How do I calculate the cost per tonne of CO2 cut for a decarbonisation project?
Divide the project's net cost over its life by the tonnes of CO2 it cuts over the same life. Net cost is capital plus running costs minus energy savings. A negative result means the project pays for itself and cuts emissions; rank projects from the most negative upward.
The formula
Abatement cost (rupees per tonne) = (capital cost + extra running cost over the life minus energy cost saved over the life) divided by tonnes of CO2 cut over the life.
Tonnes cut = energy saved x emission factor. For grid electricity in India use 0.710 kg CO2 per kWh from the CEA CO2 Baseline Database; for fuels use the IPCC 2006 defaults, such as 2.68 kg CO2 per litre of diesel or 2.05 kg CO2 per scm of PNG.
Discounted or undiscounted
The undiscounted version is easy to explain and fine for a first ranking. For investment decisions, annualise the capital cost with your cost of capital: annual cost = capital x capital recovery factor + extra running cost minus annual savings, then divide by annual tonnes. The capital recovery factor is r(1+r)^n / ((1+r)^n minus 1) for rate r and life n years.
Use the same method and the same assumptions for every project you compare.
Where the numbers come from
- Energy saved: the vendor's estimate first, then measured from twelve months of bills before and after, adjusted for production.
- Energy price: your actual tariff per kWh or per litre, including demand charges only if the project changes them.
- Life: the equipment's realistic working life, not the loan tenure.
- Factor: one edition for every project in the comparison.
Traps that distort the ranking
- Counting the same kWh twice when two projects overlap, such as a VFD and a new motor on the same pump. Model the second on the load left after the first.
- Solar or a green tariff lowers the grid factor that applies to remaining kWh, which makes later efficiency projects look less effective in tonnes.
- A project with a positive cost per tonne may still be worth doing if a buyer or a carbon price makes those tonnes valuable. Compare against that price.
Worked example: a VFD on a process pump (illustrative)
- Capital cost: Rs 6,00,000. Saving: 50,000 kWh a year at Rs 8 per kWh = Rs 4,00,000 a year. Life: 10 years.
- Tonnes cut: 50,000 x 0.710 = 35,500 kg = 35.5 t CO2 a year, 355 t over 10 years
- Undiscounted net cost: 6,00,000 minus (4,00,000 x 10) = minus Rs 34,00,000
- Cost per tonne: minus 34,00,000 / 355 = about minus Rs 9,600 per tonne
- Discounted at 10%: capital recovery factor 0.1627, annual capital cost Rs 97,650
- Annual net cost: 97,650 minus 4,00,000 = minus Rs 3,02,350; divided by 35.5 t = about minus Rs 8,500 per tonne
Numbers are illustrative. Replace the saving with measured kWh once the VFD has run for a year.
What Senseible does here
Senseible gives you the measured energy and the tonnes per site from your bills, with the CEA and IPCC factors shown on each line, which are the inputs for this calculation. It does not hold project costs or rank projects for you.
Sources: GHG Protocol Mitigation Goal Standard, CEA CO2 Baseline Database, IPCC 2006 Guidelines, Volume 2 Energy
Last reviewed 2026-10-15.