Process sectors most at risk from US cap-and-trade plan
3 Jun 2009
London - The utilities, basic resources, food & beverage, chemicals and oil & gas sectors would be most impacted by a US cap-and trade programme requiring the purchase of carbon emission credits, acording to the report by the not-for-profit Investor Responsibility Research Center Institute and Trucost, an environmental data and analysis firm
The analysis assesses the financial risk to companies in the Standard & Poor’s 500-Stock Index, suggests that impact on profitability would vary greatly. The earnings of most companies, it said, would be relatively unaffected, but a few could face costs that could more than offset all their earnings.
In particular, said Trucost, the utilities sector is the most carbon-intensive, emitting some 59% of operational greenhouse gases from companies in the S&P 500, and so faces the highest financial exposure to carbon costs.
"If the 34 utilities analyzed in the study were to pay for each tonne of emissions, carbon costs could reduce their combined earnings by 45%, said the report, which identified basic resources as the second-most exposed sector, followed by food & beverage, chemicals and oil & gas.
The research findings come as legislation moves through the US Congress to combat climate change by reducing the amount of greenhouse gases emitted into the atmosphere from US power plants and industrial processes.
The study found that direct emissions in 2007 by the companies in the S&P 500 were some 2,173 million tonnes of carbon dioxide equivalents. Total emissions in 2007 - including emissions from first-level suppliers - totaled 4,307 million tons of carbon dioxide equivalents in 2007.
Carbon costs would total over $92.8 billion if a market price of $28.24 - Trucost’s estimate of the carbon market price in 2012 - were applied to each metric ton of emissions from companies in the S&P 500 and their direct suppliers such as electricity providers. This represents more than 1% of revenue from these companies, and some 5.5% of combined EBITDA.
“The cost of carbon emissions has been passed to the public and not reflected in the financial statements of companies,” said Jon Lukomnik, program director of the IRRC Institute, which commissioned the study. “The analysis makes clear that a cap-and-trade system is a real game changer. A number of companies will have to reform how they think about carbon emissions and the associated costs, or their bottom line will suffer greatly.”
