This analysis is by Bloomberg Intelligence analysts Gregory Elders and Shaheen Contractor. It appeared first on the Bloomberg Terminal.
Global efforts to cut carbon, underscored by the Paris climate agreement, may slow during the Trump era, but are unlikely to be derailed. The cost-competitiveness of renewable energy and the expansion of carbon fees outside of the U.S. will keep pressure on fossil-fuel demand. Energy efficiency and low-carbon-solution providers may find ways to expand, though possibly less than they had previously expected.
China’s 2017 carbon market to give boost as fees gain globally
China’s planned national carbon market introduction in 2017 will boost global carbon reduction efforts that may seem less certain under a Donald Trump U.S. presidential administration. Alongside carbon taxes next year in South Africa and Alberta, Canada, China’s carbon market may point to continued global momentum to rein in emissions. China’s market will need to avoid Europe’s overallocation problem, leaving prices languishing too low to provide sufficient market incentive to invest in emissions reduction.
Cement, steel would see biggest earnings hit if paid carbon cost
Industry has largely avoided paying for carbon, about 20% of global emissions, but that may change if countries prove serious in their carbon fight. Cement, iron and steel and airlines top utilities for the highest CO2 relative to operating profits. Competitiveness and job-loss fears have mostly shielded industry from paying for carbon. Carbon could cost cement companies a median 38% of profits and steel 16%, assuming they fully paid California’s $13/ton price and couldn’t pass on costs.
Climate change commitment may dictate low-carbon opportunity
Companies providing renewable energy, low-carbon or energy-efficient products and solutions may see longer-term demand driven by whether countries keep up their carbon emissions fight. The U.S. appearing to relinquish its carbon leadership role under President Donald Trump may present a headwind to companies selling low-carbon equipment and services. Declining costs and consumer appeal may still support demand, but potentially at a slower rate.