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

  • Åsa Löfgren

    ()

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

  • Katrin Millock

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)

  • Céline Nauges

    ()

    (LERNA - INRA - UT1 - Université Toulouse 1 Capitole - Institut national de la recherche agronomique (INRA))

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.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00343702.

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Date of creation: Dec 2008
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Handle: RePEc:hal:cesptp:halshs-00343702
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