Publication: Energy Intensive Infrastructure Investments with Retrofits in Continuous Time : Effects of Uncertainty on Energy Use and Carbon Emissions
Date
2013-04
ISSN
Published
2013-04
Author(s)
Abstract
Energy-intensive infrastructure may tie
up fossil energy use and carbon emissions for a long time
after investments, making the structure of such investments
crucial for society. Much or most of the resulting carbon
emissions can often be eliminated later, through a costly
retrofit. This paper studies the simultaneous decision to
invest in such infrastructure, and retrofit it later, in a
model where future climate damages are uncertain and follow
a geometric Brownian motion process with positive drift. It
shows that greater uncertainty about climate cost (for given
unconditional expected costs) then delays the retrofit
decision by increasing the option value of waiting to
invest. Higher energy intensity is also chosen for the
initial infrastructure when uncertainty is greater. These
decisions are efficient given that energy and carbon prices
facing the decision maker are (globally) correct, but
inefficient when they are lower, which is more typical.
Greater uncertainty about future climate costs will then
further increase lifetime carbon emissions from the
infrastructure, related both to initial investments, and to
too infrequent retrofits when this emissions level is
already too high. An initially excessive climate gas
emissions level is then likely to be worsened when
volatility increases.
Link to Data Set
Citation
“Framstad, Nils Christian; Strand, Jon. 2013. Energy Intensive Infrastructure Investments with Retrofits in Continuous Time : Effects of Uncertainty on Energy Use and Carbon Emissions. Policy Research Working Paper;No. 6430. © World Bank, Washington, DC. http://hdl.handle.net/10986/15572 License: CC BY 3.0 IGO.”
Report Series
Report Series
Other publications in this report series
-
PublicationHow to Deal with Exchange Rate Risk in Infrastructure and Other Long-Lived Projects(World Bank, Washington, DC, 2023-09-19)Most developing economies rely on foreign capital to finance their infrastructure needs. These projects are usually structured as long-term (25–35 years) franchises that pay in local currency. If investors evaluate their returns in terms of foreign currency, exchange rate volatility introduces risk that may reduce the level of investment below what would be socially optimal. This paper proposes a mechanism with very general features that hedges exchange rate fluctuation by adjusting the concession period. Such mechanism does not imply additional costs to the government and could be offered as a zero-cost option to lenders and investors exposed to currency fluctuations. This general mechanism is illustrated with three alternative specifications and data from a 25-year highway franchise is used to simulate how they would play out in eight different countries that exhibit diverse exchange rate trajectories.
-
PublicationRebel with a Cause: Effects of a Gender Norms Intervention for Adolescents in Somalia(World Bank, Washington, DC, 2023-09-15)Gender inequality and restrictive norms are often reinforced and internalized during adolescence, influencing pivotal life choices. This paper presents results from a randomly-assigned gender norms intervention for young adolescents in Somalia that led to greater support for gender equality in reported attitudes among both girls and boys. In a novel lab-in-the-field experiment designed to observe social group dynamics, treated adolescents were also found to be less likely to succumb to peer pressure to conform when stating their gender attitudes in public. Perceptions of gender norms appears to shift for boys, leading to a greater public expression of gender egalitarian ideals. Furthermore, the findings show improved adolescent mental health, increased caring behavior towards siblings of the opposite sex, and a higher likelihood of involvement in household chores by boys. A complementary gender norms intervention for parents had limited marginal impact on the attitudes and behaviors of adolescents. The results suggest that gender norms interventions can be effective in influencing the attitudes and public discourse around gender equality, even in early adolescence.
-
PublicationCorruption as a Push and Pull Factor of Migration Flows: Evidence from European Countries(World Bank, Washington, DC, 2023-09-14)Conclusive evidence on the relationship between corruption and migration has remained scant in the literature to date. Using data from 2008 to 2018 on bilateral migration flows across European Union and European Free Trade Association countries and four measures of corruption, this paper shows that corruption acts as both a push factor and a pull factor for migration patterns. Based on a gravity model, a one-unit increase in the corruption level in the origin country is associated with a 11 percent increase in out-migration. The same one-unit increase in the destination country is associated with a 10 percent decline in in-migration.
-
PublicationGlobal Trends in Child Monetary Poverty According to International Poverty Lines(World Bank, Washington, DC, 2023-09-19)This paper analyzes extreme child poverty ($2.15/day poverty line) trends, as well as child poverty based on the higher international poverty lines of $3.65 and $6.85. The paper provides a trajectory of extreme child poverty (children living in extremely poor households) from 2013 to 2019 (based on the most recent surveys included in the Global Monitoring Database), complemented by nowcasting for 2020 to 2022. Children continue to be disproportionately affected by extreme poverty. Children who are younger than 18 years comprise more than 50 percent of those living in extreme poverty, although their share of the population is 31 percent. The paper estimates that in 2019, 15.8 percent of children in the world (319 million) younger than 18 years lived on less than $2.15 (2017 purchasing power parity) per day, as opposed to 6.6 percent of adults ages 18 and older. More recent “nowcasted” estimates suggest that at least 333 million children were expected to be living in extremely poor households in 2022, implying that 14 million more children were extremely poor in 2022 than in 2019. Following an increase in extreme child poverty at the height of the pandemic in 2020, nowcasted estimates show that the rate of extreme child poverty fell again in 2021 and 2022, but only at the slow rate of progress seen prior to the COVID-19 crisis. If the COVID-19 pandemic had not occurred, an estimated 79.7 million fewer children would have been living in extreme poverty between 2013 and 2022; however, the estimates suggest that the number of children living in extreme poverty decreased by 49.2 million, due to pandemic disruptions.
-
PublicationEffects of a Lottery Incentive on Sexually Transmitted Infections and HIV Incidence among Female Sex Workers in Tanzania: Results from the RESPECT II Randomized Trial(World Bank, Washington, DC, 2023-09-26)Female sex workers are a key population who experience a disproportionately high burden of HIV and sexually transmitted infections. A growing body of evidence suggests that financial incentives can reduce risky sexual behavior and the incidence of HIV and sexually transmitted infections; however, few studies have examined a lottery-based incentive mechanism or been conducted with female sex workers. This paper examines the effect of a lottery intervention on the combined incidence of HIV and herpes simplex virus 2 among female sex workers in Tanzania. The RESPECT II trial was an unmasked, two-arm, parallel group randomized controlled trial conducted in Dar es Salaam, Tanzania among 2,206 enrollees from 2018 to 2021. Participants were randomized in a one-to-one ratio to the basic test control group or to the lottery intervention group. The basic test group received testing and counseling for HIV and biweekly text messages with information on safe sex practices. The lottery group received the basic test group intervention plus entry into a weekly lottery with a 100,000 Tanzanian shilling (US$50) reward offered to 10 randomly selected participants, conditional on negative test results for syphilis and trichomonas. The primary outcome was combined HIV and herpes simplex virus 2 incidence after 36 months. The results showed no statistically significant effect on this primary outcome. Thus the study finds no evidence that the lottery-based incentives reduced the incidence of HIV and sexually transmitted infections among the female sex worker population. However, the results may have been affected by disruption from the COVID-19 pandemic, and unexpectedly high study attrition levels made it impossible to statistically rule out possible moderate-sized effects.