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US carbon cap and trade could wipe out some US companies future earnings: report
Significant differences found in potential emissions cost to S&P500 companies.
American Electric Power Co., Allegheny Energy and Ameren Corp’s future earnings potentially could be more than wiped out by costs under a cap-and-trade program requiring purchase of carbon emission credits, according to a report released today by the Investor Responsibility Research Center Institute and Trucost, a provider of data and analysis on corporate environmental impact. American Electric Power’s costs under such a program would be 117% of earnings beginning in 2012, making it the most affected of the S&P 500 companies. Allegheny and Ameren would be the second and third most affected of the S&P 500 companies with costs more than 100% of earnings, although figures for the two companies were not in the report. The study assumes the cost of the spot price of carbon emissions under a cap-and-trade program in 2012 when it could begin would be a Trucost-estimated $28.24. It also assumes companies have the same earnings per share as they had in the study’s 2007 base year and that companies pay those costs rather than reduce carbon emissions or pass them costs onto customers, said Jon Lukomnik, IRRC Institute program director.
The study calculated the carbon exposure of 497 of the S&P 500 companies; data on three companies was unavailable. Among a variety of analyses, the study compared companies on the potential carbon costs relative to earnings before interest, tax, depreciation and amortization. For 203 of the companies, carbon costs would equate to less than 1% of EBITDA, the report said. Pat D. Hemlepp, director of corporate media relations at American Electric Power, said a bill in Congress — revised after the study was conducted in March — reduces some of the cost of compliance. “The scenario looked at in the study may not be in touch with what’s coming out of Congress,” Mr. Hemlepp said. In addition, the “cost of environmental compliance is something regulators have allowed utilities to pass onto customers,” he said. “Instead of wiping out earnings, it would increase cost to customers.” Company officials have been working with congressional members “to accomplish what they want to accomplish on climate but do it in a way that has the lowest potential cost impact to customers,” since such costs are allowed by regulators to be passed on to them rather than taken
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