The key results are:
- Climate policy will have important consequences for power generation costs, fuel choices, wholesale
power prices and the profitability of utilities. Even under conservative scenarios additional costs could
exceed 10% of 2002 earnings, although with this come significant upside opportunities.
- Despite these significant risks, guidance from the power companies on the magnitude and form of
potential risks has been scant. This suggests that companies are unprepared for these changes to their
- All power companies are likely to gain from preparing for carbon constraints – gains that come either
as reduced potential losses and/or increased cost recovery - if they switch from coal to less carbonintensive
forms of generation. This holds regardless of the allocation method used and at all realistic
relative fossil fuel prices. Doing nothing is the worst option.
- At only €5/tonne CO2e in Europe and US$11/tonne in the U.S. switching from coal to gas-fired
generation becomes the most economically attractive option for almost all firms.
- In terms of the pure cost burden, E.ON and Scottish Power are the most exposed European companies.
At a carbon price of €20 ($23)/tonne CO2e, each faces additional marginal generation costs equal to
approximately 9% of 2002 earnings. Of 3 U.S. based companies, AEP has the greatest exposure under
each price scenario.
- Even at carbon prices of €3-5 ($3.5-5.5)/tonne CO2e, EU firms will be able to switch and generate
substantial emissions abatements in excess of Kyoto-range targets, providing the coal-gas price
differential is under ca. €4 ($4.6) per MWhth. EU company abatements at €15 ($17)/tonne CO2e total
approximately 70 million tonnes, almost 10% of the entire EU power sector’s CO2 emissions in 2002.