29th January, 2007

Report shows few global utilities add any value to economy if cost of emissions taken into account.

Less than half of all listed global electric utilities have responded to an investors request for information regarding their emissions of greenhouse gases, a report released today (Monday January 29th) shows.

The Carbon Disclosure Project’s (CDP) Global Electric Utilities report, based on data from the 2006 CDP survey – the world’s largest investor collaboration on climate change – found that only 112 of the 265 largest electric utilities actually responded to the request.

James Cameron Chairman of CDP said: “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.”

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 recognised.

The Global Electric Utilities Report, written by environmental research and analysis firm Trucost, analysed the responses from 112 of the 265 largest electric utilities globally to the fourth annual Carbon Disclosure Project report in 2006. It used a pioneering 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.

James Cameron added: “The conclusions we can draw from those that have responded to our request for information is that there is huge variation in the level of readiness for the challenges that climate change and climate change regulation pose to utilities’ bottom line. Some forward thinking ones are well positioned to benefit their shareholders, but most are not.”

The survey analysis by Trucost found that only six of the 25 * companies analysed 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 popularised 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.”

This TRUEVA measure is the first ever means of estimating the net economic contribution of industry on a company-by-company basis incorporating its environmental impact.

The research found that, taking an external cost per tonne of CO2 emitted at US$22 (the average price over the first year of the EU ETS), only 6 of the 25 companies analysed 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 (EDF), and the Southern Company imposed net costs of US$3.6, US$3.3 and US$2.7 billion respectively in 2004/5. AEP and Southern Company are very large coal-based generators, so should be regarded as quite exposed to future restrictions on greenhouse gas emissions. EDF, while it has a relatively low level of emissions relative to sales (1650 tCO2/US$mn sales), has a very low EVA of US$1.043 M, resulting in a low TRUEVA measure.

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

• American Electric Power reported a US$1 billion plan to build the world’s first low-emission plant to produce electricity and hydrogen from coal.
• Entergy cited a US$14.8 million commitment to complete 61 internal emission reduction projects to reduce carbon dioxide emissions by 6.2million tons by 2010.
• PG&E is investing US$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, European companies were found to be less carbon intensive than their North American or Asian counterparts. Some US electric utilities could face costs equivalent to up to 7% of revenue if they had to reduce emissions by 25% as proposed by new regulations instituted in California recently.

Finally, not one single Chinese electric utility provided quantification of their emissions. This is worrying as China is the world’s largest user of coal for power generation and is currently responsible for nearly one fifth of the world’s emissions.

Other findings were that larger companies were more likely to respond; that companies that had to comply with the EU Emissions Trading Scheme had the highest response rate; that quantitative disclosures were low; and that responses lacked comparable statistics.

Notes to Editors:

The report was commissioned by the World Wide Fund for Nature (WWF), in collaboration with CalPERS and CalSTRS.

The expansion of CDP to cover electric utilities was an initiative from CalPERS and CalSTRS and the CDP Secretariat salute the leadership of these pioneering Californian Pension Funds.

The Carbon Disclosure Project has the support of financial institutions representing over US$31 trillion of assets under management. It is the world’s largest investor collaboration on climate change.

NB: * The 25 companies analysed were chosen because:

• They provide quantitative disclosure in the CDP4 report;
• They provide permission to publish their data

Ashleigh Lezard, 020 7321 3731 ashleigh.lezard@trucost.com

David Hopkins/Tom Whitehouse
Carbon International
020 7586 2780 / 020 7586 8096
david.hopkins@carboninternational.com