December 26, 2006

Study: RWE’s Corporate Value at Risk from Carbon Price

German power producer RWE could lose up to 17 percent of its value if its business strategies fail to take into account climate change policies, environment group WWF and the independent SAM Group said today.

A new report Carbonizing Valuation by SAM Group and WWF shows why corporate value is at risk in a future with stricter laws restricting carbon emissions. The report assesses German utility RWE by modelling cash flows from a selection of RWE’s power plants.

According to the report, if RWE treats carbon emissions as business-as-usual, it could lose up to 17 percent of its net-equity value. “In a world where carbon emissions will become expensive, utilities need to keep an eye on the long-term value of their company,” says BjA?A??A?AA¸rn Tore Urdal of SAM Group. “Just a few days ago the European Commission rejected nine out of ten National Allocation Plans (NAP) for the next phase of the EU Emission Trading System; this illustrates that in the long term the carbon price is going to climb high and those companies and investors need to take note.”

Climate Change presents a unique challenge for businesses: it is the greatest and widest-ranging market failure ever seen, according to the Stern Review on the economics of climate change, published in October 2006 by the UK government.

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