Duke Carbon Offsets Initiative: Forestry Carbon Financial Risk Analysis
Abstract
In 2007, Duke University signed the American College & University Presidents’ Climate
Commitment, committing the University to develop an institutional plan to achieve
carbon neutrality by 2024. Achieving this goal will require Duke University to offset
approximately 183,000 tons of carbon dioxide equivalent (CO2e) in 2024. To address
this challenge, the University established the Duke Carbon Offsets Initiative in 2009
to procure carbon offsets that prioritize investment in local and regional carbon
offset projects that yield significant environmental, social and economic benefits
beyond greenhouse gas emission reductions. The Offsets Initiative is currently assessing
the feasibility of purchasing or developing forestry-based carbon offset projects
in North Carolina and the Southeast region.
From the perspective of Duke University, this report assesses the financial implications
of forestry carbon offset procurement. Specifically, this report analyzes two potential
investment opportunities: an existing afforestation project and a hypothetical avoided
conversion project. Each project analysis begins with a project overview and identifies
key players to understand incentive structures and assess qualitative project risks.
Following this qualitative description, a quantitative analysis is performed to determine
the levelized cost per offset (LCO) in present value terms to Duke University and
to further assess additional risks and mitigation strategies. The analyses do not
attempt to quantify intangible benefits such as educational, research, or ecosystem
co-benefit values. Rather the financial analyses are intended to compliment the Offsets
Initiative’s larger feasibility study on forestry carbon offsets.
The analyses show both projects as potential candidates for long-term investments.
The afforestation project has low project risk and provides sufficient offset supply
to meet the University’s need. Additionally, the LCO is low relative to substitute
over-the-counter forestry offsets. However, the project requires high upfront investment
and exposes Duke University to price risk. This risk may be mitigated through the
purchase of a real option from the project developer. The avoided conversion project
is found to require little upfront investment and may produce a large offset supply
if scaled up. However, sensitivity analysis performed on key parameters derived from
the tax equity project finance structure produces a wide range of possible LCOs. Duke
University can better understand its LCO by first performing an assessment on the
tax equity value to determine if the project is financially feasible.
Type
Master's projectPermalink
https://hdl.handle.net/10161/3618Citation
Hodgson, Wyley (2011). Duke Carbon Offsets Initiative: Forestry Carbon Financial Risk Analysis. Master's project, Duke University. Retrieved from https://hdl.handle.net/10161/3618.Collections
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