Carbon Companies Lose Too Much Value
Nicolas Loris /
From the New York Times Green, Inc Blog:
The banking giant HSBC removed two companies involved in carbon trading from its Climate Change Index on Monday because they had lost too much value. Analysts from HSBC said the cause was mainly that governments had failed to come up with a timetable for a global climate deal at the United Nations summit in Copenhagen in December. “Carbon trading was the major loser from Copenhagen,” HSBC analysts said in their March 2010 Quarterly Index Review. ‘Cap and trade needs hard targets and binding rules – and Copenhagen delivered neither,’ HSBC said.”
In 2007 HSBC created a Global Climate Change Benchmark Index and had four climate change indices, two of which include a Climate Change Index and a HSBC Low Carbon Energy Production Index (including: solar, wind, biofuels, geothermal). An HSBC press statement reads: “In creating these indices, HSBC has responded to changing investor sentiment in global equity markets. The HSBC research team has looked at a wide range of stocks and identified approximately 300 companies that are well positioned to benefit from the challenges of climate change.”
This is the big problem of the government creating false expectations. Businesses were convinced that the federal government would continue its trek to regulate CO2 and subsequently prepared for a carbon-constrained future by building business models around it. HSBC’s Global Climate Change Benchmark Index is just one example. Companies, especially in energy-intensive industries, began to prepare to comply with regulations, adjust to higher prices and adapt their operations to reduce CO2. Energy producers became vested stakeholders and lobbied for handouts to produce CO2-free energy to capitalize on their own investments and reap the benefits of government handouts. Major oil companies invested in renewable energy technology to capitalize on subsidies and tax breaks while enhancing their image. Even industries that do not emit relatively large mount of CO2 had to prepare for higher energy costs as well as be more cognizant of its own carbon output.
The regulations have certainly taken longer to put in place (or may not come into place at all) than many of these companies thought and it’s beginning to show. After Copenhagen failed, both procedurally and in its attempts to create a treaty, carbon prices fell dramatically on the European Climate Exchange in London. Government action and inaction is hurting businesses and consumers on all fronts. Government action would result in draconian energy taxes that would be passed onto the consumer – not just in gasoline and electricity consumption – but all producers that would face higher electricity prices. Government inaction is not only resulting in failing carbon markets but also creating business uncertainty. With potentially looming higher energy costs, businesses are hesitating on investing in new capital and labor. Leave it to the government to stunt the economic recovery without passing legislation; of course, passing a bill that regulates carbon dioxide will only make it worse.