Emission Reduction Or Monetary Gain? Economic Decision Analysis For Energy Transition Projects

All decisions, including investing in energy transition projects, should satisfy the preferences of the owners. Yet owners of public firms have potentially contrasting preferences for emission reduction, value, and risk. For managers as agents of the owners, satisfying all tastes would be challenging. In this paper, instead of the commonly suggested multi-attribute-decision-making with such unclear trade-offs, we use simplifying measures from finance theory. Using insights from emission markets and an example from energy transition, in this paper we discuss that the single goal of “maximizing shareholder value” would eventually satisfy all the owners. This means that any preferences other than those of the market are irrelevant to business decisions. Corporations should make value maximizing decisions within the rules of the game (set by the regulatory system) that promote energy transition preferences.

Babak Jafarizadeh

United States