For companies assessing the implications of a carbon-constrained world, understanding the future cost of carbon dioxide (CO2) emissions credits (or the value of emissions reductions) is the billion-dollar question. Having an answer to this question is critical to a company’s ability to assess future risk and competitiveness, determine company policy, evaluate business opportunities, and make R&D decisions. The reasons are obvious. Even a modest CO2 liability could:
- reduce the net present value (NPV) of a new 500 MW coal plant by $120 million (a 5% reduction on internal rate of return);
- impose a $115 million NPV cost per million tons of capacity at a coalmine (over 20 years); and make huge new Canadian oil sands projects economically unattractive.
Many companies recognise GHG risk as perhaps the single most important environmental risk they face. Some have already assigned staff from their policy or environmental, health and safety teams to work on GHG strategy.Yet many of these same companies still don’t internalise a value for CO2 in corporate decision-making. Why? “It’s too uncertain.