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The Option Value of Investments in Energy-Efficient and Renewable Energy Technologies

Author

Listed:
  • Gerd Nicodemus

    (Department of Economics of the Duesseldorf University of Applied Sciences)

Abstract

This paper takes up the need to engage in substantial investments in the energy producing capital stock to attack the climate change problem, caused by rising carbon dioxide concentrations in the atmosphere. However, the precise magnitudes of economic impacts of global warming as well as abatement and mitigation costs of climate change are not known and may be learned after time. Thus preferences to restrict or to loosen environmental objectives and related emission levels might change and are reflected in an uncertain “price” for environmental usage (e.g. emission tax, marketable permits). As a consequence investors face some uncertainty and need to take the option value of their investments in the energy producing capital stock into account and tend to delay their investment. Considering long usage periods and indivisibilities of power production investments adequate environmental policy has to be designed in a way to reduce uncertainty for investors.

Suggested Citation

  • Gerd Nicodemus, 2010. "The Option Value of Investments in Energy-Efficient and Renewable Energy Technologies," Duesseldorf Working Papers in Applied Management and Economics 13, Duesseldorf University of Applied Sciences.
  • Handle: RePEc:ddf:wpaper:13
    as

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    References listed on IDEAS

    as
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    4. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    5. Geoffrey Heal, 2008. "Climate Economics: A Meta-Review and Some Suggestions," NBER Working Papers 13927, National Bureau of Economic Research, Inc.
    6. Geoffrey Heal & Bengt Kriström, 2002. "Uncertainty and Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 3-39, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Climate Change; Option Value; Investment Uncertainty; Renewable Energy; Klimawandel; Optionswerte; Investitionsunsicherheit; Erneuerbare Energien;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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