Real Option Valuation of the R&D Investment in Renewable Energy Considering the Effects of the Carbon Emission Trading Market: A Korean Case

Abstract

A carbon market was introduced for the first time in January 2005, when the EU assigned carbon emission allowances to approximately 15,000 enterprises in 25 countries and established a market for emissions trading. In Korea, the carbon emission trading system started from January 2015 with three phases running up to 2025. As many countries have introduced carbon markets, new evaluation models that consider not only fossil energy prices but also carbon emission costs are necessary because additional costs of using fossil energy might have been incurred due to carbon emissions. The purpose of this paper is to develop a real option model that considers not only the uncertainty of existing fossil energy prices, but also the uncertainty of carbon emission rights prices, in evaluating the economic value of renewable energy R&D. Using the real option model, we attempted to assess the effects of the uncertainty of newly appearing carbon markets on the economic value of renewable energy R&D in Korea empirically. Furthermore, we derived an optimal decision path according to the uncertain future situations of fossil energy and carbon markets by analyzing a trinomial lattice model in which the optimal timings of R&D and deployment are identified.

Innovating and Pricing Carbon-Offset Options of Asian Styles on the Basis of Jump Diffusions and Fractal Brownian Motions

“…We additionally connect different groups' analogous methods using lines. For example, the group of [2,3] and the group of [4][5][6][7] have both contemplated carbon-offset investments. The group of [8,9] and the group of [1,10,11] have both conducted empirical research.…”

“…Ref. [7] was aware of fossil-energy prices and carbon-emission-allowance prices, and conceived real options for R&D investments.…”

The Energy Saving and Emission Reduction Effect of Carbon Trading Pilot Policy in China: Evidence from a Quasi-Natural Experiment

“…Some other scholars believe that there is a nonlinear relationship between environmental regulation and energy efficiency, mainly due to the two natural attributes of “scarcity” and “externality” of energy, which makes the leading force affecting energy efficiency evolve from the “innovation compensation effect” to the “cost following effect” [ 37 ]. Moreover, from the perspective of energy, some scholars claim that there is an “energy rebound effect” [ 38 ]. That is, although technological progress can advance energy efficiency and realize the effect of energy conservation, it will also reduce the unit production price and cost of products, further increasing the actual demand for and consumption of products, which eventually bring more energy consumption, resulting in additional energy consumption offsetting the energy saved by energy efficiency improvement.…”

An Extended Pythagorean Fuzzy Approach to Group Decision-Making With Incomplete Preferences for Analyzing Balanced Scorecard-Based Renewable Energy Investments

“…Technological development is also essential for the effectiveness of the renewable energy investment projects according to some researchers. Kim et al [35] focused on the relationship between the technological improvement and renewable energy investments. For this purpose, a real option model has been constructed.…”