Setting a Carbon Emissions Reduction Target: Over the last 5 or 6 years we have

Question

Setting a Carbon Emissions Reduction Target: Over the last 5 or 6 years we have been doing a lot of work in the corporate sustainability area, particularly climate change. Here is an application of present value tools to that topic. Scientists say that between 2015 and 2050 to be on a 2°C pathway (having about a 66% likelihood of 2°C of warming or less) companies need to reduce their carbon emissions by 75%. A company wants to follow this 2°C pathway. Its current emissions (2015) are 28,000 metric tons of CO2 per year.

A. What will its emissions need to fall to in 2050 to satisfy the 75% decrease?

B. What does this imply about an annual compound rate of reduction?

C. Using that annual rate above, what will the company’s emissions targets (in metric tons of CO2) be in 2020 and 2030, that is 5 years from 2015 and 15 years from 2015?

Explanation / Answer

Current emissions=28000

In 2050, emissions=28000*(1-75%)=7000

Annual reduction=1-(7000/28000)^(1/(2050-2015))=3.88%

In 2020, emissions=28000*(1-3.88%)^5=22973.483

In 2030, emissions=28000*(1-3.88%)^15=15465.5177

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