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Abstract:
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Texas’ Mass Emission Cap and Trade program is a mandatory Nitrous Oxide (NOx ) abatement program for medium and large stationary sources located in the Houston -Galveston ozone non -attainment area . Effected companies are required to upgrade equipment to meet the current best achievable NOx control technology (BACT ) standards or to purchase emission credits in sufficient quantity to cover the difference in emissions between existing equipment and equipment meeting the BACT standard . With over 260 participating companies , the market for emission credits is ever changing , making it difficult to evaluate whether the lowest cost decision is to upgrade equipment or to purchase NOx emission credits . Because equipment upgrades are capital investments , a well informed , rational decision can have a significant impact on the corporate balance sheet . The objective of this research is to aid the decision maker by predicting credit prices based on a Geometric Brownian Motion model based on historical NOx emission credit transactions . The predicted credit price is useful in evaluating the likelihood of the equipment upgrade option being a favorable or unfavorable decision . For the examined cases , modeled results indicate that equipment upgrade is the more cost effective option . |