IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp1714.html
   My bibliography  Save this paper

Project-Based Carbon Contracts: A Way to Finance Innovative Low-Carbon Investments

Author

Listed:
  • Jörn Richstein

Abstract

Low and uncertain carbon prices are often stated as a major obstacle for industrial sector investments in technologies to deliver deep emissions reductions. Project-based carbon contracts underwritten by national governments could addressregulatory risk, lower financing costs and strengthen incentives for emission reductions at investment and operation stage. In this paper design options for project-based carbon contracts are assessed using an analytical model capturing risk aversion of investors with a meanvariance utility function. The model is also used to assess how a combination with grant support for innovative projects can minimize overall costs of innovation policy. Savings in financing costs are quantified using a stylized project finance cash flow analysis.

Suggested Citation

  • Jörn Richstein, 2017. "Project-Based Carbon Contracts: A Way to Finance Innovative Low-Carbon Investments," Discussion Papers of DIW Berlin 1714, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1714
    as

    Download full text from publisher

    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.575021.de/dp1714.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    2. Nemet, Gregory F. & Zipperer, Vera & Kraus, Martina, 2018. "The valley of death, the technology pork barrel, and public support for large demonstration projects," Energy Policy, Elsevier, vol. 119(C), pages 154-167.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jakob, Michael, 2021. "Climate policy and international trade – A critical appraisal of the literature," Energy Policy, Elsevier, vol. 156(C).
    2. Timo Gerres & Manuel Haussner & Karsten Neuhoff & Alice Pirlot, 2019. "Can Governments Ban Materials with Large Carbon Footprint? Legal and Administrative Assessment of Product Carbon Requirements," Discussion Papers of DIW Berlin 1834, DIW Berlin, German Institute for Economic Research.
    3. Heck, Janine & Jahnke, Lars & Leker, Jens, 2024. "Early evidence of a transition towards sustainability-oriented decision-making in the chemical industry in Germany, Austria, and Switzerland: A choice-based conjoint analysis," Energy Policy, Elsevier, vol. 187(C).
    4. Hörbe Emanuelsson, Anna & Rootzén, Johan & Johnsson, Filip, 2025. "Financing high-cost measures for deep emission cuts in the basic materials industry – Proposal for a value chain transition fund," Energy Policy, Elsevier, vol. 196(C).
    5. Chiappinelli, Olga & Gerres, Timo & Neuhoff, Karsten & Lettow, Frederik & de Coninck, Heleen & Felsmann, Balázs & Joltreau, Eugénie & Khandekar, Gauri & Linares, Pedro & Richstein, Jörn & Śniegocki, A, 2021. "A green COVID-19 recovery of the EU basic materials sector: identifying potentials, barriers and policy solutions," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 21(10), pages 1328-1346.
    6. Olga Chiappinelli & Karsten Neuhoff, 2020. "Time-Consistent Carbon Pricing: The Role of Carbon Contracts for Differences," Discussion Papers of DIW Berlin 1859, DIW Berlin, German Institute for Economic Research.
    7. Ottmar Edenhofer & Mirjam Kosch & Michael Pahle & Georg Zachmann, 2021. "A whole-economy carbon price for Europe and how to get there," Bruegel Policy Contributions 41514, Bruegel.
    8. Lena Tholen & Anna Leipprand & Dagmar Kiyar & Sarah Maier & Malte Küper & Thomas Adisorn & Andreas Fischer, 2021. "The Green Hydrogen Puzzle: Towards a German Policy Framework for Industry," Sustainability, MDPI, vol. 13(22), pages 1-19, November.
    9. Jeddi, Samir & Lencz, Dominic & Wildgrube, Theresa, 2021. "Complementing carbon prices with Carbon Contracts for Difference in the presence of risk - When is it beneficial and when not?," EWI Working Papers 2021-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), revised 16 Aug 2022.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joelle Noailly, 2022. "Directing innovation towards a low-carbon future," WIPO Economic Research Working Papers 72, World Intellectual Property Organization - Economics and Statistics Division.
    2. Francesco Lamperti & Mariana Mazzucato & Andrea Roventini & Gregor Semieniuk, 2019. "The Green Transition: Public Policy, Finance, and the Role of the State," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 88(2), pages 73-88.
