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Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments – An Application to the Swedish Pulp and Paper Industry and Energy Sector

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  • Katrin Millock

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

  • Céline Nauges

    ()
    (LERNA - Economie des Ressources Naturelles - Institut national de la recherche agronomique (INRA) : UR1081 - CEA : DPG - Université des Sciences Sociales - Toulouse I)

  • Åsa Löfgren

    ()
    (Department of Economics, Göteborg University - University of Göteborg)

Abstract

We propose a method for estimating hurdlerates for firms' investments in pollution abatement technology, using expost data. The method is based on a structural option value model where thefuture price of polluting fuel is the major source of uncertainty facing thefirm. The econometric procedure is illustrated using a panel of firms fromthe Swedish pulp and paper industry, and the energy and heating sector from2000 to 2003. The results indicate a hurdle rate of investment of almost 3in the pulp and paper industry and almost 4 in the energy and heating sector.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00272041.

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Date of creation: 2007
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Handle: RePEc:hal:cesptp:halshs-00272041

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Keywords: option value; fuel price uncertainty; carbon emissions abatement; price uncertainty; panel data;

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Cited by:
  1. Hammar, Henrik & Löfgren, Åsa, 2007. "Explaining adoption of end of pipe solutions and clean technologies," Working Paper 102, National Institute of Economic Research.

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