by Sabine Fuss, Alexander Golub, Jana Szolgayova and Michael Obersteiner
- This paper developes a real options model to finance reduction of emissions from deforestation and degradation (REDD). There is an option to invest in less carbon-intensive energy technology and an option to purchase credits on REDD, which you will exercise or not depending on the future evolution of CO2 prices. In this way, unresolved questions can still be addressed at a later stage, while producers and investors hold REDD options to maintain flexibility for later decisions. We find that investment in cleaner technology is not significantly affected if REDD options are priced as a derivative of CO2 permits.
Fuss, S., A. Golub, J. Szolgayova and M. Obersteiner (2009). "Effects of Low-cost Offsets on Energy Investment -New Perspectives on REDD-", FEEM Nota di Lavoro 17.09, March 2009.