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Options on low-cost abatement and investment in the energy sector: new perspectives on REDD




Deforestation is one of the major sources of carbon emissions, but the Kyoto Protocol presently excludes avoiding these emissions to fulfill stabilization targets. Since the need for policy incentives for the reduction of emissions from deforestation and degradation (REDD) was officially recognized in 2007, the focus of this debate has shifted to issues of implementation. Concerns about the effects that the availability of low-cost REDD credits might have on energy investments, and the development of clean technology constitute the main motivation of this paper. We analyze the production side of the problem with the help of a real options model with an option to invest in less carbon-intensive energy technology and an option to purchase credits on REDD, which will (or will not) be exercised in the future. Unresolved questions can thus still be addressed later, while producers and investors hold REDD options to maintain flexibility for later decisions.

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  • Fuss, Sabine & Szolgayova, Jana & Golub, Alexander & Obersteiner, Michael, 2011. "Options on low-cost abatement and investment in the energy sector: new perspectives on REDD," Environment and Development Economics, Cambridge University Press, vol. 16(04), pages 507-525, August.
  • Handle: RePEc:cup:endeec:v:16:y:2011:i:04:p:507-525_00

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    Cited by:

    1. Szolgayová, Jana & Golub, Alexander & Fuss, Sabine, 2014. "Innovation and risk-averse firms: Options on carbon allowances as a hedging tool," Energy Policy, Elsevier, vol. 70(C), pages 227-235.
    2. repec:eee:resene:v:49:y:2017:i:c:p:33-47 is not listed on IDEAS
    3. Krasovskii, Andrey & Khabarov, Nikolay & Obersteiner, Michael, 2016. "Fair pricing of REDD-based emission offsets under risk preferences and benefit-sharing," Energy Policy, Elsevier, vol. 96(C), pages 193-205.
    4. repec:eee:ecolec:v:138:y:2017:i:c:p:90-98 is not listed on IDEAS

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