Date: 2012
Type: Working Paper
Policy Uncertainty and Investment in Low-Carbon Technology
Working Paper, EUI ECO, 2012/27
ALBRIZIO, Silvia, COSTA, Hélia, Policy Uncertainty and Investment in Low-Carbon Technology, EUI ECO, 2012/27 - https://hdl.handle.net/1814/24914
Retrieved from Cadmus, EUI Research Repository
In the context of an emission trading scheme (ETS), we study how uncertainty over the environmental policy affectsfirms' investment in low-carbon technologies. We develop a three period sequential model that combines the industry and the electricity sectors and encompasses both irreversible and reversible investment possibilities for the firms. Additionally, we explicitly model the policy uncertainty in the regulator's objective function as well as the market interactions that give rise to an endogenous price of permits. We find that uncertainty reduces irreversible investment and that the availability of both reversible and irreversible technologies partially eliminates the positive effect of policy uncertainty on reversible technology found in previous literature. Furthermore, we provide a framework that allows to assess the efficiency of different implementations of the scheme.
Cadmus permanent link: https://hdl.handle.net/1814/24914
ISSN: 1725-6704
Series/Number: EUI ECO; 2012/27