Uncertainty about long term climate targets: A real option approach to investment appraisal

Audrey Laude ()
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Audrey Laude: LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique

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Abstract: This article analyses how investors cope with carbon price uncertainty on the long run. More precisely, we assume that climate targets are not well established, so decision makers do not know if climate policy will be highly or moderately restrictive. It means that the long run carbon price drift is uncertain. However, there is a progressive resolution of this uncertainty. A real option analysis is conducted, in the case of a Carbon Capture and Storage (CCS) project appraisal. We show that this additional uncertainty decreases investment probability, but does not lead to a lag of investment, as generally assumed in real option literature.

Keywords: Carbon Capture and Storage (CCS); climate policy; regulatory uncertaint; Capture et Stockage du Carbone (CSC); Politique climatique; Incertitude de régulation (search for similar items in EconPapers)
Date: 2011-11-29
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00829667
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