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Political Economy and Instruments of Environmental Politics$
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Friedrich Schneider, Andrea Kollmann, and Johanne Reichl

Print publication date: 2015

Print ISBN-13: 9780262029247

Published to MIT Press Scholarship Online: January 2016

DOI: 10.7551/mitpress/9780262029247.001.0001

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The Clean Development Mechanism, Stochastic Permit Prices, and Energy Investments

The Clean Development Mechanism, Stochastic Permit Prices, and Energy Investments

Chapter:
(p.197) 10 The Clean Development Mechanism, Stochastic Permit Prices, and Energy Investments
Source:
Political Economy and Instruments of Environmental Politics
Author(s):

Philipp Hieronymi

David Schüller

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262029247.003.0010

The aim of this paper is to analyze the impact that the simultaneous availability of two permit classes with differing price developments has on an energy investor. We consider permits that are allocated inside the European Emission Trading Scheme and secondary Certified Emission Reductions permits (sCER) originating from the Clean Development Mechanism. We find that allowing the usage of sCER permits in the present policy framework has a positive impact on gas power investment. As part of sensitivity testing we report the effect that changing interest rates, the trend value and volatility has. We find that the two energy generation types are very similar in terms of cost competitiveness when considering the long-term impact of permit prices, and investment behavior can change significantly when the interest rate or volatility of permit prices vary.

Keywords:   Energy Investment, Investment Under Uncertainty, Clean Development Mechanism, Emission Markets, Climate Change

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