Seminar: Iowa NSF EPSCoR Energy Policy
| Date/Time: | Thursday, 31 Jan 2013 from 3:40 pm to 5:00 pm |
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| Location: | 0013 Curtiss Hall |
| Cost: | Free |
| URL: | http://iowaepscor.org/energypolicyseminars |
| Contact: | |
| Phone: | 515-294-6998 |
| Channel: | Research |
| Categories: | Lectures Live Green |
| Actions: | Download iCal/vCal | Email Reminder |
Abstract:
Tradable permits and carbon taxes are two market-based instruments commonly considered by policymakers to regulate CO2 emissions. Whereas the level of a tax is fixed and predetermined by authorities, the price of tradable permits is uncertain and is driven by market dynamics. The permit price is also expected to fluctuate commensurate with the prices of natural gas and electricity. Both instruments, however, offer electricity suppliers different incentives for adopting clean technologies. We explore the optimal investment timing in the context of a supplier who owns a coal-fired facility and is considering to introduce a clean technology in face of two types of CO2 regulation using a real options approach. We have two central findings. First, tradable permits could effectively trigger adoption of clean technologies at a considerably lower level of carbon price relative to a tax policy. Second, higher levels of volatility in permit prices are likely to induce suppliers to take early actions to hedge against carbon risks. Thus, offset and other price control mechanisms, which are commonly stipulated in proposed and existing climate policies with an attempt to reduce permit prices or to suppress prices volatility, are likely to delay clean technology investments.
Recently, after years of contentious debates, Australia has implemented carbon tax since July 2012, at A$23 per ton. However, the design was to phase the carbon tax into an emission trading system after 2015. Furthermore, the opposition leader in Australia has vowed to repeal the carbon tax if elected in the coming election in Nov 2013. Using this Australian situation as a case study, I will apply the findings of the research to show how this hybrid policy and the political uncertainty may affect the induction of clean technology.