The Charvon oil company is planning to make a large investment in coal-to-liquids (CTL) gasoline. The end product will be a perfect substitute for gasoline made from petroleum, but the feedstock will be coal instead of oil. Two technologies are available to the Charvon company. The first is called indirect CTL, where the coal is gasified prior to being liquefied. The second is called direct CTL, where the coal is dissolved in a solvent, and the resulting liquid is processed into gasoline. The Charvon company has hired you as a consultant to help them decide which technology they should choose. Charvon expects to produce one million gallons of CTL gasoline for five years following construction of the plant, and they can sell the gasoline for $3 per gallon. The capital cost of indirect CTL is $9 million and operating costs for indirect CTL (labor, fuel, and maintenance) are $600,000 per year. The capital cost of direct CTL is $9.45 million and operating costs for direct CTL are $500,000 per year.

One problem with indirect CTL is that the coal gasification process releases large amounts of CO2into the atmosphere. Assume that for every gallon of gasoline produced with indirect CTL, 0.01 tons of CO2 are released, so annual CO2 emissions from indirect CTL would be 10,000 tons. Suppose that CO2 was taxed at a rate of $10 per ton. How does that change the NPV of indirect CTL?