The interplay between technology options, market uncertainty, and policy in zero-carbon investment decisions

Loïc De Weerdt, Carlos Oliveira, Eric D. Larson, Chris Greig

Research output: Contribution to journalArticlepeer-review

Abstract

Using a real-option approach, we study the decision of a private power generator considering investment in a zero-CO2-emissions plant. Specifically, we analyze the investment decision in mutually exclusive technologies under the presence of market uncertainty, for different scenarios and under different policy regimes within each scenario. The scenarios are based on emissions targets, such as net-zero-CO2 emissions by 2050. The policy regimes are based on whether or not the targets are binding. We find that if there are fewer available zero-CO2-technology options there is less hesitation to invest, which potentially leads to earlier investment. We also find that some policies are more effective than others in encouraging investment: incentive payments are somewhat effective, penalties for not reaching zero emissions by a specified future date are more effective; a steadily increasing CO2-emission-allowance price also speeds up investment.

Original languageEnglish (US)
Article number107166
JournalEnergy Economics
Volume128
DOIs
StatePublished - Dec 2023

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • General Energy

Keywords

  • CO-emissions targets
  • Dynamic public economics
  • Energy transition
  • Investment under uncertainty

Fingerprint

Dive into the research topics of 'The interplay between technology options, market uncertainty, and policy in zero-carbon investment decisions'. Together they form a unique fingerprint.

Cite this