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The Effect of Uncertainty on Pollution Abatement Investments: Measuring Hurdle Rates for Swedish Industry

Author

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  • Åsa Löfgren

    () (Department of Economics, Göteborg University - GU - University of Gothenburg)

  • Katrin Millock

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

  • Céline Nauges

    () (LERNA - INRA - UT1 - Université Toulouse 1 Capitole - INRA - Institut National de la Recherche Agronomique)

Abstract

We estimate 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 empirical procedure is illustrated using a panel of firms from the Swedish pulp and paper industry, and the energy and heating sector, and their sulfur dioxide emissions over the period 2000-2003. The results indicate that hurdle rates of investment vary from 2.7 to 3.1 in the pulp and paper industry, and from 3.4 to 3.6 in the energy and heating sector depending on econometric specification.

Suggested Citation

  • Åsa Löfgren & Katrin Millock & Céline Nauges, 2008. "The Effect of Uncertainty on Pollution Abatement Investments: Measuring Hurdle Rates for Swedish Industry," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00343702, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00343702
    DOI: 10.1016/j.reseneeco.2008.09.002
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00343702
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    References listed on IDEAS

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    Cited by:

    1. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December.
    2. Bostian, Moriah & Färe, Rolf & Grosskopf, Shawna & Lundgren, Tommy, 2016. "Environmental investment and firm performance: A network approach," Energy Economics, Elsevier, vol. 57(C), pages 243-255.
    3. Hammar, Henrik & Löfgren, Åsa, 2010. "Explaining adoption of end of pipe solutions and clean technologies--Determinants of firms' investments for reducing emissions to air in four sectors in Sweden," Energy Policy, Elsevier, vol. 38(7), pages 3644-3651, July.

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    Keywords

    option value; oil price uncertainty; abatement investment; sulfur emissions; pulp and paper industry; energy and heating sector;

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