Analysis of firm dynamic green energy investment strategy - application of real options

Abstract

This paper mainly adopts the Real Options Approach (ROA) to construct a dynamic green energy investment strategy analysis model for firms that reduce carbon emission during production to meet the government’s policy, to provide optimal investment opportunities and to evaluate the value of investment projects. Recently, governments around the world have formulated environmental protection policies to reduce greenhouse gas emissions. Under the implementation of polluter pays, the carbon emissions produced by firms are no longer free riders. When the government implements restrictions on carbon emissions the carbon emission limits will affect corporate investment decisions. This article assumes that there are uncertainties in production volume and carbon emissions, and the change follows the geometric Brownian motion. The carbon emission trading will be conducted according to the market supply and demand status when a firm’s carbon emissions exceed or fall below the prescribed emissions. Under this premise, this paper constructs the most appropriate investment strategy model and analyses the investment decision threshold for the firm from a financial point of view to evaluate the corporate value. It serves as a reference for a firm’s green energy investment and provides the government with a reference policy for carbon emissions, and with a view to creating a business, government, and social environment tripartite win-win situation.