    3. Hu, Hui & Qi, Shaozhou & Chen, Yuanzhi, 2023. "Using green technology for a better tomorrow: How enterprises and government utilize the carbon trading system and incentive policies," China Economic Review, Elsevier, vol. 78(C).
    4. Febi Jensen & Hans Lööf & Andreas Stephan, 2020. "New ventures in Cleantech: Opportunities, capabilities and innovation outcomes," Business Strategy and the Environment, Wiley Blackwell, vol. 29(3), pages 902-917, March.
    5. Carsten Helm & Mathias Mier, 2020. "Steering the Energy Transition in a World of Intermittent Electricity Supply: Optimal Subsidies and Taxes for Renewables Storage," ifo Working Paper Series 330, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    6. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2014. "What Do We Learn from the Weather? The New Climate-Economy Literature," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 740-798, September.
    7. Lawrence H. Goulder, 2013. "Markets for Pollution Allowances: What Are the (New) Lessons?," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 87-102, Winter.
    8. Moritz Bohland & Sebastian Schwenen, 2020. "Technology Policy and Market Structure: Evidence from the Power Sector," Discussion Papers of DIW Berlin 1856, DIW Berlin, German Institute for Economic Research.
    9. Zhangsheng Liu & Liuqingqing Yang & Liqin Fan, 2021. "Induced Effect of Environmental Regulation on Green Innovation: Evidence from the Increasing-Block Pricing Scheme," IJERPH, MDPI, vol. 18(5), pages 1-15, March.
    10. Xu, Qi & Liu, Kui, 2024. "Hero or Devil: A comparison of different carbon tax policies for China," Energy, Elsevier, vol. 306(C).
    11. Stephie Fried & Kevin Novan & William B. Peterman, 2021. "Recycling Carbon Tax Revenue to Maximize Welfare," Finance and Economics Discussion Series 2021-023, Board of Governors of the Federal Reserve System (U.S.).
    12. Philippe Aghion & Antoine Dechezleprêtre & David Hémous & Ralf Martin & John Van Reenen, 2016. "Carbon Taxes, Path Dependency, and Directed Technical Change: Evidence from the Auto Industry," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 1-51.
    13. Yunyun Wu & Xiaochun Li, 2024. "Industrial technological progress, technology spillover, and the environment in a dual agricultural economy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(2), pages 243-266, June.
    14. Michael Peneder & Spyros Arvanitis & Christian Rammer & Tobias Stucki & Martin Wörter, 2022. "Policy instruments and self-reported impacts of the adoption of energy saving technologies in the DACH region," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(2), pages 369-404, May.
    15. Balint, T. & Lamperti, F. & Mandel, A. & Napoletano, M. & Roventini, A. & Sapio, A., 2017. "Complexity and the Economics of Climate Change: A Survey and a Look Forward," Ecological Economics, Elsevier, vol. 138(C), pages 252-265.
    16. Grafström, Jonas & Poudineh, Rahmat, 2023. "No evidence of counteracting policy effects on European solar power invention and diffusion," Energy Policy, Elsevier, vol. 172(C).
    17. Yanli Ji & Jie Xue & Kaiyang Zhong, 2022. "Does Environmental Regulation Promote Industrial Green Technology Progress? Empirical Evidence from China with a Heterogeneity Analysis," IJERPH, MDPI, vol. 19(1), pages 1-23, January.
    18. Tan, Xiujie & Sun, Qian & Wang, Meiji & Se Cheong, Tsun & Yan Shum, Wai & Huang, Jinpeng, 2022. "Assessing the effects of emissions trading systems on energy consumption and energy mix," Applied Energy, Elsevier, vol. 310(C).
    19. Coenen, Günter & Lozej, Matija & Priftis, Romanos, 2024. "Macroeconomic effects of carbon transition policies: An assessment based on the ECB’s New Area-Wide Model with a disaggregated energy sector," European Economic Review, Elsevier, vol. 167(C).
    20. Giovanni Marin & Francesca Lotti, 2017. "Productivity effects of eco-innovations using data on eco-patents," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 26(1), pages 125-148.

    More about this item

    Keywords

    Emission trading systems; carbon contract; innovation support;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp1714. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bibliothek (email available below). General contact details of provider: https://edirc.repec.org/data/diwbede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.