Abstract
This paper employs real option analysis to evaluate the investment project to adopt energy saving and carbon emission reduction technology. Sensitivity analysis and simulation outcomes highlight the respective roles of carbon price level and government support in the investment decision. That is, government support lies in two major directions to encourage the adoption of carbon emission reduction technology: to increase the subsidy to lower the cost for the firm and encourage adoption of the green technology, and to increase the risk-free return rate. The candidate measures to lower the investment threshold lie three major directions: stabilizing energy price, lowering operation cost, and increasing risk-free return rate. In addition, market expectation and its interactions among the key variables play their significant roles in the optimization process.
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