Miller, SebastianStrand, JonSiddiqui, Sauleh2012-03-192012-03-192011-01-01https://hdl.handle.net/10986/3289Investments in large, long-lived, energy-intensive infrastructure investments using fossil fuels increase longer-term energy use and greenhouse gas emissions, unless the plant is shut down early or undergoes costly retrofit later. These investments will depend on expectations of retrofit costs and future energy costs, including energy cost increases from tighter controls on carbon emissions. Simulation analysis shows that the retrofit option can significantly reduce anticipated future energy consumption as of the time of initial investment, and total future energy plus retrofit costs. The more uncertain are the costs, the greater the value of this option. However, the future retrofit option also induces more energy-intensive infrastructure choices, partly offsetting the direct effect of having the option on anticipated energy use. Efficient, forward-looking infrastructure investments have high potential for reducing long-term energy consumption. Particularly if energy prices are expected to rise, however, the potential for reduced energy consumption will be eroded if expectations of energy prices do not include environmental costs or future retrofit possibilities and technologies are not adequately developed.CC BY 3.0 IGOABATEMENT POLICIESAPPROACHATMOSPHEREAVAILABILITYBALANCECAPITAL COSTCARBON CAPTURECARBON DIOXIDECARBON DIOXIDE EMISSIONSCARBON EMISSIONSCARBON TAXESCLIMATECLIMATE CHANGECLIMATE POLICYCO2CONSUMPTION OF FOSSILCOST OF CARBONCOST-BENEFITDEMAND ELASTICITYDEMAND FOR ENERGYDEVELOPMENT ECONOMICSDEWDISCOUNT RATEDISCOUNT RATESDISTRIBUTION OF ENERGYECONOMIC ANALYSISELASTICITY OF DEMANDEMISSIONEMISSION ABATEMENTEMISSIONS CONTROLEMISSIONS INTENSITYEMISSIONS PRICESENERGY CONSUMPTIONENERGY COST SAVINGSENERGY COSTSENERGY DEMANDENERGY ECONOMICSENERGY EFFICIENCYENERGY EXPENDITURESENERGY INTENSIVEENERGY POLICIESENERGY POLICYENERGY PRICEENERGY PRICESENERGY REQUIREMENTENERGY SOURCESENERGY SUPPLYENERGY TAXESENERGY TECHNOLOGIESENERGY TECHNOLOGYENERGY USEENVIRONMENTAL COSTSENVIRONMENTAL ECONOMICSFINANCIAL SUPPORTFOSSILFOSSIL ENERGYFOSSIL ENERGY USEFOSSIL FUELFOSSIL FUELSFUELFUEL CONSUMPTIONFUEL COSTSFUTURE PRICESGHGGHGSGREENHOUSEGREENHOUSE GASGREENHOUSE GAS EMISSIONSGREENHOUSE GAS MITIGATIONGREENHOUSE GASESHIGH ENERGY INTENSITYHIGHER ENERGY CONSUMPTIONINCOMEINFRASTRUCTURE INVESTMENTLOW-CARBONLOWER COSTSLOWER PRICEMARGINAL COSTMARGINAL UTILITYMARKET FAILUREPOLICY MAKERSPPPRICE ELASTICITYPRICE ELASTICITY OF DEMANDPRICE INCREASEREDUCTION IN ENERGY CONSUMPTIONRENEWABLE ENERGYRESOURCE ECONOMICSRETROFIT OPTIONRETROFITTINGRISK AVERSIONSCENARIOSSTOCHASTIC PROCESSSUBSTITUTIONSUPPLY COSTSSUSTAINABLE DEVELOPMENTTOTAL COSTSUTILITY FUNCTIONUTILITY FUNCTIONSZERO EMISSIONSWorld Bank10.1596/1813-9450-5516