A Dual Real Options Framework for Sustainable Technology Intervention and Dynamic Multi-Plant Capacity Allocation: Global Staging of Energy-Intensive Industries Under Stochastic Power Jumps and Cross-Border Carbon Arbitrage

Abstract

The European Union Carbon Border Adjustment Mechanism (CBAM) and volatile electricity markets create linked operating and investment risks for energy-intensive multinational firms. This study develops a six-dimensional stochastic dynamic programming model with dual real options for plant entry, green transformation, production allocation, and abandonment. Electricity prices follow a mean-reverting jump process, carbon prices follow Geometric Brownian Motion, exchange rates follow a mean-reverting diffusion, and financing costs are represented by a carbon-adjusted Cox–Ingersoll–Ross process. The numerical analysis combines 2026 public market benchmarks with scenario inputs identified as model assumptions and solves the allocation problem using Monte Carlo paths and Sequential Least Squares Programming. Under the stated calibration, higher energy and financing uncertainty widens the entry abandonment region, while green capital investment and looser capital constraints narrow it. Production also shifts across plants when relative marginal costs change. These results are model-based and apply to the representative Texas–EU setting rather than to observed firm behavior.