A Techno-Economic Study on The Impact of Carbon Tax on Production Rate and Production Duration in An Oil Field

Abstract

This study investigates the economic implications of carbon taxation on upstream oil and gas operations by integrating emission quantification with techno-economic evaluation in a mature offshore oil field. Greenhouse gas emissions were calculated from major upstream sources, including fuel combustion, flaring, venting, and fugitive emissions, using activity-based approaches aligned with IPCC methodologies. Emissions were monetized using Norwegian carbon tax rates, reaching approximately USD 87 per ton CO₂ by 2025, and integrated into project cash flow analysis. The quantified carbon costs were incorporated as additional operating expenditures to evaluate their impact on Net Present Value (NPV) and Internal Rate of Return (IRR). The quantified emissions were monetized using the Norwegian carbon tax framework and incorporated into project cash flow analysis as additional operating costs. Government allowance and subsidy mechanisms were also considered to partially offset the carbon burden. Net Present Value (NPV) and Internal Rate of Return (IRR) were evaluated for baseline conditions and nine production optimization scenarios combining production rate reductions of 10%, 20%, and 30% with production duration extensions of one to three years. The baseline case shows a reduction in NPV of approximately 19% after incorporating carbon costs. Fugitive emissions represent more than 60% of cumulative upstream emissions and dominate total carbon expenditures. Scenario analysis indicates that higher production rate reductions progressively reduce economic losses caused by carbon taxation, although at the expense of lower revenue generation. The results demonstrate that operational optimization can partially mitigate carbon tax impacts in mature oil fields but must be complemented by targeted emission mitigation strategies for long-term sustainability.