Infrastructure Investments under Uncertainty with the Possibility of Retrofit : Theory and Simulations
Investments in large, long-lived, energy-intensive infrastructure investments using fossil fuels increase longer-term energy use and greenhouse gas emissions, unless the plant is shut down early or undergoes costly retrofit later. These investments...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110103092025 http://hdl.handle.net/10986/3289 |
| Summary: | Investments in large, long-lived,
energy-intensive infrastructure investments using fossil
fuels increase longer-term energy use and greenhouse gas
emissions, unless the plant is shut down early or undergoes
costly retrofit later. These investments will depend on
expectations of retrofit costs and future energy costs,
including energy cost increases from tighter controls on
carbon emissions. Simulation analysis shows that the
retrofit option can significantly reduce anticipated future
energy consumption as of the time of initial investment, and
total future energy plus retrofit costs. The more uncertain
are the costs, the greater the value of this option.
However, the future retrofit option also induces more
energy-intensive infrastructure choices, partly offsetting
the direct effect of having the option on anticipated energy
use. Efficient, forward-looking infrastructure investments
have high potential for reducing long-term energy
consumption. Particularly if energy prices are expected to
rise, however, the potential for reduced energy consumption
will be eroded if expectations of energy prices do not
include environmental costs or future retrofit possibilities
and technologies are not adequately developed. |
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