JK

Suncor 3/11

Exam Logistics

  • No case analysis memo due the Monday after spring break.

  • No quiz scheduled for the week after spring break.

  • Topic 9 self-test quiz will occur the following Monday.

  • Students can focus solely on the exam before returning.

  • After break, there will be two lectures but no case discussions.

  • Business analytics will be the focus for the first class back.

Pollution and Marginal Costs

  • Optimal Pollution Level: Determined where marginal benefit equals marginal cost.

  • Marginal Abatement Cost (MAC): Opportunity cost of reducing pollution; reduces profitability as production decreases.

    • Profit decreases with lower pollution due to reduced production and sales.

  • Pollution Strategy:

    1. Identify no regulation point.

    2. Find allocation points.

    3. Calculate marginal cost.

    4. Align marginal cost with permit price.

    5. Decide whether to buy or sell permits to meet optimal pollution levels.

Case Study Examples of Permit Trading

  • Example Scenario: Firm is allocated 5 permits but needs to pollute 200 units;

    • Allocated: 5 permits (totaling 125 units of pollution).

    • Decision: Sell extra permits to meet pollution goals.

  • Alternative Scenario: Carbon pricing influences permit trading; firms react differently based on permit prices (low price → buy permits, high price → sell permits).

Benefits of Permit Systems and Carbon Capture

  • Cleaner Technology Incentives: Adoption of green technologies allows firms to sell excess permits and profit.

  • Activist Engagement: Environmental groups can invest in permits to advocate for lower pollution.

  • Market Auctions: Permits can be auctioned or given for free, adjusting costs and incentives for compliance.

Carbon Capture Technologies

  • Definition: Captures CO2 from emissions and sequesters it underground.

  • Carbon Capture Process: Air is treated to separate CO2, which is then stored underground to prevent it from entering the atmosphere.

  • Industry Growth: Developing green technologies to create a profitable industry around carbon capture; examples include investments from companies and ventures like Climeworks.

Public Perception and Business Strategy

  • Corporate Marketing: Companies like Exxon use marketing campaigns to improve public perception and attract investors.

  • Target Audience: Marketing strategies directed at stakeholders other than consumers—employees, investors, and regulatory bodies.

  • Social Responsibility: Increasing consumer demand for socially responsible practices leading businesses to adapt.

Climate Change Responses and Concerns

  • Micro-Level Action: Corporations investing in carbon offsets and carbon capture to address consumer and investor demands.

  • Environmental Criticism: Critics argue that carbon capture may delay the inevitable shift away from fossil fuels; some see it as a way for fossil fuel companies to continue operations without real change.

Strategic Sustainability in Business

  • Voluntary Carbon Markets: Companies can purchase carbon offsets through voluntary markets, incentivized by social pressures.

  • Investment Decisions: Firm's decisions on investments in carbon reduction should consider opportunity costs against potential direct benefits from other ventures.

  • Collaborative Innovation: Joint efforts among companies to innovate on carbon capture, risking reputations for greater market viability in the face of external pressures from activists and governments.

Conclusion on Carbon Capture and Energy Companies

  • Suncor’s Case: Suncor's opportunity to lead the integrated carbon capture initiative amidst criticism and financial risk.

  • Market Dynamics: Examining the relationship between public perception, regulatory risk, and opportunities for innovation within energy sectors.

  • Final Decision-Making: Complexities of investment in sustainable practices amidst potential for high returns in traditional oil and energy markets.