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Option value in low-carbon technology policies

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  • Guy Meunier
  • Dominique Finon

Abstract

The political dilemma presented by the deployment of large-size low-carbon technologies (LCTs) is analysed using a simple dynamic model to investigate the relation between irreversible investments and learning-by-doing within a context of exogeneous uncertainty about the carbon price. It is shown that in some cases when information about the future carbon price is expected, the irreversibility effect holds and fewer LCT plants should be developed. In other cases, this result is reversed, and acquiring information can justify the early deployment of LCT. In particular, marginal reasoning is limited when learning-by-doing, and more generally endogenous technical change, is considered. When acquiring information is expected, the optimal policy can move from a corner optimum with no LCT deployment to an interior optimum with a strictly positive development.

Suggested Citation

  • Guy Meunier & Dominique Finon, 2013. "Option value in low-carbon technology policies," Climate Policy, Taylor & Francis Journals, vol. 13(1), pages 1-19, January.
    • Handle: RePEc:taf:tcpoxx:v:13:y:2013:i:1:p:1-19
    DOI: 10.1080/14693062.2012.699787
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    References listed on IDEAS

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    1. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2005. "A tale of two market failures: Technology and environmental policy," Ecological Economics, Elsevier, vol. 54(2-3), pages 164-174, August.
    2. Michael Grubb & David Newbery, 2007. "Pricing Carbon for Electricity Generation: National and International Dimensions," Working Papers EPRG 0722, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
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    Cited by:

    1. Vogt-Schilb, Adrien & Hallegatte, Stéphane, 2014. "Marginal abatement cost curves and the optimal timing of mitigation measures," Energy Policy, Elsevier, vol. 66(C), pages 645-653.
    2. Framstad, Nils Chr. & Strand, Jon, 2015. "Energy intensive infrastructure investments with retrofits in continuous time: Effects of uncertainty on energy use and carbon emissions," Resource and Energy Economics, Elsevier, vol. 41(C), pages 1-18.
    3. repec:hal:wpaper:hal-00916328 is not listed on IDEAS
    4. repec:hal:ciredw:hal-00916328 is not listed on IDEAS

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