The effect of uncertainty on pollution abatement investments: Measuring hurdle rates for Swedish industry

Åsa Löfgren, Katrin Millock and Celine Nauges

Resource and Energy Economics, 2008, vol. 30, issue 4, 475-491

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.

Keywords: Option; value; Oil; price; uncertainty; Abatement; investment; Sulfur; emissions; Pulp; and; paper; industry; Energy; and; heating; sector (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: The Effect of Uncertainty on Pollution Abatement Investments: Measuring Hurdle Rates for Swedish Industry (2008)
Working Paper: The Effect of Uncertainty on Pollution Abatement Investments: Measuring Hurdle Rates for Swedish Industry (2008)
Working Paper: The Effect of Uncertainty on Pollution Abatement Investments: Measuring Hurdle Rates for Swedish Industry (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:30:y:2008:i:4:p:475-491

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