Fewer than 25% of electric utilities globally would be profitable if they had to account for the environmental and potential financial costs of their carbon emissions, according to the Carbon Disclosure Project's Global Electric Utilities report, sponsored by a group of 225 institutional investors with assets totaling $31.5 trillion.
The report is the first to estimate the financial impact companies would face if they paid the overall costs of their carbon emissions, according to the investors group.
Based on current emission levels, some U.S. electric utilities could face costs equivalent to 7% of revenue if they had to reduce emissions by 25%, as proposed by new regulations in California. European utilities are less carbon-intensive than those in North America or Asia, according to the report. The cost of emissions for most of the firms exceeded the surpluses they generated, often by a large margin. For example, American Electric Power, Columbus, Ohio, and the Southern Co., Atlanta, would have losses of $3.6 billion and $2.7 billion, respectively.
The report is based on data from a 2006 survey asking electric utility companies about the commercial risks and opportunities posed by climate change, energy costs and emissions, and related management responsibilities. Of the 265 largest electric utilities asked to participate, 112 responded.
The report "shows how far we have to go," said Clark McKinley, spokesman for the California Public Employees' Retirement System, one of the project's underwriters. CalPERS has about $5.3 billion invested in utilities, including $3.7 billion in electric utilities.
Another lead sponsor, the California State Teachers' Retirement System, has about $4 billion invested in utilities and $2.7 billion in electric utilities, according to Janice Hester Amey, CalSTRS portfolio manager, corporate governance. "It does appear that the carbon intensity costs could have an impact on the cost of capital for companies in this sector, and that has an impact on value," she said in an interview.