Low-carbon technologies investment decisions under uncertainty created by the carbon market
Low-carbon technologies investment decisions under uncertainty created by the carbon market

Summary/Abstract: Emissions trading promises to meet an environmental goal in the most cost-effective way by ensuring that the market price of carbon is equal to the lowest marginal abatement cost amongst all controlled sources. European Union Emission Trading Scheme has been functioning since 2005. Next years have proven the significant uncertainty generated by the implementation and architecture of EU ETS that impedes business long-term planning. This uncertainty results from EUAs long-term as well as short-term price volatility, system vagueness, entities reporting duties, fraud and taxation. Some of described types of uncertainty can be removed due to system perfecting. On the other hand – EUAs price instability is ingrained in the system nature. The uncertainty augments the cost of transactions and impairs the realization of the Coase theorem and thus undermines EU ETS. Thereof the asking if imposing carbon taxes would be more cost effective way of achieving environmental goals is still reasonable.

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