Comments on: Climate Change & Corporate Disclosure: Should Investors Care?

By: Tom Konrad

Tom Konrad — Sat, 26 Sep 2009 11:50:55 +0000

Re: Carbon Tax- Everyone seems to say they are harder to game, but I wonder if it’s true. Have you seen the US income tax system recently? (I don’t know if Canada is a bad, but it probably is.)

By: Charles Morand

Charles Morand — Thu, 24 Sep 2009 15:58:18 +0000

Absolutely. Another aberration of the EU ETS occurred last fall when, as credit markets were freezing up, certain corporates sold their free government-granted emission allowances into the market and went long call options with exercise dates just before they were due to comply. This allowed them to beef up their liquidity reserves at a fraction of the prevailing market rate for capital. Although that’s very clever, that’s certainly not what the system was intended for and all of that opportunistic trading introduces inefficiencies and creates cynicism population.
Notice how I didn’t zero-in on cap-and-trade in the table in case certain jurisdictions opt for a carbon tax which, albeit theoretically less efficient, is far easier to administer and far harder to game.

By: Tom Konrad

Tom Konrad — Thu, 24 Sep 2009 15:25:04 +0000

The impact of climate regulation on coal-intensive power utilities could actually be positive, if the industry manages to grab sufficient carbon-credit giveaways. Just as happened in Europe, coal utilities may be able to easily reduce carbon emissions, and then sell extra carbon credits on the market, creating a windfall.
A better place to look for an industry facing regulatory risk from a carbon cap and trade is the coal *mining* industry, which may see decreased demand for their product under cap and trade.