The doctoral dissertations of the former Helsinki University of Technology (TKK) and Aalto University Schools of Technology (CHEM, ELEC, ENG, SCI) published in electronic format are available in the electronic publications archive of Aalto University - Aaltodoc.
Aalto

Tradable Permits for Greenhouse Gas Emissions and Investments in Heat and Power Generation

Harri Laurikka

Dissertation for the degree of Doctor of Science in Technology to be presented with due permission of the Department of Mechanical Engineering for public examination and debate in Auditorium K216 at Helsinki University of Technology (Espoo, Finland) on the 16th of December, 2005, at 12 noon.

Overview in PDF format (ISBN 951-22-7942-8)   [437 KB]
Dissertation is also available in print (ISBN 951-22-7941-X)

Abstract

This thesis explores how tradable greenhouse gas emission permit systems affect investments in heat and power generation. The research question is approached from a capital investor's or the regulator's perspective with six individual articles. Cap-and-trade and baseline-and-credit emissions trading systems are analyzed. The value of an emission permit and other relevant decision variables are treated as stochastic processes in a risk-adjusted framework. Models combining simulation and dynamic programming are presented to analyze single-firm problems with several stochastic variables. The approach extends the standard discounted cash flow analysis by taking into account the value of management's flexibility to adapt and revise later its decisions in response to market development. The implications are analyzed and discussed in association with several technologies. The thesis contributes to the research on emissions trading system design and on practical implications of emissions trading systems on investments in heat and power plants.

This thesis consists of an overview and of the following 6 publications:

  1. Laurikka, H., 2005. The impact of climate policy on heat and power capacity investment decisions. Accepted for publication in Antes, R., Hansjürgens, B., Letmathe, P. (eds.), Emissions Trading and Business 1. Physica Publisher. Heidelberg / New York. 17 p. © 2005 Springer-Verlag. By permission.
  2. Laurikka, H., Koljonen, T., 2005. Emissions trading and investment decisions in the power sector – a case study in Finland. Energy Policy, 12 p., in press. © 2005 Elsevier Science. By permission.
  3. Laurikka, H., 2005. A case study on risk and return implications of emissions trading in power generation investments. Accepted for publication in Antes, R., Hansjürgens, B., Letmathe, P. (eds.), Emissions Trading and Business 2. Physica Publisher. Heidelberg / New York. 16 p. © 2005 Springer-Verlag. By permission.
  4. Laurikka, H., 2005. Option value of gasification technology within an emissions trading scheme. Energy Policy, 13 p., in press. © 2005 Elsevier Science. By permission.
  5. Laurikka, H., 2002. Absolute or relative baselines for JI/CDM projects in the energy sector? Climate Policy 2 (1), 19-33. © 2002 Earthscan / James & James. By permission.
  6. Laurikka, H., Springer, U., 2003. Risk and return of project-based climate change mitigation: a portfolio approach. Global Environmental Change 13 (3), 207-217. © 2003 Elsevier Science. By permission.

Keywords: tradable permits, emissions trading, investment, heat plant, power plant

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© 2005 Helsinki University of Technology

Last update 2011-05-26