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 short‐term interests. To address these issues, field study data were collected from refrigeration and refrigerant companies operating in Australia, Europe, New Zealand and the UK.