Categories
Green Revenue
Investors

Carbon Tax Risk

Carbon Tax Risk

The Carbon tax risk model analyses expected carbon tax regimes and combines this research with the financial variables of publicly listed companies. It allows investors to calculate the Net Income at Risk for any company due to expected carbon regulations.

Calculates the impact of Carbon tax on a companies net income. To allow investors to consider the value at risk because of upcoming carbon regulations to modify investment decisions accordingly.

Overview

Public sentiment and political opinion are changing in favor of taking action against climate change. The price of a carbon tax should equate the marginal externalities associated with emissions. These externalities include, but not limited to, factors such as agricultural losses caused by global warming, flooding from sea level rise and destruction caused by severe cyclones and additional wildfires. After analyzing the uncertain climate science, the local effects of climate change and their associated effect on economies in the distant future, the Intergovernmental Panel on Climate Change (IPCC) concludes that the optimal carbon tax rate to be $12 per metric tonne of Co2, but also provides a range from $3 to $95 per metric tonne of Co2. On the other hand, US administration, in 2019, developed an estimate of $50 per metric tonne of Co2. IMF estimates a tax of $75 per metric tonne of Co2 to be applied globally to meet the Paris Agreement targets of limiting global warming to 2 degree Celsius over preindustrial levels.

Canada and United Kingdom have carbon tax regimes implemented or scheduled for implementation. Similarly, in the US, Washington, Massachusetts, and California have also scheduled implementation of carbon tax where as it is under consideration in Oregon and Pennsylvania.

Carbon taxes will have direct implications on company financials. The Carbon Tax Risk model analyses the effect of various tax regimes on the financial performance of a company, and presents the carbon tax exposure in terms of net income at risk.

A comparative analysis of ExxonMobil, Starbucks and P&G's Net Income at Risk due to Expected Carbon Tax.

Carbon Tax Risk

Design and Modeling

Inputs

  1. Carbon data
  2. Tax Regimes
  3. Net Income

Calculations

  • Net Income at Risk
  • Lower bound = (Company Carbon x Country lower bound tax Regime )/ Net Income
  • Upper bound = (Company Carbon x Country upper bound tax Regime )/ Net Income
  • Mean = (Company Carbon x Country mean tax Regime )/ Net Income