Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments - An Application to the Swedish Pulp and Paper Industry and Energy Sector

Åsa Löfgren, Katrin Millock and Celine Nauges

No 249, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: We propose a method for estimating 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 econometric procedure is illustrated using a panel of firms from the Swedish pulp and paper industry, and the energy and heating sector from 2000 to 2003. The results indicate a hurdle rate of investment of almost 3 in the pulp and paper industry and almost 4 in the energy and heating sector.

Keywords: option value; fuel price uncertainty; investment decision; pollution abatement; panel data pulp and paper industry; energy and heating sector (search for similar items in EconPapers)
JEL-codes: C33 D81 O33 Q48 Q53 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2007-03-21
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments – An Application to the Swedish Pulp and Paper Industry and Energy Sector (2007)
Working Paper: Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments – An Application to the Swedish Pulp and Paper Industry and Energy Sector (2007)
Working Paper: Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments - An application to the Swedish Pulp and Paper Industry and Energy Sector (2007)
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