Net Present CO2 Reductions – A Measure for an Adequate Evaluation of Green Initiatives

When assessing a green initiative, the standard approach is an application of the classical discounting of future gains converted into monetary terms. In doing so, significant uncertainties about the future value of CO2 reductions are introduced.

The current alternative is to measure the CO2 reductions in a single reference year, e.g. 2030 or 2050. This does not take into account the CO2 reduction trajectory process during the years up to, and after, the reference year. In this paper, a new basis for decision making is presented, in which discounting of the CO2 reductions is measured in tonnes. In this approach, the discount factor takes into account the impatience implied from the tipping point theory. Furthermore, such a measure would adequately reflect the entire CO2 reduction profile of the initiative in question, rather than being restricted to focusing on the impact in a (single) selected reference year.

Frederik Roose Øvlisen