ECON131: Quantitative Methods in Economics – Business and Finance Assignment The City of Sydney is an area covering over 26km2 and is one of Australia’s most important social and economic centres. As part of Sydney 2030, a study into the city’s long-term sustainability, the city council committed to reducing its carbon
ECON131: Quantitative Methods in Economics – Business and Finance Assignment
The City of Sydney is an area covering over 26km2 and is one of Australia’s most important social and economic centres. As part of Sydney 2030, a study into the city’s long-term sustainability, the city council committed to reducing its carbon footprint 70% over the next 20 years.
A study found that around 31% of the city’s carbon emissions arise from public lighting. So, in 2011, the City of Sydney announced a project to replace its lighting systems with energy efficient LED lights. It would choose lighting systems based on both their economic and environmental value. After a consultation period, the City chose a supplier in late 2011 to replace 6,448 luminaries (lights).Before the project, suppose that the 6,448 luminaries slated for replacement consumed 5,252,613 kWh of electricity annually. In 2010/11, the annual lighting bill was $654,476. Suppose that the new LED lights will consume considerably less power, just 2,595,743 kWh per year.
Questions:
1. Bulk, unmetered power is billed on a “per KWh” basis, with no additional costs. What will the annual electricity bill be when all the lights are installed? (Assume the price of electricity is constant.) What are the private savings for the City of Sydney in the first year? (In other words, how much less will the city pay?)
2. The City of Sydney calculates carbon emissions on the assumption that each kWh of electricity causes 1.07kg of CO2 emissions. On this assumption, how many tonnes of CO2 emissions per year will the project prevent? The City of Sydney assumes a
3. Suppose the City of Sydney decides to award the contract if, after including CO2 savings in revenue, the project breaks even at the end of the 12th year. What is the highest price the City should accept for this project? Ignore inflation, and assume a social discount rate of 5%.
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