Title: A control model of policy uncertainty and energy R&D investments

Authors: Ekundayo Shittu, Erin Baker

Addresses: Tulane Energy Institute, Freeman School of Business, Tulane University, New Orleans, LA 70118, USA. ' Department of Mechanical and Industrial Engineering, University of Massachusetts, Amherst, MA 01003, USA

Abstract: Using an optimal control model, we explore the reaction of a firm|s optimal investment into an R&D program that aims at non-carbon technologies under uncertainties about a future carbon tax. We find; first, that the influence of risk on investment decisions depends on model formulation. Second, near-term investments decrease in risk in the magnitude of a carbon tax, but increase in uncertainty in the timing of a carbon tax.

Keywords: policy uncertainty; carbon tax; research and development; R&D investment; energy investment; optimal control modelling; non-carbon technologies; investment risk; investment decisions.

DOI: 10.1504/IJGEI.2009.032334

International Journal of Global Energy Issues, 2009 Vol.32 No.4, pp.307 - 327

Published online: 31 Mar 2010 *

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