Modelling the Evolution of Climate Change Policy Uncertainty on Electricity Investment Incentives and Risk

Completed

Other Cross-Cutting Technologies or Research(Environmental, social and economic impacts)

Basic and strategic applied research

SOCIAL SCIENCES (Economics and Econometrics)
SOCIAL SCIENCES (Politics and International Studies)

Sociological economical and environmental impact of energy (Policy and regulation)

Prof DW Bunn
London Business School

Standard

ESRC

01 April 2008

31 January 2010

22 months

£338,644

No relevance to Underpinning Sectors

London

Prof DW Bunn, London Business School

Objectives not supplied

This project will explore how decision-making in the electricity sector is affected by risks arising from the uncertainties in the economics of climate change. The project will include analysis of two main sources of uncertainty. Firstly, it will analyse in the way in which the EU emissions trading scheme translates national climate change policy objectives into a price signal to companies. Secondly, we will look at how uncertain levels of international commitment to climate change mitigation may lead to uncertain targets and timetables, and may alter a government's view of the costs and benefits of abating greenhouse gases. The project will use an option valuation methodology to quantify risks associated with these sources of uncertainty, drawing conclusions about the likely effect on investment behaviour in the power sector as well as conclusions about the implication of these risks for the design of climate change policy and energy policy. In more general terms, it will seek to quantify the effects of institutional intermediation in transferring the uncertainties of climate change through carbon trading markets into the business risks of electricity investment.

28/11/11