Luis M. Abadie () (BBK) José M. Chamorro () (UPV/EHU)
Abstract
In this paper we analyse the behaviour of the EU market for C02 emission allowances; specifically, we focus on the contracts maturing in the Kyoto Protocol's second period of application (2008 to 2012). We calibrate the nderlying parameters for the alowance price in the long run and we also calibrate those from the Spanish wholesale electricity market. This information is then used to assess the option to install a carbon capture and storage (CCS) unit in a coal-fired power plant. We use a two-dimensional binomial lattice where costs and profits are valued and the optimal investment time is determined. In other words, we study the trigger allowance prices above which it is optimal to install the capture unit immdediately. We further analyse the impact of several variables on the critical prices, among them allowance price volatility and a hypothetical goverbment subsidy. We conclude that, at current permit prices, from a financial point of view, inmediate installation does not seem justified. This need not be the case, though, if carbon market parameters change dramatically and/or a specific policy to promote these units is adopted.
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Publisher Info
Paper provided by Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I in its series IKERLANAK with number
200727.
Order Information: Postal: Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain Email:
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