U.S. Cap-and-Trade Creates Winners and Losers among Largest Emitters

by | Nov 4, 2009

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electricitypricesUnder the Kerry-Boxer cap-and-trade bill, ExxonMobil would face an annual charge of $5.9 billion to purchase carbon allowances, while electricity giants like Exelon and Pacific Gas and Electric (PG&E) would emerge as financial winners, because they rely heavily on diversified, low-emission fleets, according to a new study from PointCarbon, reports the New York Times’ Green Inc. blog.

The report, “Carbon Exposure: Winners and Losers in a U.S. Carbon Market,” analyzes how the proposed U.S. cap-and-trade market would impact the financial health of some of the largest emitters. It evaluates the impact of a $15-per-ton carbon-dioxide trading market on the nation’s largest oil and power companies, which together account for about 40 percent of the emissions in the U.S., reports the blog.

The cost of carbon in the oil sector for the five largest oil companies — ExxonMobil, Chevron, ConocoPhillips, BP and Royal Dutch Shell — would range from $247 million to $355 million.

The study predicts that the large players in the oil sector will primarily pass carbon allowance costs on to consumers by way of an increase at the pump of about 13 cents, while the scenario in the energy sector will vary because some firms rely more heavily on carbon-intensive generating assets, and state regulations vary in terms of passing additional costs to consumers, according to the article.

The states and regions facing the lowest electricity rate increases (under $8 per megawatt hour) include the Pacific Northwest, California and New England. The largest increases ($10 to $17) will be in the West, South and Midwest, reports the blog.

As for the impact on their bottom lines, oil companies’ carbon exposure is very limited because they will be able to recover most of their costs through a 5 percent increase in gas prices at the pump, according to the report. PointCarbon says the companies with the highest exposure are Exxon and Shell but only by around 0.5 percent of their operating incomes.

Merchant generators with low-emitting fleets stand to benefit from carbon caps, says PointCarbon. As an example, Exelon could increase its operating income by 36 percent. Other companies that could experience a positive effect on operating incomes include FirstEnergy (19 percent), Edison (11 percent), NRG (11 percent) and PG&E (eight percent).

Coal-based companies with the largest exposure under the Kerry-Boxer bill are Southern Co., AEP, and Duke, reports the blog. Their operating income is most sensitive to the cost of carbon, respectively estimated at 12, 11, and 5 percent, according to the report.

The study also indicates that companies will be able to mitigate their exposure through internal reductions and offset investments.

PointCarbon said in the article that its analysis should debunk concerns that energy companies will be getting a “free ride” under the cap-and-trade system.

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