Policy Uncertainty and Investment in Low-Carbon Technology
25.06.2013
12:00 - 13:00
Milan
Fondazione Eni Enrico Mattei
Corso Magenta 63
20123 Milan
***
Video-conference
at FEEM Venice
h. 12.00 Seminar
Hélia Costa, European University Institute
Authors: Silvia Albrizio, Hélia Costa
In the context of an emission trading scheme, we study how uncertainty over the environmental policy affects firms’ 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 such a scheme.
Attachments
1.
Policy Uncertainty and Investment in Low-Carbon Technology (paper)
2.
Policy Uncertainty and Investment in Low-Carbon Technology (presentation)