NEW YORK, NY -- 11/02/09 --
Point
Carbon identified the winners and losers in a proposed cap-and-trade
system for greenhouse gas emissions in the United States in its latest
report Carbon
Exposure unveiled today at its annual fall conference Carbon Market
Insights Americas. Within the power and oil sectors, representing 40%
of covered emissions in the market, the greatest winners and losers come
from the power industry. Atlanta-based Southern Company would suffer the
most as a single entity under the cap while Exelon Corporation will likely
profit.
The report by the world-leading provider of market analysis for the energy
and environmental markets is the first to identify the major market
participants and quantify the financial impact of a carbon cap on each of
them. Point Carbon's analysis uses the scope and structure proposed under
the Kerry-Boxer bill (S.1733) presently debated in the Senate.
"Now, we can begin to see which firms would have larger market share and
corresponding ability to move carbon markets," noted Emilie Mazzacurati,
head of Point Carbon's North American research division. "We can also see
which companies will remain financially attractive, and which will be more
exposed to carbon risk."
The most vulnerable companies come from the power sector. Namely, these are
Southern Company, American Electric Power and Duke Energy. Compliance
could cost Southern 12% of its operating income, AEP 11% of its operating
income and Duke 5% of its operating income. This is in spite of the fact
that the largest electric company in the US, American Electric Power or
AEP, emits less than half of what ExxonMobil emits. AEP's gross cost of
carbon, a company's total emissions multiplied by the price of allowances,
would be $2.3 billion while Southern Company's would be $2.2 billion.
However, AEP is anticipated to recover 90% of its net carbon cost thru
carbon revenues.
"This information may entice some companies to explore pre-compliance
strategies such as offsets now, since that might reduce costs later," said
Mazzacurati. "If the more vulnerable companies were to do this now in a
thorough and strategic manner, they could hedge their exposure
considerably."
Point Carbon's report makes clear that volume of emissions or nominal size
of compliance costs are not correlated positively to the financial impact
on the company. Indeed, the largest emitter in the United States is
ExxonMobil, alone accounting for over 6% of all US emissions. Yet
ExxonMobil's operating income will be only slightly affected under the
system.
Using Point Carbon's forecasted average price of carbon at $15 for the
first few years of the program, ExxonMobil would need to pay $5.9 billion
annually to purchase the carbon allowances needed for compliance. This
corresponds to eight percent of ExxonMobil's operating income. However,
the company would likely recoup $5.6 billion by carbon revenues through a
small increase (5%) in gasoline prices, leaving its final cost of carbon at
$277 million and making its gross carbon cost small when contrasted to its
operating income of $84.1 billion.
A $15 price of carbon translates into a $0.13 increase per gallon of
gasoline. Such a price increase is viewed as negligible when compared to
gasoline price swings caused by volatility in oil markets. Oil companies of
comparable size would fare similarly under a US system.
Certain power companies would gain under the proposed cap-and-trade system.
The final cost of carbon for Exelon is a net gain of over 36 percent of its
operating income. This is due to its large portfolio of low-emission power
generation facilities. Other energy companies that may move forward
financially are FirstEnergy and PG&E.
About Point Carbon
Point Carbon is a world-leading provider of independent news and market
analysis for European and global power, gas and carbon markets. Point
Carbon's comprehensive services provide professionals with market-moving
information through monitoring fundamental information, key market players,
and business and policy developments.
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