A real option-based model for promoting sustainable energy projects under the clean development mechanism

Lee, Hyounkyu; Park, Taeil; Kim, Byungil; Kim, Kyeongseok; Kim, Hyoungkwan

doi:10.1016/j.enpol.2012.11.050

Cited by 17 publications

(9 citation statements)

References 26 publications

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“…For example, CDM has been a subject of interest to ROA scholars (e.g. Lee et al, 2013), but is treated as a regular investment without providing attention to the global aspect of CDM. This could be due to the fact that GPP processes can be highly abstract and vague (Soroos, 1986) and investment valuations are only becoming relevant as soon as policies become clearer.…”

Section: Going Globalmentioning

confidence: 99%

“…Real options provide policy makers the possibility to value the participation into different designs of a mechanism such as CDM and provide an estimation of the attractiveness and risks of such a mechanism. Possibly, another design, such as the one that is proposed by Lee et al (2013), could have tempered the impact regarding the drop in the CER price.…”

Section: Global Warmingmentioning

confidence: 99%

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Real Options and the Design of Global Public Policy Interventions

Peters

2022

Communications of the Japan Association of Real Options and Strategy

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Section: Going Globalmentioning

confidence: 99%

Section: Global Warmingmentioning

confidence: 99%

Real Options and the Design of Global Public Policy Interventions

Peters

2022

Communications of the Japan Association of Real Options and Strategy

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“…They support the discernment between the acceptance or rejection of the investment in T. ciliata. In this context of measuring risks and incorporating uncertainties, the Real Option Approach (ROA) promotes the required accuracy (Phillips and Wright, 2009;Khadka and Vacik, 2012;Lee et al, 2013;Cui and Shibata, 2017;Favato and Vecchiato, 2017;Kozlova, 2017;Tang et al, 2017). ROA emphasizes that many initial investments create relevant opportunities that provide managers, especially forestry, with opportunities, but not obligations to make subsequent investments (Liu and Ronn, 2020;Oh and Yoon, 2020).…”

Section: Introductionmentioning

confidence: 99%

Forest plantations with Toona ciliata: impacts of managerial flexibility on economic viability

2022

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Forest plantations with Toona ciliata are presented as economically viable thanks to the suitability of their wood for high-quality niche products. However, this study verifies whether investment projects in T. ciliata plantations are economically viable with the incorporation of managerial flexibility. We apply technical-economic coefficients from T. ciliata forest plantations over a 15-year planning horizon, considering the investment project as an underlying asset and the price of wood as the only source of uncertainty. Using the Monte Carlo method, we model uncertainty to obtain project volatility, so that, using the Real Option Approach, managerial flexibility for deferral, expansion and abandonment is added to the underlying assets. Based on the traditional economic valuation methodology, we obtained a static net present value of USD 5,075, which reflects the economic viability of the investment project in T. ciliata forest plantations. Due to the uncertainty arising from timber prices, project volatility was 131.7%. Afterwards, it was found that incorporating the deferral and abandonment options added a premium of USD 2,147 to the value of the project, redirecting it towards an expanded net present value of USD 7,223. Incorporation of the real deferral and abandonment options provides flexibility and support for the decision-making process in the management of T. ciliata forest plantations, resulting in a 42.3% increase in the value of the investment project.

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“…Real options studies in the clean energy sector have mainly focused on R&D evaluations (Davis and Owens 2003;Bednyagin and Gnansounou 2011;Kim et al 2014), project investment evaluations (Zhang et al 2016;Fan et al 2013;Kim et al 2017;Chen et al 2018;Fan et al 2019b), and supporting policy evaluations (Mo et al 2015;Lee et al 2013;Kobari et al 2014). Among them, delaying investment, suspending operation, and expanding are always used as entry points.…”

Section: Introductionmentioning

confidence: 99%

Evaluation of cooperative mitigation: captured carbon dioxide for enhanced oil recovery

Zhu

Yao

Zhang³

2020

Mitig Adapt Strateg Glob Change

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Robust mitigation options will play significant role in achieving the target of limiting global change to below 1.5°C above pre-industrial levels by 2100. To support cooperation for mitigation development, we establish a real options-based model to evaluate the rational decisions of exercising the abandon option for carbon capture and storage-enhanced oil recovery (CCS-EOR) projects under oil market and geological uncertainties. Three possible cooperative mechanisms (fixed carbon dioxide (CO 2 ) price, oil-indexed CO 2 price, and joint venture contracts) among CO 2 -EOR stakeholders are evaluated. The results show that the conflicts in profit maximization targets for different stakeholders in cooperative mitigation are to a great extent unable to be avoided. A joint venture business model is preferred in cooperative mitigation as it can effectively weaken such conflicts. And it is more reasonable to provide incentives to the downstream of the CO 2 -EOR chain than compensating the adoption cost of carbon capture technologies in the upstream. From a global perspective, the inefficient cooperation can be a main barrier that hinders the development of deep-cutting options. Global mitigation strategies should not only focus on promoting technology progress but also the design of innovative business models to balance the benefits among stakeholders. A joint venture business model is recommended in both the developed and developing countries for seizing the early mitigation opportunities. Keywords Real options . Monte Carlo simulation . Carbon capture and storage (CCS) . Enhanced oil recovery (EOR) . Cooperative mechanism of mitigation

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A real option-based model for promoting sustainable energy projects under the clean development mechanism

Cited by 17 publications

References 26 publications

Real Options and the Design of Global Public Policy Interventions

Real Options and the Design of Global Public Policy Interventions

Forest plantations with Toona ciliata: impacts of managerial flexibility on economic viability

Evaluation of cooperative mitigation: captured carbon dioxide for enhanced oil recovery

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