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

November 4, 2009

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Under 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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Reader Comments

Of course the costs will be passed on to the consumer! Who thinks they wouldn’t? Of course, with some of the members of congress who are most likely to see personal benefits from such nonsense they don’t really care if the little guy gets the old one-two punch in the pocketbook. Typical.

Glennis | November 4th, 2009

My question is: Where do these revenues go? Who gets the many hundreds of millions of dollars the companies have to pay for carbon credits? A large part of it will go to fund the huge bureaucracies needed to administer the program and pay a lot of Government worker’s salaries. What good will that do the Planet? Where will the rest of the money go? It will be used for the redistribution of wealth. I have heard nothing about how the money will be used to fund fusion power, or hydro power, or solar power from satelites or the Moon, or any other type of environmentally friendly power source capable of supporting our civilization. There are so many unanswered questions relating to this legislation – not unlike the healthcare fiasco going on right now. Here’s another question: Why is the Obama Administration pulling the plug on the Yucca Mountain Nuclear Waste Disposal Facility? It is another attempt to restrict the amount of power available to our Nation. No nuclear waste facility = no new nuclear power plants!

James Beddingfield | November 4th, 2009

If we doubled all the money currently being spent on fusion research in America (which might be a good thing – I like the Polywell Fusion Reactor experiments) it might cost $500 million in additional funds. If we added to that projects that are currently unfunded it might cost as much as an extra $100 million.

But that is not part of the plan. What is the plan? Give the money to the favorites of Cong. Critters who will expect campaign contributions roughly equivalent to 1% of the amount being spent.

M. Simon | November 4th, 2009

Energy companies won’t be getting a free ride under cap and trade, though that really won’t matter because all they have to do is turn around and pass thoses costs on to consumers. The majority of which can barely afford the cost of energy as it is. This is legislation that America can not afford. The worst part is, that if the cap and trade system in the EU is any indication, it will do nothing to improve the state of the environment. Write Congress at http://tiny.cc/xP9wT and encourage your representatives to question this flawed piece of legislation.

DCTJ | November 5th, 2009

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