CAP-AND-TRADE: WHO WINS, WHO LOSES

The more we know about how this works, the better will be the decision we make about it.

Carbon trading winners and losers
Mathew Murphy, June 18, 2007 (The Age)

WHO
Deutsche Bank, Australian Prime Minister John Howard, Macquarie Research Equities

WHAT
A Deutsche Bank assessing Howard’s cap-and-trade plan for Australia suggests it could reduce corporate earnings, especially in the transport, energy, construction, commercial services and consumer sectors.
the more trading systems are tried, the more we learn

WHEN
Howard has said the cap-and-trade system will be implemented by 2012, after thorough assessment.
The Bank’s report follows affects on corporate earnings through 2050.

WHERE
The plan is proposed for Australia. New Zealand’s Prime Minister recently announced her government would join.

WHY
- Howard has said he will take the Aussie-Kiwi program to the Asia Pacific Economic Council in September, which means the plan may be applied to that large trading group and serve as a second big model, like the EU’s ETS, for the US cap-and-trade system coming after the 2008 election.
- The study makes a interesting finding: the longer it takes to apply measures like cap-and-trade to the economics of energy, the worse will be the impact on power rates.
- The plan could reduce corporate earnings 15% by 2050. How much will global warming reduce corporate earnings?
- Specified: Low cost international airlines (Jetstar, Virgin Blue) will suffer more than domestic carriers (Qantas) who can pass costs on to consumers. Coal-heavy energy companies (AGL) will suffer more than companies with gas (Origin Energy). Energy exporters (Santos, Woodside) will get protection via carbon credits.
- Winners: big banks and financial institutions handling carbon credit transactions.
the US is likely to pick a trading system after the 2008 presidential election (click to enlarge)

QUOTES
- Deutsch Bank: "Although these sectors will incur a cost for their emissions under a trading scheme, the degree to which they ultimately bear the cost will depend on their ability to pass this cost on to customers…"
- Macquarie’s independent assessment: "…delaying action on reducing emissions means that the eventual reduction in emissions has to be more dramatic in order to limit the rise in average temperature…Thus, the trajectory for carbon emissions envisaged in this report — commencing moderately below 'business as usual' but allowing for deeper emissions reductions gradually over time — actually implies that the eventual cost of carbon (and hence the cost to consumers ) will be greater…"