Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments – An Application to the Swedish Pulp and Paper Industry and Energy Sector

Katrin Millock (1) , Céline Nauges (2) , Åsa Löfgren (3)

1 CES - Centre d'économie de la Sorbonne
2 LERNA - Economie des Ressources Naturelles
3 Department of Economics, Göteborg University

We propose a method for estimating hurdle
rates for firms' investments in pollution abatement technology, using ex
post data. The method is based on a structural option value model where the
future price of polluting fuel is the major source of uncertainty facing the
firm. The econometric procedure is illustrated using a panel of firms from
the Swedish pulp and paper industry, and the energy and heating sector from
2000 to 2003. The results indicate a hurdle rate of investment of almost 3
in the pulp and paper industry and almost 4 in the energy and heating sector.

Mots clés: option value; fuel price uncertainty; carbon emissions abatement; price uncertainty; panel data

Domaines: Economies et finances; Etudes de l'environnement

Katrin Millock, Céline Nauges, Åsa Löfgren. Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments – An Application to the Swedish Pulp and Paper Industry and Energy Sector. 2007. ⟨halshs-00272041⟩