Prof Rüdiger Frey from Vienna University for Economics and Business: seminar

Professor Rüdiger Frey will present a CRA seminar “Steady does it? On the impact of tax uncertainty on investment into carbon abatement technologies” on 29 May 2023 from 11 am to 12 pm at Macquarie University Business School, 110 Finance Decision Lab, Level 1,  4 Eastern Rd. The seminar can also be attended online via Zoom.

Abstract

Carbon taxes and emissions trading are a key policy tool for reducing carbon emissions. Most of the economics literature focuses on the structure of optimal taxes or optimal supply of emission certificates. However, in reality future emission tax rates  are somewhat random since they are affected by unpredictable events such as political sentiment or the outcome of elections. This is a special case of so-called climate policy uncertainty.

In this talk  we study the problem of a profit maximizing electricity producer who decides on investments in technologies for abatement of CO2 emissions in an environment with random emission taxes. We compare two scenarios: in the first scenario, the taxation policy is deterministic; in the second scenario we allow for exogenous deviations from the deterministic setting, which arrive at exponential times, which may either increase or decrease the taxes. We show that in certain scenarios the uncertainty on the future taxation makes the company less willing to make investment and hence a clear and a priori fixed strategy would instead maximize the actions for emission reduction.

Prof. Rüdiger Frey bio

Rüdiger Frey is Full Professor of Mathematics and Finance at the Vienna University for Economics and Business (WU). Prior to that he held positions as Professor of Optimization and Financial Mathematics at the University of Leipzig and various academic positions at the University of Zurich and at  the Federal Institute of Technology (ETH) in Zurich. He holds a diploma in mathematics from the University of Bonn where he received his PhD in financial economics in 1996. His main research fields are quantitative risk management, dynamic credit risk models, the pricing and hedging of derivatives under market frictions and optimization problems in financial economics. Rüdiger has published research papers in leading international academic journals and has given seminars at a number of important international conferences and institutions. He is moreover frequently giving practitioner courses. Rüdiger is coauthor of the popular book "Quantitative Risk Management: Concepts Techniques & Tools" (Princeton University Press 2015).