Publication / 04 Jul 2008

Manufacturers: Profits at Risk from Carbon Costs

Trucost study on how indirect carbon costs could financially affect manufacturers in different industries and countries.

Manufacturers that purchase electricity in carbon-intensive countries face significant carbon costs if emissions trading or border taxes are introduced. To reduce exposure to indirect carbon costs, investors need information about the risk to manufacturers that use large amounts of carbon-intensive electricity.

Companies and their investors that do not consider carbon risks embedded in electricity purchased by energy-intensive companies may be exposed to large carbon costs under national, regional or global emission trading schemes. Trucost’s analysis of companies’ electricity consumption can help identify potential carbon risk exposures.

The report shows that companies face profit risks from carbon costs passed on through electricity prices. Electricity prices could rise by 50% in carbon-intensive countries such as China and India. Trucost’s analysis of Alcoa shows that carbon emissions trading or tariffs could cost $673 million or over 30% of its profits annually. Rio Tinto and BHP could see profits fall almost 11% if they pay for carbon costs through electricity suppliers and are unable to pass them on.

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