Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 196, Issue 1, Pages 370-383Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2008.03.016
Keywords
Environment; Linear programming; Investment analysis; (Corrected) Net present value; Sensitivity analysis
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This paper offers a general approach to valuating investments in end-of-pipe-technologies (EOP-technologies) with special regard to an emissions trading scheme. Since investments of this kind affect production, it is necessary to derive the required payments for a financial valuation and the constraints from production theory and production planning. On this basis, it is possible to develop a valuation model. This model considers joint production, activity-level-dependent and -independent payments and specifically includes the indivisibility of the investment. Applying duality theory enables us to examine the determinants of the price ceiling for such an investment. Sensitivity analysis shows that tradable permits have several effects on an investment and do not always encourage environmentally beneficial investments - in particular cases they may even be counterproductive. (C) 2008 Elsevier B.V. All rights reserved.
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