Reference no: EM131559517

One concern held by some scientists is that while investments required to slow global climate change may be expensive, over the long term the loss of “ecosystem services” (pollination of crops, distribution of rainfall, and so on) may have an even greater negative value. Consider an investment portfolio that calls for $100 billion/year invested worldwide from 2010 to 2050 in measures to combat climate change. The value per year is the net cost after taking into account return from the investments such as sales of clean energy in the marketplace. If the investments are carried out, they will prevent the loss of $2 trillion in ecosystem services per year from 2050 to 2100. Caveats: the analysis is simplified in that: (a) in 2050 the loss of ecosystem services jumps from $0 to $2 trillion, when in reality it would grow gradually from 2010 to 2050 as climate change becomes more widespread, (b) the world could not ramp up from $0 to $100 billion in investment in just 1 year in 2010, and (c) there is no consideration of what happens after the year 2100. Also, the given value of investment in technology to prevent a given value of loss of ecosystem services is hypothetical. The potential loss of ecosystem services value is also hypothetical, although at a plausible order of magnitude relative to a published estimate of the value of ecosystem services (Costanza, R., et al. 1997). a) Calculate the NPV of the investment in 2010, using a discount rate of 3% and of 10%, and also using simple payback. b) Discuss the implications of the results for the two discount cases.