The Impacts Of Carbon-reduction Policies On The Investment Value Of Power Plants

Greenhouse gases, especially the excessive emission of carbon dioxide, is considered to be the arch-criminal to lead to global warming. Scientists agree that climate warming, may lead to serious consequences, not only endanger the balance of natural ecosystems, but also a direct threat to the survival of mankind. In order to change the situation, the developed countries signed the "Kyoto Protocol" in 1997, which proposed mandatory requirements for developed countries to reducing emissions. In order to achieve the reduction targets, many countries have implemented environmental policies, in which the carbon tax and tradable permits are the two most important market policy tools.In China, the power sector contributes almost 50% of the total emissions, that’s mainly because of the special power mix dominated by coal power. The implementation of carbon tax and tradable permits will change the pay-off of coal-base power plant and wind power plant, and influences the investment decision of investors. Based on real options theory, this paper considers the uncertainties of the coal price, the electricity price, carbon price and the utilization hours of wind power, and analyzes the impacts of the two environmental policies on power generators’ investment choices. We find that:(1) even without the carbon tax or tradable permits, the investment value of wind power is higher than the investment value of coal power at present; (2) If the two policies were implemented, the investment value of coal power will be reduced by 12% when the tax rate is lOYuan/ton or the free quota is 90%; (3) if the "coal linkage" policy was carried out, the investment value of coal power will rise 82%; (4) the investment value of wind power will rise 12% when the wind farm joined the CCER; (5) the tax rate should be set above 28Yuan/ton and the proportion of free quota should be lower than 50% when the wind farms don’t participate in the CCER, or the rate is above 9Yuan/ton and the free quote is lower than 92% when the wind farms join the CCER if the government wants to change the investment choices of power plants through carbon tax and tradable permits.