Real option analysis for effects of emission permit banking on investment under abatement cost uncertainty
- Authors
- Park, Hojeong
- Issue Date
- 7월-2012
- Publisher
- ELSEVIER SCIENCE BV
- Keywords
- Emission permit; Banking; Real option; Investment
- Citation
- ECONOMIC MODELLING, v.29, no.4, pp.1314 - 1321
- Indexed
- SSCI
SCOPUS
- Journal Title
- ECONOMIC MODELLING
- Volume
- 29
- Number
- 4
- Start Page
- 1314
- End Page
- 1321
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/108018
- DOI
- 10.1016/j.econmod.2012.04.012
- ISSN
- 0264-9993
- Abstract
- The present paper analyzes the investment effects of emission trading scheme (ETS) when emission permits are bankable and there is technological uncertainty with regard to the abatement cost. A real option model is employed to accommodate irreversibility of investment and cost uncertainty. In the absence of abatement cost uncertainty, a bankable ETS reduces a firm's incentive for environmental investment, because the firm can utilize the banked permits for future compliance which act as substitutes for abatement investment. However, when cost uncertainty is prevalent, investment may reduce the opportunity cost of irreversible investment under the banking system, thereby increasing a firm's investment incentive. The condition is derived under which a bankable ETS provides higher investment incentives than a non-bankable ETS does. (C) 2012 Elsevier B.V. All rights reserved.
- Files in This Item
- There are no files associated with this item.
- Appears in
Collections - College of Life Sciences and Biotechnology > Department of Food and Resource Economics > 1. Journal Articles
Items in ScholarWorks are protected by copyright, with all rights reserved, unless otherwise indicated.