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Infrastructure Investments Under Uncertainty With The Possibility Of Retrofit: Theory And Simulations

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Executive Summary

Investments in large, long-lived, energy-intensive infrastructure investments using fossil fuels increase longer-term energy use and greenhouse gas emissions, unless the plant is shut down early or undergoes costly retrofit later. These investments will depend on expectations of retrofit costs and future energy costs, including energy cost increases from tighter controls on carbon emissions. Simulation analysis shows that the retrofit option can significantly reduce anticipated future energy consumption as of the time of initial investment, and total future energy plus retrofit costs.

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