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The role of real options analysis in the design of a greenhouse gas emissions trading scheme

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Author Info
Lambie, N. Ross
Abstract

Analysing the effect of a greenhouse gas emissions trading scheme (ETS) on energy-intensive industries using a simple model of the long-run equilibrium fails to fully capture the design implications of a scheme. When we allow for imperfect market structures and uncertainty, it is more useful to focus on how an industry is affected by the scheme’s design in moving to its long-run equilibrium. A real options modelling approach that analyses how firms in these industries are likely to respond to an ETS through their investment behaviour is proposed as a more insightful method for public policy analysis.

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Paper provided by Australian Agricultural and Resource Economics Society in its series 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia with number 47626.

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Date of creation: 2009
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Handle: RePEc:ags:aare09:47626

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Keywords: climate change policy; emissions trading; investment; real options;

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