Impacts of the Fairly Priced REDD-based CO2 Offset Options on the Electricity Producers and Consumers

Andrey Krasovskii (), Nikolay Khabarov () and Michael Obersteiner ()
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Andrey Krasovskii: International Institute for Applied Systems Analysis (IIASA)
Nikolay Khabarov: International Institute for Applied Systems Analysis (IIASA)
Michael Obersteiner: International Institute for Applied Systems Analysis (IIASA)

Economy of region, 2014, vol. 1, issue 3, 273 - 288

Abstract: This paper deals with the modeling of two sectors of a regional economy: electricity and forestry. We show that CO2 price will impact not only the profits of the CO2 emitting electricity producer (decrease), but also the electricity prices for the consumer (increase), and, hence, some financial instruments might be implemented today in order to be prepared for the uncertain CO2 prices in the future. We elaborate financial instrument based on the Reduced Emissions from Deforestation and Degradation (REDD+) mechanism. We model optimal behavior of forest owner and electricity producer under uncertainty and determine equilibrium fair prices of REDD-based-options.

Keywords: CO2; REDD+; Option Pricing; Optimization; Firm Behavior; Cost Minimizing; Uncertaint (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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