Environmental Markets Association

Is $0 your best guess? - Many companies do not yet factor in a price for carbon dioxide (CO2) emissions into their corporate planning.

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Courtesy of Environmental Markets Association

Emerging climate change policy regimes and evolving greenhouse gas (GHG) markets are increasingly important for corporate decision-makers around the world. Readers of Environmental Finance, of course, do not need to be convinced of the sheer magnitude of voluntary and mandatory climate change initiatives being discussed at national and international levels.  And few observers believe that the United States will remain on the sidelines of this issue indefinitely. When that changes, all bets are off.

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.

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