University of Twente Student Theses


A Product Investment Decision-Making Method Under Carbon Pricing Uncertainty

Rusch, N.D. (2023) A Product Investment Decision-Making Method Under Carbon Pricing Uncertainty.

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Abstract:This study addresses the pressing challenge faced by Vanderlande Industries (VI) regarding the uncertain future of carbon pricing policies and their potential impact on VI's operations and products. The research objective is to develop a method to incorporate carbon pricing into VI's product investment decision-making, effectively monetizing sustainability. Key deliverables include a forecast for various carbon price paths and a Discounted Cash Flow (DCF) analysis tool to support investment decisions under different carbon pricing scenarios. Using the Design Science Research Methodology (DSRM), the study integrates the DCF tool with various forecasted carbon price paths, including those generated by the ARIMA model, Geometric Brownian Motion, and linear regression. The results suggest that carbon prices will increase until 2050, with linear regression providing a stable long-term projection of 175 Euros per ton of CO2. Recommendations include using the ARIMA(2,2,2) model for short-term price forecasting and re-evaluating this annually. The DCF tool is proven to be valuable in evaluating the financial and environmental aspects of product investments. A case study comparing materials (aluminum vs. steel) demonstrates the usability of the tool. This research empowers VI to make informed investment decisions in alignment with evolving industry standards and environmental responsibilities. It also offers VI a DCF tool to monetize carbon emissions, aiding in well-informed decision-making and increasing awareness of carbon pricing within the company. This pioneering methodology contributes significantly to both practical application and theory.
Item Type:Essay (Master)
Vanderlande, Veghel, Netherlands
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:31 mathematics, 43 environmental science, 83 economics
Programme:Industrial Engineering and Management MSc (60029)
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