Optimization of Private Equity Investments for Industrial Carbon Emission Reduction

Abstract

Industrial businesses are responsible for a significant portion of global greenhouse gas emissions. They must reduce these emissions due to financial, regulatory, and customer pressures, but the pathways to net zero emissions are complex and costly. For companies held by private equity, the inaction is exacerbated by a lack of clarity on how emissions reduction initiatives influence investment returns. This research presents a carbon footprint calculator and an optimization model to analyze emissions reduction projects. We highlight that using these two tools as part of a strategic framework can help manufacturing companies create actionable and profitable emission reduction strategies. The carbon footprint calculator identifies a company’s carbon emission sources and measures its carbon footprint, while the optimization model determines the most profitable investments to meet emissions goals. For our optimization, we use an integer linear programming model that schedules which furnace upgrades to implement each year, with an objective of minimizing total cost to the business. Our results highlight that ancillary process line benefits from furnace upgrades can significantly increase profitability of emissions reduction projects. We also show that, in the absence of new technology, there will need to be a combination of cleaner electricity and carbon pricing for manufacturing companies to profitably meet science-based emissions reduction goals.