Carbonvestments: Appraising Investments in a Carbonomics Environment

By Janek Ratnatungaa, Dina Wahyunib

aInstitute of Certified Management Accountants, Australia

bSwinburne University of Technology, Australia

 

Abstract

Polluting the environment with carbon emissions will be no longer free once governments impose carbon pricing. Early movers which start incorporating carbon thinking in business decisions will be winners in the low carbon future. Companies subject to carbon caps under a carbon trading scheme can either invests in carbon sequestration project and or buy carbon credits to offset their carbon liabilities – commonly known as ‘make’ or ‘buy’ decision. While Net Present Value (NPV) has been recorded as the most popular appraisal technique used globally for project valuation purposes, finance theorist suggests that real options (RO) analysis is a more superior technique to value investment opportunities. Using case study data, this study examines how RO approach provides more strategic insights than traditional NPV in valuing carbon sequestration investments (carbonvestments).

Keywords: Carbon Emissions; Carbonomics; Net Present Value; Project Valuation; Real Options Analysis

Download: MAF Vol. 2 – Ratnatunga