In a carbon constrained world, the right to pollute is a new factor which comes into
play. Now that a price has been put on such emission allowances, power plant decision
makers need to take this price into consideration in their calculations concerning short-term
and long-term investment decisions.
Moreover, carbon price uncertainty due to various reasons, including climate policy has
been often be accused of being one of the reasons why investments are postponed in power
generation capacity in the EU. More specifically, the absence of long-term visibility and the
volatility of the European carbon price have been strongly criticized by European utilities.
This thesis attempts to investigate the issue of carbon price uncertainty for European
utilities and tries to evaluate its impact on the power sector finding reasons why utility
corporate investors would delay their investments in generation capacity or would favor
specific investment alternatives over others.
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