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January 30, 2007

Utilities Fail to Respond to Investor’s GHG Emissions Questions

Less than half of all listed global electric utilities have responded to an investors request for information regarding their emissions of greenhouse gases, according to the Carbon Disclosure Project’s Global Electric Utilities report (PDF). Based on data from the 2006 CDP survey, only 112 of the 265 largest electric utilities actually responded to the request. 

“This report shows that the industry making the greatest contribution to climate change is mostly failing to respond to investors requests for information. This makes it extremely difficult for those investors wanting to avoid funding carbon intensive industry to make a well-informed decision,” said Paul Dickinson, coordinator of CDP.

In addition, the report found that, of those that did respond, very few were found to be adding any value to the economy once the cost of their emissions was financially recognized.

“This report shows that when governments regulate greenhouse gas emissions in accordance with their scientific advisors’ long term emissions targets, thereby internalizing the cost of emissions, it is without doubt that some electric utilities share prices will be negatively impacted,” Dickinson continued.

The Global Electric Utilities Report, commissioned by WWF and written by environmental research and analysis firm Trucost, analyzed the responses from 112 of the 265 largest electric utilities globally to the fourth annual Carbon Disclosure Project report in 2006. It used a measure of “True Economic Value Added” to reach its conclusions.

The CDP survey asked electric utility companies about the commercial risks and opportunities posed by climate change, and related management responsibilities. In addition, companies were asked about energy costs and emissions in terms of total annual generation, emissions from products and services, emission reduction programs and targets and emission trading arrangements.

The utilities report comes ahead of CDP’s fifth request to investors on Thursday February 1st for the disclosure of investment-relevant information concerning their greenhouse gas emissions.

The survey analysis by Trucost found that only six of the 25 companies analyzed for TRUEVA actually added value to the economy. The analysis gives investors the net contribution of an industry on a company-by-company basis by factoring in their environmental damage.

Simon Thomas, chief executive of Trucost, said: “Our analysis shows investors that the true value of utilities is considerably less once environmental costs have been factored in. It should help investors make informed decisions and be able to direct investments into those electric utility companies that are making greater strides to reduce emissions.”

Trucost based its assessments on “economic value added” (EVA), a method of analysis popularized by the Stern-Stewart consulting firm, and an overlay of external environmental costs. Combining CDP’s emissions data, Trucost’s environmental external costs and Stern-Stewart’s EVA produces: “a measure of true value added (TRUEVA) that subtracts from the firm’s operating surplus not only its costs of capital but also the environmental damage it imposes elsewhere in the economy.”

The research found that, taking an external cost per ton of CO2 emitted at $22 (the average price over the first year of the EU ETS), only 6 of the 25 companies analyzed would have a positive TRUEVA. For a majority of companies, the cost of the damages they imposed exceeded the surpluses they generated, often by a large margin.

For example, American Electric Power, Electricite De France, and the Southern Company imposed net costs of $3.6, $3.3 and $2.7 billion respectively in 2004/5. AEP and Southern Company are large coal-based generators, so should be regarded as quite exposed to future restrictions on greenhouse gas emissions. EDF, while it has a relatively low level of emissions relative to sales (1650 tCO2/$million sales), has a very low EVA of $1.043 million, resulting in a low TRUEVA measure.

However, several respondents did provide examples of emissions-reduction efforts:

• American Electric Power reported a $1 billion plan to build the world’s first low-emission plant to produce electricity and hydrogen from coal.
• Entergy cited a $14.8 million commitment to complete 61 internal emission reduction projects to reduce carbon dioxide emissions by 6.2 million tons by 2010.
• PG&E is investing $1 billion between 2006 and 2008 in energy-efficient programs and initiatives to help customers save money, avoid the release of greenhouse gases to the atmosphere, and promote the development and deployment of new energy-efficient technologies and processes.

Overall, the study found that European companies were found to be less carbon intensive than their North American or Asian counterparts. Some U.S. electric utilities could face costs equivalent to up to seven percent of revenue if they had to reduce emissions by 25 percent as proposed by new regulations instituted in California recently.

Finally, no Chinese electric utility provided quantification of their emissions.

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