The Applying Of Real Option On The Valuation Of Emission Rights

As environmental problems become increasingly prominent, pollution emissions is increasingly becoming the method of all countries to solve the environmental problems. And the trading market of pollution emissions has bright future. How to price the emissions is the primary question to solve the problems of emissions trading.Firstly, this paper provides an overview of emissions trading and the basic knowledge and theory of real options, and mainly uses the real option methods to analyze the potential values in the business of the enterprises after receiving the right of emissions and re-evaluates the rights of emissions, such as expanding the productions without restrictions from environmental protection department and increasing the value of the choice to do the research of emissions reduction. Meanwhile, this paper analyzes the value of emission rights considering two firms involved with game theories and finds that some co-operations would help increasing the value of emission rights. Finally, the paper analyzes the case study of Clean Development Mechanism (CDM) projects by discussing the potential value of this projects and pricing these real options, and then gives some recommendations for China to develop CDM projects.