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Carbon pricing - the impact on Asia companies

Hong Kong Media Releases APAC

In December 2009, the United Nations Framework Convention of Climate Change (UNFCCC) is meeting in Copenhagen. UBS expects this gathering to act as a catalyst for the wider introduction of carbon pricing. The latest UBS Investment Bank Q-SeriesĀ® on Asian Structural Themes examines the range of potential outcomes stemming from Copenhagen and the implications carbon pricing would have on the earnings of 300 Asian companies.

"Following UNFCCC's meeting in Copenhagen we expect a wider introduction of carbon pricing. But with or without a definitive agreement being reached it is highly likely that carbon pricing will affect a range of companies across Asia within the next three years. We believe that this is not being factored into consensus earnings forecasts or current share prices," said Simon SMILES, UBS Asian Equities Product Manager, UBS Investment Bank.

"By estimating the impact that carbon pricing will have on electricity, coal and fuel costs and the exposure companies have to these three items, in addition to companies' margins, the ability to pass through costs to the end consumer and export exposures to the US and Europe, we are able to identify significant variations in the potential impact on earnings of companies operating in the same sectors or countries," he added.

"We base the report around three different carbon cost imposition scenarios allowing us to provide investors with an idea of the scale and range of the potential impact that carbon pricing will have," said Smiles. "The implications for particular sectors and companies differ dramatically depending on the manner in which carbon pricing is introduced. For example, if carbon pricing is introduced domestically the impacts on electric utilities could be profound. Alternatively, if it is imposed extraterritorially via US and EU carbon-related import duties, Asian electric utilities would be unaffected".

The report highlights the most and least preferred companies under each of the discussed scenarios, the intra-sector differences that occur and identify investment ideas under various possible carbon pricing situations.


Chris Cockerill

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Angel Yeung

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