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Annals of Operations Research

, Volume 255, Issue 1–2, pp 465–506 | Cite as

Mitigating global warming: a real options approach

  • Marc Chesney
  • Pierre LasserreEmail author
  • Bruno Troja
S.I.: Energy and Climate Policy Modeling

Abstract

Mitigation and adaptation represent two solutions to the issue of global warming. While mitigation aims at reducing \(\hbox {CO}_2\) emissions and preventing climate change, adaptation encompasses a broad scope of techniques used to reduce the impacts of climate change once they have occurred. Both have direct costs on a country’s gross domestic product, but costs also arise from temperature increases due to inaction. This paper introduces a tipping point in a real options model and analyzes optimal investment choices in mitigation and their timing.

Keywords

Adaptation Mitigation Real options Delay Tipping point Climate change \(\hbox {CO}_2\) Gross domestic product 

Notes

Acknowledgments

The authors’ deepest gratitude goes to Dr. Delia Coculescu, Department of Banking and Finance, University of Zürich, for the helpful suggestions. The authors would also like to thank two anonymous referees for their insightful comments and editorial advices.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.University of Zurich, IBFZurichSwitzerland
  2. 2.Départment des sciences économiquesUniversité du Québec à Montréal, ESGMontrealCanada

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