The Price of Carbon in 2008-2012: Scenarios for Investment Appraisal

One of the key risk management challenges faced by financial analysts is understanding the drivers affecting the price of carbon dioxide (CO₂) in the first Kyoto budget period of 2008–2012. Cashflow forecasts in that period are very much material to any planned new investment decisions. Fundamentals analysis of the market, policy, and technology drivers can provide robust estimates for the price of CO₂ and reduce uncertainties for technology appraisal, portfolio review, and corporate investment pathways.

ICF International has developed a comprehensive report based on a fundamental analysis to forecast CO₂ prices under several scenarios. Overall our findings indicate that the two most critical determinants of price are the flow of surplus Assigned Amount Units (AAUs) from economies in transition to meet demand within the European Union (EU) and other countries, and the ability of the power generation sector to reduce carbon dioxide equivalent (CO₂e) emissions.

ICF International's study, "The Price of Carbon in 2008-2012: Scenarios for Investment Appraisal," is grounded in leading-edge analysis. We use sector- and country-specific marginal abatement cost curves for all gases and our proprietary tool, the Integrated Planning Model (IPM®), a dynamic, linear, integrated model of the power sector that has supported more than 100 Gigawatts (GW) of power market investments in the last four years alone.