Real options analysis for renewable energy technologies in a GHG emissions trading environment

Joseph Sarkis () and Maurry Tamarkin
Additional contact information
Joseph Sarkis: Clark University Graduate School of Management
Maurry Tamarkin: Clark University Graduate School of Management

A chapter in Emissions Trading, 2008, pp 103-119 from Springer

Abstract: Abstract Green house gas (GHG) emissions have been tied to global climate change. Governments are seeking ways to help improve performance of their countries on this environmental issue through introduction of various policy instruments. One popular policy instrument that seems to have gained credibility with explicit mention of its application in the Kyoto Protocol is the use of permit trading and cap-and-trade mechanisms. Various political regions, countries, and even corporations have introduced, are introducing or seek to introduce this mechanism. Organizations functioning within this environment will need to manage their resources appropriately to remain competitive. Organizations will either have the opportunity to purchase emissions credits (offsets) from a market trading scheme or seek to reduce their emissions through different measures. Some measures may include investment in new technologies that will reduce their reliance on GHG emitting practices. In many countries, large organizations and institutions generate their own power to operate their facilities. Much of this power is generated (or bought) from GHG producing technology. Specific renewable energy sources such as wind and solar photovoltaic technology may become more feasible alternatives available to a large percentage of these organizations if they are able to take advantage and incorporate the market for GHG emissions trading in their analyses. To help organizations evaluate investment in these renewable energy technologies we introduce a real options based model that will take into consideration uncertainties associated with the technology and those associated with the GHG trading market. The real options analysis will consider both the stochastic (uncertainty) nature of the exercise price of the technology and the stochastic nature of the market trading price of the GHG emissions. Managerial and policy implications will be discussed.

Keywords: GHG emissions trading; real options; photovoltaic tecnology (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (13)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:spr:sprchp:978-0-387-73653-2_7

Ordering information: This item can be ordered from
http://www.springer.com/9780387736532

DOI: 10.1007/978-0-387-73653-2_7

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().