Article
The Effect of Uncertainty on Pollution Abatement Investments: Measuring Hurdle Rates for Swedish Industry
Resource and Energy Economics
(2008)
Abstract
We estimate hurdle rates for firms' investments in pollution abatement technology, using ex post data. The method is based on a structural option value model where the future price of polluting fuel is the major source of uncertainty facing the firm. The empirical procedure is illustrated using a panel of firms from the Swedish pulp and paper industry, and the energy and heating sector, and their sulfur dioxide emissions over the period 2000-2003. The results indicate that hurdle rates of investment vary from 2.7 to 3.1 in the pulp and paper industry and from 3.4 to 3.6 in the energy and heating sector depending on econometric specification.
Keywords
- option value,
- oil price uncertainty,
- abatement investment,
- sulfur emissions,
- pulp and paper industry,
- energy and heating sector
Disciplines
Publication Date
2008
Citation Information
Asa Lofgren, Katrin Millock and Céline Nauges. "The Effect of Uncertainty on Pollution Abatement Investments: Measuring Hurdle Rates for Swedish Industry" Resource and Energy Economics Vol. 30 Iss. 4 (2008) p. 475 - 491 Available at: http://works.bepress.com/millock/9/