential Through CCS

Abstract Carbon pricing remains the preferred mechanism for governments to meet their commitments under the Paris Agreement. As of 2024, there are 75 carbon pricing instruments in operation globally, covering approximately 24% of global greenhouse gas emissions, and generating a record USD 104 billion in revenue. Prices vary widely, from as low as USD 1 to over USD 139 per tonne of CO2 equivalent, with significant regional differences. Even in jurisdictions without formal carbon taxes, oil and gas companies are increasingly applying internal carbon prices to future emissions to reflect potential regulatory costs and to guide investment decisions. This paper presents a comprehensive analysis of the economic implications of carbon pricing on upstream oil and gas assets, using data integrated from the Annual Review of Petroleum Resources (ARPR) reporting framework for GHG. The study evaluates the sensitivity of project economics, specifically the Net Present Value (NPV) and Economic Limit (EL) to various carbon price scenarios, i.e., at a flat USD 5/tCO2e, and USD 20/tCO2e case, and the Singapore carbon pricing model. The analysis incorporates carbon price as an additional cost, with differentiated cost recovery and tax treatment assumptions based on the data consolidated from the Annual Review of Petroleum Resources (ARPR) 1.1.2025. Results indicate that while the impact on reserves volumes is minimal, the financial implications are more pronounced, with NPV reductions ranging from 1% to 8% depending on the scenario. This paper also offers insights in terms of the average unit carbon cost (UCC) comparison between abatement projects under different decarbonisation levers e.g., Energy Efficiency & Electrification, CCS (Carbon Capture and Storage) and flaring and venting. The comparative analysis seeks to emphasise on the role of CCS as the catalyst to minimise the impact of carbon pricing and ultimately, reaching Net Zero ambitions. CCS may offer the most practical solution to minimize the financial risks associated with carbon pricing. This is possible due to the cost-effectiveness of CCS to significantly bring down emissions associated with petroleum and non-petroleum operations.