A cap-and-trade system to reduce carbon emissions in the United States would have widely divergent effects on the companies that comprise the S&P 500, new research finds.

A report released today by the not-for-profit Investor Responsibility Research Center Institute and Trucost, a global provider of environmental data and analysis, finds that the earnings of most companies would be relatively unaffected by the imposition of a cap-and-trade system, but a few firms could see their earnings wiped out.

On a company-by-company basis, financial risk varies widely, it finds, with earnings projected to fall between less than 1% and 117% if carbon costs were incurred. Carbon costs would amount to less than 1% of earnings for 203 companies analyzed, while 71 companies could see earnings fall by 10% or more, it said.

These figures are based on estimated carbon costs of over US$92.8 billion, and a market price of US$28.24 per metric ton of emissions. This represents more than 1% of revenue from the S&P 500 companies, and 5.5% of combined EBITDA, it found.

The report notes that the utilities sector faces the highest risk, and could see earnings reduced by 45%; followed by basic resources, food & beverage, chemicals, and oil & gas.

“The cost of carbon emissions has been passed to the public and not reflected in the financial statements of companies,” said Jon Lukomnik, program director of the IRRC Institute, which commissioned the study. “The analysis makes clear that a cap-and-trade system is a real game changer. A number of companies will have to reform how they think about carbon emissions and the associated costs, or their bottom line will suffer greatly.” “The findings reveal that there clearly will be winners and losers,” said Simon Thomas, chief executive of Trucost. “Companies that are more carbon efficient than sector peers across their own operations and supply chains stand to gain a competitive advantage. Now is the time for companies to begin measuring and reducing their carbon emissions to ensure they are well positioned to minimize the risk of climate change regulation. Already we are seeing increased interest from investors looking to reduce their own risk by positively selecting those companies with lower carbon emissions, and this is set to increase in the future.”

IE