Policy Uncertainty and Investment in Low-Carbon Technology
In the context of an emission trading scheme (ETS), we study how uncertainty over the environmental policy affectsfirms' investment in low-carbon technologies. We develop a three period sequential model that combines the industry and the electricity sectors and encompasses both irreversible and reversible investment possibilities for the firms. Additionally, we explicitly model the policy uncertainty in the regulator's objective function as well as the market interactions that give rise to an endogenous price of permits. We find that uncertainty reduces irreversible investment and that the availability of both reversible and irreversible technologies partially eliminates the positive effect of policy uncertainty on reversible technology found in previous literature. Furthermore, we provide a framework that allows to assess the efficiency of different implementations of the scheme.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy|
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- PAOLO COLLA & MARC GERMAIN & VINCENT Van STEENBERGHE, 2012.
"Environmental Policy and Speculation on Markets for Emission Permits,"
London School of Economics and Political Science, vol. 79(313), pages 152-182, 01.
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- Paolo, COLLA & Marc, GERMAIN & Vincent, VAN STEENBERGHE, 2005. "Environmental policy and speculation on markets for emission permits," Discussion Papers (ECON - Département des Sciences Economiques) 2005049, Université catholique de Louvain, Département des Sciences Economiques.
- Julien Chevallier, 2012.
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- Harrison Fell & Richard Morgenstern, 2010.
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Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 47(2), pages 275-297, October.
- Fell, Harrison & Morgenstern, Richard, 2009. "Alternative Approaches to Cost Containment in a Cap-and-Trade System," Discussion Papers dp-09-14, Resources For the Future.
- Yihsu Chen & Chung-Li Tseng, 2011. "Inducing Clean Technology in the Electricity Sector: Tradable Permits or Carbon Tax Policies?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 169-174.
- repec:dau:papers:123456789/10174 is not listed on IDEAS
- Blyth, William & Bradley, Richard & Bunn, Derek & Clarke, Charlie & Wilson, Tom & Yang, Ming, 2007. "Investment risks under uncertain climate change policy," Energy Policy, Elsevier, vol. 35(11), pages 5766-5773, November.
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