Energy Intensive Infrastructure Investments with Retrofits in Continuous Time : Effects of Uncertainty on Energy Use and Carbon Emissions

Framstad, Nils Christian ; Strand, Jon

World Bank, Washington, DC

关键词: ABATEMENT;    ABATEMENT COSTS;    ABATEMENT POLICIES;    AGGREGATE EMISSIONS;    ALLOCATION;   

DOI  :  10.1596/1813-9450-6430
RP-ID  :  WPS6430

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Energy-intensive infrastructure may tieup fossil energy use and carbon emissions for a long timeafter investments, making the structure of such investmentscrucial for society. Much or most of the resulting carbonemissions can often be eliminated later, through a costlyretrofit. This paper studies the simultaneous decision toinvest in such infrastructure, and retrofit it later, in amodel where future climate damages are uncertain and followa geometric Brownian motion process with positive drift. Itshows that greater uncertainty about climate cost (for givenunconditional expected costs) then delays the retrofitdecision by increasing the option value of waiting toinvest. Higher energy intensity is also chosen for theinitial infrastructure when uncertainty is greater. Thesedecisions are efficient given that energy and carbon pricesfacing the decision maker are (globally) correct, butinefficient when they are lower, which is more typical.Greater uncertainty about future climate costs will thenfurther increase lifetime carbon emissions from theinfrastructure, related both to initial investments, and totoo infrequent retrofits when this emissions level isalready too high. An initially excessive climate gasemissions level is then likely to be worsened whenvolatility increases.