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Financing the Reduction of Greenhouse Gas Emissions: A New Allocation System for Dependent Risks

In: HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations

Author

Listed:
  • Lorena Remuzgo
  • Carmen Trueba
  • José María Sarabia

Abstract

The allocation of fixed resources among multiple dimensions is a usual challenge faced by natural resource managers. In this chapter, we propose a capital allocation framework for assigning financial resources among multiple environmental dependent risks. This approach relies on the use of the multivariate gamma distribution as a formal model for the estimation of different capital allocation principles, given its properties of dependence and positive skewness. The presented methodology is applied to the CO2, CH4 and N2O emissions of the EU-28 in 2013 in order to determine the incomes we should use for financing the reduction of the risks related to each gas. Our results indicate that CO2 is the riskiest pollutant, and then more capital is allocated to it. Finally, using simulation techniques, we study the sensitivity of our results.

Suggested Citation

  • Lorena Remuzgo & Carmen Trueba & José María Sarabia, 2020. "Financing the Reduction of Greenhouse Gas Emissions: A New Allocation System for Dependent Risks," World Scientific Book Chapters, in: Stéphane Goutte & Duc Khuong Nguyen (ed.), HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations, chapter 19, pages 451-466, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813278387_0019
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    More about this item

    Keywords

    Energy Finance; Financial and Economic Modeling; Volatility; Forecasting; Quantitative Finance; Energy Markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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