An examination of the role of financial investment appraisal methods in the context of international environmental regulation

Abstract

Domestic refrigerator manufacturers have had to cease their use of CFCs following the implementation of the Montreal Protocol. Two primary substitute refrigerants have been adopted; one being HFC-134a and the other being hydrocarbons. Given the availability of hydrocarbons and pressure from both the green movement and the Framework Convention on Climate Change, there has been a marked increase in their use. The purpose of the paper is to examine the role of financial investment appraisal methods in the decision processes of refrigerator manufacturers in their responses to the phasing out of CFCs. The contribution made by financial decision tools to their decision-making processes arising from the CFC phase-out has not been reported. The decision choices of refrigerator manufacturers is of importance to the issue of whether their responses to the Protocol reflect a strategy designed to enhance long-term competitiveness, or whether they were in response to immediate pressures to satisfy regulatory, cost and other shortterm interests. To address these issues, field study data were collected from refrigeration and refrigerant companies operating in Australia, Europe, New Zealand and the UK.With environmental concerns high on the social and political agenda there has been a corresponding increase in the magnitude and stringency of environmental regulation affecting manufacturing industry (e.g. Post and Altman, 1992;Burritt, 1995;Porter and van der Linde, 1995). Recent forms of regulation typically do not specify how organizations are to comply; firms are left to evaluate not only the technological merits of alternatives, but also their short and long-term financial implications. One particular issue manufacturing industry has faced is the mandatory phase-out of chlorofluorocarbons (CFCs) following the Montreal Protocol. CFCs are or have been used as the refrigerant in domestic, commercial, industrial and automotive applications (Parson, 1993). Despite their widespread application, the focus of this study is on CFCs and

Chronicles of wasted time?

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Hydrofluorocarbon (Hfc) Management Framework for Low Carbon Industrial Facilities: Milk Processing Industry in Sri Lanka

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