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dc.contributor.authorBrauneis, Alexanderen_US
dc.contributor.authorLoretz, Michaelen_US
dc.contributor.authorMestel, Rolanden_US
dc.contributor.authorPalan, Stefanen_US
dc.description.abstractUncertainty about long-term climate policy is a major driving force in the evolution of the carbon market price. Since this price enters the investment decision process of regulated firms, this uncertainty increases the cost of capital for investors and might deter invest-ments into new technologies at the company level. We apply a real options-based approach to assess the impact of climate change policy in the form of a constant or growing price floor on investment decisions of a single firm in a competitive environment. This firm has the opportunity to switch from a high-carbon dirty technology to a low-carbon clean technology. Using Monte Carlo simulation and dynamic programming techniques for real market data, we determine the optimal CO2 price floor level and growth rate in order to induce investments into the low-carbon technology. We show these findings to be robust to a large variety of input parameter settings.en_US
dc.publisher|aFondazione Eni Enrico Mattei (FEEM) |cMilanoen_US
dc.relation.ispartofseries|aNota di lavoro // Fondazione Eni Enrico Mattei: Climate Change and Sustainable Development |x74.2011en_US
dc.subject.keywordCarbon priceen_US
dc.subject.keywordprice flooren_US
dc.subject.keywordtechnological changeen_US
dc.subject.keywordinvestment decisionen_US
dc.subject.keywordreal option approachen_US
dc.titleInducing low-carbon investment in the electric power industry through a price floor for emissions tradingen_US
dc.typeWorking Paperen_US

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