Spotlight on Award Winners: Bloomberg LP Carbon Risk Valuation Tool

by | Jul 16, 2014

badge with flag“Spotlight on Award Winners” is a series of articles featuring winners from the 2014 Environmental Leader Product & Project Awards. Look for the 2015 Awards call for submissions in early September.

A winner of a Top Product of the Year Award, Bloomberg’s Carbon Risk Valuation Tool helps companies and investors quantify financial risk from carbon costs. The tool is designed specifically to address the concept of a “carbon bubble” championed by organizations such as Carbon Tracker. The tool identifies how earnings may be impacted for oil and gas companies from either regulation to tax carbon or demand shifts away from fossil fuels towards renewables that would decrease the price of oil.

In the last two years, the issue of “stranded assets” has started to loom larger and larger, particularly in relation to the idea that climate change policy could induce the stranding of some conventional assets, Bloomberg says.

Investors are trying to understand what the valuation impacts of stranded assets could be on their holdings and whether these are material risks or not. The tool helps illustrate the potential impact of stranding on a company’s earnings and share price, particularly those in extractive industries, under carbon pollution constraints.

The tool offers five pre-built scenarios, plus the ability to adjust assumptions. The scenarios provide the ability to apply some of the ways in which stranded asset risks could manifest themselves. The five are:

–5% annual decrease in oil prices starting from 2020 relative to the futures price;

–$50 a barrel for oil from 2020;

–$25 a barrel for oil from 2030;

–80% decrease in EBIT fading in from 2020 and peaking in 2035: Prompt Decarbonization; and

–80% decrease in EBIT fading in from 2030 and peaking in 2035: Last-Ditch Decarbonization.

Read Bloomberg LP’s complete award listing here.

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