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Industrial Engineering & Operations Research
Master of Science (M.S.)
Year Degree Awarded
Month Degree Awarded
Decision, Climate, Energy, Portfolio, Uncertainty, Optimal
We investigate a two stage energy technology research and development (R&D) portfolio decision problem under climate change uncertainty. We consider 23 R&D projects where the success of the funded projects is uncertain. For the first stage we derive portfolios which minimize expected total societal cost by applying decision analysis methods. Between the two stages learning on the climate damages and on the success of the funded projects takes place. At the second stage the optimal abatement level is chosen. Starting with the second stage we solve the problem backwards.
We have two key results. First, optimal portfolios turn out to be very robust against risk. Second, we find that the value of technology is non-monotonic in risk. If damages are very high it is optimal to have full abatement, regardless of technical change. This means there are no environmental side benefits in such a case. For medium risk the value of R&D is the highest.
Erin D. Baker