So you have a carbon abatement project and your finance director says how much money will I save and what is the payback period for the project. You know you need to come up with a 10 year price for carbon. Various reports estimate what the price of carbon is and you put in a number lets say €40. Your finance guy comes to you and says how did you come up with this number and you refer to point carbon and mckinseys and the stern report (all around the €40 number). He says to you that this is ridiculous carbon prices are tradings €20 and that this number is twice what you would get in the market therefore you are halving the payback and suggesting the project is twice as good as it really is.

You argue that it maybe €20 today but it might be €40 euros tomorrow and that markets move all the time. You argue and argue and if truth be told you are probably both right, but the forecast should be changed regularly and the forward curve should be discounted to reflect volatility. The solution lies in a hybrid model.