IDEAS home Printed from https://ideas.repec.org/a/aka/soceco/v33y2011i1p219-236.html
   My bibliography  Save this article

Simulation of carbon-dioxide emission by option model

Author

Listed:
  • Tamás Nagy

    () (Corvinus University of Budapest Faculty of Environmental Economics and Technology Budapest Hungary)

Abstract

Estimation of carbon emissions is very important not just for companies but also for governments and policymakers. In this paper I provide an emission estimation model for an energy-producing company based on spot market prices. The company will produce energy and emit carbon-dioxide at a given point in time if its margin for emitted CO2 dominates the prices of emission rights. The estimated emissions at a given time point can be calculated as an option of related asset prices (electricity, gas, emission rights). The prices of underlying assets behave according to Geometric Brownian motion. The production decisions of the company and its emissions are modeled using a Monte Carlo framework. The resulting distribution is similar to the sum of autoregressive Bernoulli random numbers. For easier forecasting of expected cumulated emissions a logistic type emission function was fitted to the result of simulations.

Suggested Citation

  • Tamás Nagy, 2011. "Simulation of carbon-dioxide emission by option model," Society and Economy, Akadémiai Kiadó, Hungary, vol. 33(1), pages 219-236, April.
  • Handle: RePEc:aka:soceco:v:33:y:2011:i:1:p:219-236
    as

    Download full text from publisher

    File URL: http://www.akademiai.com/content/45248621162m6655/fulltext.pdf
    Download Restriction: subscription

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    EU ETS; forecasting emission; simulation; real option;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aka:soceco:v:33:y:2011:i:1:p:219-236. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vajda, Lőrinc). General contact details of provider: http://www.akkrt.hu .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.