 Inducing low-carbon investment in the electric power industry through a price floor for emissions tradingAlexander Brauneis, Roland Mestel () and Stefan Palan () Energy Policy, 2013, vol. 53, issue C, 190-204 Abstract: Uncertainty about long-term climate policy is a major driving force in the evolution of the carbon market price. Since this price enters the investment decision process of regulated firms, this uncertainty increases the cost of capital for investors and might deter investments into new technologies at the company level. We apply a real options-based approach to assess the impact of climate change policy in the form of a constant or growing price floor on investment decisions of a single firm in a competitive environment. This firm has the opportunity to switch from a high-carbon “dirty” technology to a low-carbon “clean” technology. Using Monte Carlo simulation and dynamic programming techniques for real data, we determine the optimal CO2 price floor level and growth rate in order to induce investments into the low-carbon technology. We find that a carbon price floor can be used to induce earlier low-carbon technology investment and show this result to be robust to a large variety of input parameter settings. Keywords: Carbon price; Price floor; Technological change (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:53:y:2013:i:c:p:190-204 DOI: 10.1016/j.enpol.2012.10.048 Access Statistics for this article Energy Policy is currently edited by N. France More articles in Energy Policy from Elsevier |
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