Risk aversion and CO2 regulatory uncertainty in power generation investment: Policy and modeling implications

Lin Fan, Benjamin Hobbs () and Catherine Norman

Journal of Environmental Economics and Management, 2010, vol. 60, issue 3, 193-208

Abstract: We consider a simulation of risk-averse producers when making investment decisions in a competitive energy market, who face uncertainty about future regulation of carbon dioxide emissions. Investments are made under regulatory uncertainty; then the regulatory state is revealed and producers realize returns. We consider anticipated taxes, grandfathered permits and auctioned permits and show that some anticipated policies increase investment in the relatively dirty technology. Beliefs about the policy instrument that will be used to price carbon may be as important as certainty that carbon will be priced. More generally, a failure to consider risk aversion may bias policy analysis for the power sector.

Keywords: Electric; power; Risk; aversion; Emissions; markets; Climate; policy (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0095-0696(10)00080-X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Risk Aversion and CO2 Regulatory Uncertainty in Power Generation Investment: Policy and Modeling Implications (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:60:y:2010:i:3:p:193-208

Access Statistics for this article

Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

More articles in Journal of Environmental Economics and Management from Elsevier
Bibliographic data for series maintained by Catherine Liu ().