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Climate cost uncertainty, retrofit cost uncertainty, and infrastructure closedown : a framework for analysis, Volume 1
 
Author:Strand, Jon; Miller, Sebastian; Country:World;
Date Stored:2010/02/16Document Date:2010/02/01
Document Type:Policy Research Working PaperSubTopics:Energy Production and Transportation; Environment and Energy Efficiency; Transport Economics Policy & Planning; Climate Change Mitigation and Green House Gases; Climate Change Economics
Language:EnglishMajor Sector:Energy and mining
Rel. Proj ID:1W-Climate Change Mitigation -- -- P117259;Region:The World Region
Report Number:WPS5208Sub Sectors:General energy sector
Collection Title:Policy Research working paper ; no. WPS 5208Volume No:1

Summary: Large and energy-intensive infrastructure investments with long life times have substantial implications for climate policy. This study focuses on options to scale down energy consumption and carbon emissions now and in the future, and on the costs of doing so. Two ways carbon emissions can be reduced post-investment include retrofitting the infrastructure, or closing it down. Generally, the presence of bulky infrastructure investments makes it more costly to reduce emissions later. Moreover, when expected energy and environmental costs are continually rising, inherent biases in the selection processes for infrastructure investments lead to excessive energy intensity in such investments. Thus great care must be taken when choosing the energy intensity of the infrastructure at the time of investment. Simulations indicate that optimally exercising the retrofit option, when it is available, reduces ex ante expected energy consumption relative to the no-option case. Total energy plus retrofit costs can also be substantially reduced, the more so the larger is ex ante cost uncertainty. However, the availability of the retrofit option also leads to a more energy intensive initial infrastructure choice; this offsets some, but usually not all, of the gains from options for subsequent retrofitting.

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