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When to invest in carbon capture and storage technology in the presence of uncertainty: a mathematical model. ESRI WP461, July 2013

Walsh, D. M. and O'Sullivan, K. and Lee, W.T and Devine, M. (2013) When to invest in carbon capture and storage technology in the presence of uncertainty: a mathematical model. ESRI WP461, July 2013. [Working Paper]

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    Abstract

    We present a model for determining analytically the critical threshold for investment in carbon capture and storage technology in a region where carbon costs are volatile and assuming the cost of investment decreases. We first study a deterministic model with quite general dependence on carbon price and then analyse the effect of carbon price volatility on the optimal investment decision by solving a Bellman equation with an infinite planning horizon. We find that increasing the expected carbon price volatility increases the critical investment threshold and that adoption of this technology is not optimal at current prices, in agreement with other works. However, reducing carbon price volatility by switching from carbon permits to taxes or by introducing a carbon floor as in Great Britain would accelerate the optimal adoption of this technology. Our deterministic model provides a good description of this decision problem.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > environmental policy (including international arena)
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Economic and Social Research Institute (ESRI), Dublin > ESRI Working Papers
    Depositing User: Alyssa McDonald
    Official EU Document: No
    Language: English
    Date Deposited: 20 Dec 2018 09:26
    Number of Pages: 14
    Last Modified: 20 Dec 2018 09:26
    URI: http://aei.pitt.edu/id/eprint/88079

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