Stepwise Investment in Circular Plastics Under the Presence of Policy Uncertainty.

The use of recycled plastics is critical in the transition to a circular economy. However, for certain types of plastics, the recycling process is economically unviable. Government-driven incentives, such as a policy imposing a minimum fraction of recycled plastics to be used in production processes of plastic goods, offer an exit from this impasse. In this paper, we study how a firm's investment behavior is affected by policy uncertainty governing the introduction of such a regulatory measure. Specifically, we adopt a real option approach to study the two-step investment of a firm in its transition to the use of recycled plastics. A clear trade-off can be distinguished. On the one hand, investing early causes unnecessary profit losses before the policy implementation. On the other hand, a lack of investment leads to market exclusion after the policy implementation. For our case study on the use of recycled polyethylene, we find that firms plan their first investment step, so that the timing of the second investment step approximates their projection on the policy implementation time. Moreover, we find that the firm's value is maximized when the capacity of the first investment is smaller than the capacity of the second investment.

Moral hazard in fossil-energy-reliant markets delays early adoption of net-zero technologies.

We use an analytical real option approach to conceptualize and formalize the interaction between long-term climate policies, such as the IRA, and short-term policies intended to protect consumers from volatile fossil-energy prices. An example of the latter is the US releasing strategic oil reserves to lower gas prices. The framework we develop suggests that those short-term policies, which effectively counter incentives created by long-term climate policies, create a moral hazard in fossil-energy-reliant markets. This, in turn, causes early adopters of net-zero technologies to delay their investment. Ultimate adopters, however, do not change their investment decision. The result of this asymmetric reaction to policies is an intensified gradient of the adoption curve of technology, which potentially puts pressure on various supply chains, the financial system, and ultimately government finances. This work is conceptual and does not include an empirical case study since data are too limited in time.

Does weight-based pricing for municipal waste collection contribute to waste reduction? A dynamic panel analysis in Flanders.

This paper analyzes the effects of weight-based pricing on municipal waste generation in Flanders (Belgium) by applying the bias-corrected least squares dummy variables estimation model to account for the dynamic relationship. The study also considers yearly weight-based pricing dummy variables to clarify the annual effects after its introducing and price elasticities of weight-based pricing systems from the both viewpoints of short and long terms. The results by the dynamic panel estimations showed that the continuous participation of weight-based pricing decreases the amount of residual waste significantly by approximately 10.4%. However, the remarkable decrease (approximately 21.4%) was observed only in the first year after the introduction and the reduction effect gradually decreases following its introduction and it disappears in five years. The study also showed that price elasticities of weight-based pricing were smaller than that of volume-based pricing for five years after its introduction and consequently the difference between them disappeared in five years. In addition, the study indicated that the estimation results by the non-dynamic fixed effects model overestimated the long-term effects in weight-based pricing and price effects while underestimating the short-term effect by its introduction. The study suggested that we should consider dynamic effects and remove the bias from the least squares dummy variables estimators when we examine the effects of weight-based pricing.