Profitability index and UK CBAM: Difference between pages

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imported>Doug Williamson
(Classify as investment appraisal.)
 
imported>Doug Williamson
(Add 'relevant'.)
 
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(PI).  
''Environmental policy - emissions - regulation - UK.''


''Investment appraisal''
Abbreviation for proposals for a UK Carbon Border Adjustment Mechanism, similar to the proposed EU CBAM.


The profitability index of a project or other proposed investment may be represented by the following formula:


Profitability index = PV/Co
:<span style="color:#4B0082">'''''Further complications'''''</span>


Where:  
:"According to the Chartered Institute of Taxation, carbon border tax can play an important part in delivering net zero, but urged the government to ensure any policy did not restrict international trade purely to benefit domestic producers. 'We actually need to incentivise low carbon-emitting production at home and abroad,' it said.


PV = the present value of all the cashflows except the initial investment.
:KPMG said that while the initial proposed outline has similarities to the EU CBAM (which will impact UK exporters of [relevant EU] goods), the proposed UK CBAM would have a potentially significant impact on UK importers of UK covered goods. Businesses caught by both sets of rules could face further complications of having to comply with two similar, but distinct, regimes.


Co = the absolute value of the initial investment.
:It added that organisations that have been closely following the EU CBAM will already be familiar with the implications of a carbon border adjustment mechanism: higher operating costs, new compliance and reporting obligations and carbon accounting challenges."


:''The Treasurer online - 17 May 2023.''


Calculated on this basis, projects with a PI > 1 are acceptable.
==Alternative definition==
The profitability index may also be represented by the following alternative formula:
Profitability index = NPV/Co
Where:
NPV = net present value of all positive and negative cashflows, including the initial investment outflow Co


== See also ==
* [[Brexit]]
* [[Carbon Border Adjustment Mechanism]]  (CBAM)
* [[Carbon credits]]
* [[Carbon footprint]]
* [[Carbon leakage]]
* [[Carbon-neutral]]
* [[Carbon tax]]
* [[Carbon Trust]]
* [[Corporate social responsibility]]
* [[Decarbonise]]
* [[Embedded carbon]]
* [[Emissions]]
* [[Environmental concerns]]
* [[Environmental profit and loss]]
* [[Footprint]]
* [[International Institute for Sustainable Development]]
* [[Policy]]
* [[Public policy]]
* [[Regime]]
* [[Regulation]]
* [[Renewables]]
* [[Streamlined Energy and Carbon Reporting]]
* [[World Trade Organization]] (WTO)


When defined on this alternative basis, the minimum threshold of acceptability becomes a profitability index of 0.


==Other resources==
*[https://www.treasurers.org/hub/treasurer-magazine/uk-considers-carbon-border-tax UK considers carbon border tax - The Treasurer online - 17 May 2023]
*[https://ec.europa.eu/taxation_customs/green-taxation-0/carbon-border-adjustment-mechanism_en Carbon Border Adjustment Mechanism - European Commission]
*[https://www.globalpolicywatch.com/2021/06/twelve-things-to-know-about-the-upcoming-eu-carbon-border-adjustment-mechanism/ The upcoming EU Carbon Border Adjustment Mechanism - Covington Global Policy Watch]
*[https://sdg.iisd.org/commentary/guest-articles/an-eu-carbon-border-adjustment-mechanism-can-it-make-global-trade-greener-while-respecting-wto-rules/ Can an EU CBAM make global trade greener while respecting WTO rules? - International Institute for Sustainable Development]


== See also ==
[[Category:Accounting,_tax_and_regulation]]
* [[Capital rationing]]
[[Category:The_business_context]]
* [[Present value]]
[[Category:Compliance_and_audit]]
[[Category:Ethics]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]
[[Category:Technology]]

Latest revision as of 07:58, 31 May 2023

Environmental policy - emissions - regulation - UK.

Abbreviation for proposals for a UK Carbon Border Adjustment Mechanism, similar to the proposed EU CBAM.


Further complications
"According to the Chartered Institute of Taxation, carbon border tax can play an important part in delivering net zero, but urged the government to ensure any policy did not restrict international trade purely to benefit domestic producers. 'We actually need to incentivise low carbon-emitting production at home and abroad,' it said.
KPMG said that while the initial proposed outline has similarities to the EU CBAM (which will impact UK exporters of [relevant EU] goods), the proposed UK CBAM would have a potentially significant impact on UK importers of UK covered goods. Businesses caught by both sets of rules could face further complications of having to comply with two similar, but distinct, regimes.
It added that organisations that have been closely following the EU CBAM will already be familiar with the implications of a carbon border adjustment mechanism: higher operating costs, new compliance and reporting obligations and carbon accounting challenges."
The Treasurer online - 17 May 2023.


See also


Other resources

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