Investment Propensities under Carbon Policy Uncertainty
AbstractWhether companies invest in new power facilities at a particular point in time, or delay, depends upon the perceived evolution of uncertainties and the investors' attitudes to risk and return. With additional risks emerging through climate change mitigation mechanisms, the propensity to invest may increasingly depend upon how each technology and company is exposed to carbon price uncertainty. We approach this by estimating the cumulative probabilities of investment over time in various technologies as a function of behavioral, policy, financial and market assumptions. Using a multistage stochastic optimization model with exogenous uncertainty in carbon price, we demonstrate that detailed financial analysis with real options and risk constraints can make substantial difference to the investment propensities compared to conventional economic analysis. Further, we show that the effects of different carbon policies and market instruments on these decision propensities depend on the characteristics of the companies and may induce market structure evolution.
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Bibliographic InfoArticle provided by International Association for Energy Economics in its journal The Energy Journal.
Volume (Year): Volume 32 (2011)
Issue (Month): Number 1 ()
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- F0 - International Economics - - General
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- Alexander Brauneis & Roland Mestel & Stefan Palan & Michael Loretz, 2011.
"Inducing Low-Carbon Investment in the Electric Power Industry through a Price Floor for Emissions Trading,"
Working Paper Series, Social and Economic Sciences
2011-01, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
- Brauneis, Alexander & Mestel, Roland & Palan, Stefan, 2013. "Inducing low-carbon investment in the electric power industry through a price floor for emissions trading," Energy Policy, Elsevier, vol. 53(C), pages 190-204.
- Alexander Brauneis & Michael Loretz & Roland Mestel & Stefan Palan, 2011. "Inducing Low-Carbon Investment in the Electric Power Industry through a Price Floor for Emissions Trading," Working Papers 2011.74, Fondazione Eni Enrico Mattei.
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