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Investing in finite-life carbon emissions reduction program under risk and idiosyncratic uncertainty

Author

Listed:
  • Jessica Fouilloux

    (IGR-IAE Rennes - Institut de Gestion de Rennes - Institut d'Administration des Entreprises - Rennes - UR - Université de Rennes, CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Franck Moraux

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, IGR-IAE Rennes - Institut de Gestion de Rennes - Institut d'Administration des Entreprises - Rennes - UR - Université de Rennes)

  • Jean-Laurent Viviani

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, IGR-IAE Rennes - Institut de Gestion de Rennes - Institut d'Administration des Entreprises - Rennes - UR - Université de Rennes)

Abstract

This paper aims at emphasizing the ability of new frameworks of real option model to highlight key characteristics of industrial Carbon Emissions Reduction Program investment decision. We develop both theoretical arguments and numerical simulations with structural parameters calibrated on real-life data. We find that both radical uncertainty and risk lead to speed-up green investments, compared to the predictions of real option models that are normally used in green investment literature. The conventional "wait and see" attitude, questioned in recent developments of the real option theory, is not validated. In conclusion, our results should foster companies to implement green investments and help governments to define appropriate incentives to encourage green investments. Of particular note, the paper highlights that finance theory is not necessarily an obstacle to green investment decisions.

Suggested Citation

  • Jessica Fouilloux & Franck Moraux & Jean-Laurent Viviani, 2015. "Investing in finite-life carbon emissions reduction program under risk and idiosyncratic uncertainty," Post-Print halshs-01101996, HAL.
    • Handle: RePEc:hal:journl:halshs-01101996
    DOI: 10.1016/j.enpol.2014.12.004
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    2. Haiyan Shan & Junliang Yang & Guo Wei, 2019. "Industrial Symbiosis Systems: Promoting Carbon Emission Reduction Activities," IJERPH, MDPI, vol. 16(7), pages 1-23, March.

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    More about this item

    Keywords

    timing of investments; real option; option to wait; green investment; irreversibility; uncertainty;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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