Oil refiners, gas producers face higher costs from climate laws: report

Reuters News
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Posted: May 11, 2016 8:06 PM

By Susanna Twidale

LONDON (Reuters) - Oil refiners and gas producers could face higher production costs if countries use a high carbon price to follow through promises made at last year's global climate summit in Paris, research showed on Thursday.

The landmark Paris Agreement was a commitment by nearly 200 countries to cut greenhouse gas emissions from 2020 with the aim of limiting the rise in the global average temperature to less than 2 degrees Celsius.

The role of carbon pricing -- charging for each metric ton of carbon dioxide emitted -- in efforts to curb rising emissions blamed for global warming gained prominence last year after several multinational companies, including oil majors, said it is needed to spur investment in low-carbon energy.

However, asset managers have struggled to put a figure on what the impact of carbon costs levied to achieve the Paris goals could be on companies.

The Investment Leaders Group (ILG), a global network of pension funds, insurers and asset managers -- with assets worth over $4 trillion under management -- and Cambridge University, developed a model to work out what the higher carbon costs would add to production costs.

The model used a 45 euros a metric ton carbon price since this is the median carbon price the U.N.'s Intergovernmental Panel on Climate Change said would be needed to keep within the temperature rise limit.

"For oil refiners, the average margin at risk is around -1.2 euros/barrel... For gas companies, the sector margin impact can reach -5.5 euros/cubic kilometer," the report said.

It also looked at the impacts of existing measures to curb greenhouse gas emissions on oil refiners, gas producers and electric utilities but did not name individual companies.

It focused on Britain, Spain, Germany, Alberta Canada and California, and found risks and opportunities vary greatly in each region and sector.

A 45 euros/metric ton carbon price could on average cost electric utilities in Alberta an extra 0.025 euros for each kilowatt hour (kWh) of electricity produced.

The same carbon price for utilities in Spain, where more than 40 percent of the generation comes from renewable sources such as wind and solar, could save producers 0.018 euros kWh.

High carbon prices push up electricity prices which can benefit low-carbon power producers such as renewables and nuclear plants.

"In the long term every company, one way or another will be exposed to climate change risks and opportunities. Most asset managers struggle to quantify what these will be," said Manuel Lewin, head of Responsible Investment at Zurich Insurance Group, an ILG member.

Other ILG members include Allianz Global Investors [ALVGNF.UL], Old Mutual Group and Standard Life Investments.

(Reporting By Susanna Twidale, editing by Greg Mahlich and David Evans)