Investment analysis is mostly implemented with Discounted Cash Flow (DCF) methods, such as the Net Present Value (NPV). The problem in a typical application of these methods is the limited ability to value real options, management's ability to adapt to changing market conditions or to revise decisions. This paper presents a simulation model, in which the investment is regarded as a single-firm problem in an operating environment with multiple exogenous and stochastic prices. The simulation model is used to explore the impact of emissions trading, and in particular the European Union Emissions Trading Scheme (EU ETS), on investments in Integrated Gasification Combined Cycle (IGCC) plants. Two real case studies are presented: modifications of an existing condensing power plant and a new combined heat and power plant. The benefit of the selected approach is that it can take into account the value of multiple simultaneous real options better than a standard DCF analysis. The results show that a straightforward application of DCF analysis can lead to biased results in competitive energy markets within an emissions trading scheme, where a number of uncertainties potentially combined with several real options can make quantitative investment appraisals very complex. (c) 2005 Elsevier Ltd. All rights reserved.