Navigating Climate Change: A Framework for Renewable Energy Investments under Uncertainty

This study contributes to renewable energy policy modeling by developing a dynamic decision-making framework that incorporates uncertainty, irreversibility, and the value of information. It responds to the growing need for structured tools to guide investments amid climate volatility, technological change, and economic risk. Grounded in decision theory—especially the work of Von Neumann, Morgenstern, and Savage—the framework models renewable energy investments using subjective probabilities and quasi-option value under evolving climate conditions. The empirical component focuses on ARAMCO’s renewable energy strategy, a corporate case illustrating how fossil-fuel-dependent entities can pivot toward sustainability. The analysis uses Net Present Value (NPV) modeling and real options analysis under different discount rates and carbon pricing scenarios to assess financial feasibility. Results show that lower discount rates and moderate carbon prices improve investment attractiveness, while high carbon pricing significantly reduces project viability. The study also highlights the policy relevance of this framework. Government subsidies, adaptive regulation, and public-private partnerships emerge as critical enablers of resilient investments. It further suggests that aligning ESG reporting standards with carbon pricing policies can strengthen market signals and encourage private capital flow into renewables.By integrating theoretical modeling with corporate investment realities, this chapter offers a replicable tool for policymakers and investors. Future research should expand its application across sectors and geographies to validate generalizability and improve planning in the transition toward low-carbon economies.