A quadranomial real options model for evaluation of emissions trading and technology

Joseph Sarkis; Maurry Tamarkin

doi:10.1117/12.631775

7 November 2005 A quadranomial real options model for evaluation of emissions trading and technology

Joseph Sarkis, Maurry Tamarkin

Proceedings Volume 5997, Environmentally Conscious Manufacturing V; 59970M (2005) https://doi.org/10.1117/12.631775
Event: Optics East 2005, 2005, Boston, MA, United States

Abstract

Green house gas (GHG) emissions have been tied to global climate change. One popular policy instrument that seems to have gained credibility with explicit mention of its application in the Kyoto Protocol is the use of permit trading and cap-and-trade mechanisms. Organizations functioning within this environment will need to manage their resources appropriately to remain competitive. Organizations will either have the opportunity to purchase emissions credits (offsets) from a market trading scheme or seek to reduce their emissions through different measures. Some measures may include investment in new technologies that will reduce their reliance on GHG emitting practices. In many countries, large organizations and institutions generate their own power to operate their facilities. Much of this power is generated (or bought) from GHG producing technology. Specific renewable energy sources such as wind and solar photovoltaic technology may become more feasible alternatives available to a large percentage of these organizations if they are able to take advantage and incorporate the market for GHG emissions trading in their analyses. To help organizations evaluate investment in these renewable energy technologies we introduce a real options based model that will take into consideration uncertainties associated with the technology and those associated with the GHG trading market. The real options analysis will consider both the stochastic (uncertainty) nature of the exercise price of the technology and the stochastic nature of the market trading price of the GHG emissions.

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Joseph Sarkis and Maurry Tamarkin "A quadranomial real options model for evaluation of emissions trading and technology", Proc. SPIE 5997, Environmentally Conscious Manufacturing V, 59970M (7 November 2005); https://doi.org/10.1117/12.631775

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KEYWORDS

Photovoltaics

Renewable energy

Solar energy

Solar cells

Climate change

Climatology

Nitrous oxide

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