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Using ex post data to estimate the hurdle rate of abatement investments - an application to sulfur emissions from the Swedish pulp and paper industry and energy sector

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Author Info
Åsa Löfgren () (Göteborg University - Department of Economics)
Katrin Millock () (Centre d'Economie de la Sorbonne et Paris School of Economics)
Céline Nauges () (LERNA-INRA - Toulouse School of Economics)

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Abstract

We propose a method for estimating hurdle rates for firms' investments in pollution abatement technology, using ex post data. The method is based on a structural option value model where the future price of polluting fuel is the major source of uncertainty facing the firm. The econometric procedure is illustrated using a panel of firms from the Swedish pulp and paper industry, and the energy and heating sector from 2000 to 2003. The results indicate a hurdle rate of investment of 2.9 in the pulp and paper industry and 3.4 in the energy and heating sector.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2008/V08017.pdf
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Publisher Info
Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number v08017.

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Length: 29 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:mse:cesdoc:v08017

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Web page: http://ces.univ-paris1.fr/
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Related research
Keywords: Option value; fuel price uncertainty; investment decision; pollution abatement; panel data; pulp and paper industry; energy and heating sector.;

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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