Publication:
Energy Intensive Infrastructure Investments with Retrofits in Continuous Time : Effects of Uncertainty on Energy Use and Carbon Emissions

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dc.contributor.authorFramstad, Nils Christian
dc.contributor.authorStrand, Jon
dc.date.accessioned2013-09-04T16:06:56Z
dc.date.available2013-09-04T16:06:56Z
dc.date.issued2013-04
dc.description.abstractEnergy-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.en
dc.identifierhttp://documents.worldbank.org/curated/en/2013/04/17648684/energy-intensive-infrastructure-investments-retrofits-continuous-time-effects-uncertainty-energy-use-carbon-emissions
dc.identifier.doi10.1596/1813-9450-6430
dc.identifier.urihttps://hdl.handle.net/10986/15572
dc.languageEnglish
dc.language.isoen_US
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 6430
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectABATEMENT
dc.subjectABATEMENT COSTS
dc.subjectABATEMENT POLICIES
dc.subjectAGGREGATE EMISSIONS
dc.subjectALLOCATION
dc.subjectAPPROACH
dc.subjectATMOSPHERE
dc.subjectAVAILABILITY
dc.subjectBALANCE
dc.subjectCALCULATION
dc.subjectCARBON
dc.subjectCARBON CAPTURE
dc.subjectCARBON EMISSIONS
dc.subjectCARBON EMISSIONS FROM FOSSIL
dc.subjectCARBON PRICES
dc.subjectCDF
dc.subjectCLIMATE
dc.subjectCLIMATE CATASTROPHE
dc.subjectCLIMATE DAMAGES
dc.subjectCLIMATE POLICY
dc.subjectCO2
dc.subjectCOAL
dc.subjectCONVERGENCE
dc.subjectCOOLING SYSTEMS
dc.subjectCOST FUNCTIONS
dc.subjectCOST SAVINGS
dc.subjectDIESEL
dc.subjectECONOMIC DYNAMICS
dc.subjectELASTICITY
dc.subjectELECTRIC VEHICLES
dc.subjectEMISSION
dc.subjectEMISSION INTENSITY
dc.subjectEMISSION LEVEL
dc.subjectEMISSION LEVELS
dc.subjectEMISSION RATES
dc.subjectEMISSION REDUCTION
dc.subjectEMISSIONS INTENSITY
dc.subjectEMISSIONS LEVELS
dc.subjectEMISSIONS PATH
dc.subjectEMISSIONS PRICES
dc.subjectEMISSIONS RATES
dc.subjectENERGY CONSUMPTION
dc.subjectENERGY COSTS
dc.subjectENERGY ECONOMICS
dc.subjectENERGY INTENSITY
dc.subjectENERGY PRICES
dc.subjectENERGY SOURCE
dc.subjectENERGY SUPPLY
dc.subjectENERGY USE
dc.subjectENVIRONMENTAL
dc.subjectENVIRONMENTAL COSTS
dc.subjectENVIRONMENTAL DAMAGES
dc.subjectENVIRONMENTAL ECONOMICS
dc.subjectENVIRONMENTAL POLICY
dc.subjectFOSSIL ENERGY
dc.subjectFOSSIL FUELS
dc.subjectFUEL
dc.subjectFUEL COST
dc.subjectGAS
dc.subjectGAS EMISSIONS
dc.subjectGASOLINE
dc.subjectGHG
dc.subjectGHGS
dc.subjectGLOBAL EMISSIONS
dc.subjectGREENHOUSE
dc.subjectGREENHOUSE GAS
dc.subjectGREENHOUSE GAS EMISSIONS
dc.subjectGREENHOUSE GASES
dc.subjectINCOME
dc.subjectINFRASTRUCTURE COST
dc.subjectINFRASTRUCTURE DEVELOPMENT
dc.subjectINFRASTRUCTURE INVESTMENT
dc.subjectINFRASTRUCTURE PROJECTS
dc.subjectINVESTMENT DECISIONS
dc.subjectIRREVERSIBILITY
dc.subjectLOWER COSTS
dc.subjectMARGINAL COST
dc.subjectMARGINAL COSTS
dc.subjectMODELLING ENERGY
dc.subjectMOTOR VEHICLE
dc.subjectMOTOR VEHICLES
dc.subjectOPTION VALUE
dc.subjectPOLICY MAKERS
dc.subjectPOLLUTION
dc.subjectPOWER
dc.subjectPOWER PLANTS
dc.subjectPOWER PRODUCTION
dc.subjectPRESENT VALUE
dc.subjectPRIVATE TRANSPORT
dc.subjectPROBABILITY DENSITY
dc.subjectPROBABILITY DISTRIBUTION
dc.subjectPROBABILITY DISTRIBUTIONS
dc.subjectPUBLIC TRANSPORT
dc.subjectPUBLIC TRANSPORT SYSTEMS
dc.subjectREDUCING EMISSIONS
dc.subjectRENEWABLE ENERGY
dc.subjectRENEWABLE ENERGY SOURCES
dc.subjectRETROFIT DECISIONS
dc.subjectRETROFIT OPTION
dc.subjectRETROFITTING
dc.subjectROAD
dc.subjectROAD EXPANSION
dc.subjectROADS
dc.subjectSEQUESTRATION TECHNOLOGIES
dc.subjectSTOCHASTIC PROCESS
dc.subjectSUPPLY SIDE
dc.subjectTOTAL EMISSIONS
dc.subjectTRANSPORT
dc.subjectTRANSPORT SYSTEMS
dc.subjectTRUE
dc.subjectUNCERTAINTY ANALYSIS
dc.subjectVALUE OF ENERGY
dc.subjectVEHICLE FLEETS
dc.subjectWIND
dc.titleEnergy Intensive Infrastructure Investments with Retrofits in Continuous Time : Effects of Uncertainty on Energy Use and Carbon Emissionsen
dspace.entity.typePublication
okr.crosscuttingsolutionareaClimate Change
okr.crossref.titleEnergy Intensive Infrastructure Investments with Retrofits in Continuous Time: Effects of Uncertainty on Energy use and Carbon Emissions
okr.date.disclosure2013-04-01
okr.date.doiregistration2025-04-10T12:09:18.550354Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/2013/04/17648684/energy-intensive-infrastructure-investments-retrofits-continuous-time-effects-uncertainty-energy-use-carbon-emissions
okr.globalpracticeMacroeconomics and Fiscal Management
okr.globalpracticeTransport and ICT
okr.globalpracticeEnvironment and Natural Resources
okr.globalpracticeEnergy and Extractives
okr.guid452631468176948032
okr.identifier.doi10.1596/1813-9450-6430
okr.identifier.externaldocumentum000158349_20130430090534
okr.identifier.internaldocumentum17648684
okr.identifier.reportWPS6430
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/04/30/000158349_20130430090534/Rendered/PDF/wps6430.pdfen
okr.relation.associatedurlhttps://openknowledge.worldbank.org/handle/10986/22705
okr.topicEnvironment::Climate Change Mitigation and Green House Gases
okr.topicMacroeconomics and Economic Growth::Climate Change Economics
okr.topicTransport Economics Policy and Planning
okr.topicEnergy::Energy Production and Transportation
okr.topicEnvironmental Economics and Policies
okr.topicTransport
okr.unitDevelopment Research Group (DECRG)
okr.volume1 of 1
relation.isAuthorOfPublicationc9d5219c-9076-5386-b0d2-03bab820c61d
relation.isAuthorOfPublication.latestForDiscoveryc9d5219c-9076-5386-b0d2-03bab820c61d
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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