Flexibility premium of emissions permits

Investments in abatement technology are often characterised by irreversibility and significant implementation lags, whereas emissions permits can be traded at any time. As such, permit trading systems hardly perfect substitutes. We formally study the flexibility of propose a unified framework to rationalise impact both investment/divestment lags relation price permits. Using option pricing concepts, we reformulate adoption problem terms technology’s characteristics (irreversibility lags) offer conceptual quantification premium