This was the main conclusion of a new report published by the
Center for Climate Finance & Investment at Imperial College Business
School, together with the Singapore Green Finance Center.
The report,
"Financial Implications of Carbon Pricing in the Asian
Cement and Steel Industries," explores the financial impact of
decarbonization on Asian cement and
steel companies covered by selected Asian Emission Trading Schemes. The report
aims to quantify the effect of carbon pricing systems on leading cement and
steel producers, operating mainly in China and South Korea.
The report
is published as carbon pricing is on the agenda at the COP28 climate summit.
Carbon pricing, an instrument that captures the external costs of greenhouse
gas emissions, is considered an essential climate mitigation policy tool.
Asia is the
fastest-growing carbon trading market, with many countries within the region
among the world's major emitters of greenhouse gases. The Asia Pacific region
stands out as the most vulnerable region to climate change in the world. Yet,
many countries in this area tread lightly when it comes to introducing carbon
pricing schemes to promote decarbonization, as it is commonly believed that
high carbon prices can impede the competitiveness of domestic industries.
The
researchers of the new report conclude that the only way to reduce carbon price
liability would be for these companies to decarbonize. However, the report also
reveals that the funds needed for firms to fully decarbonize may exceed most
companies' valuations.
Global
carbon pricing is currently an average of $6 US dollars per ton. The consensus
among experts is that carbon pricing must rise to $75–$150 US dollars by 2030,
and potentially $100–$250 US dollars by 2050, to incentivize climate action.
The issue of rising carbon prices has become a pressing concern for many
organizations, particularly in the steel and cement industry.
Although
the impact varies across firms, industries, and countries, the study finds that
most cement and steel companies in the Asian region cannot survive rising carbon
prices, with decarbonization being offered as the only solution.
Reflecting
on the findings of the report, Dr. Anastasiya Ostrovnaya, lead author of the
report and Senior Research and Teaching Fellow at the Center for Climate
Finance & Investment, says, "This study highlights the urgent need for
Asian steel and cement firms to decarbonize—if nothing else, for their own
survival. But, as this report suggests,
the capital needed for full decarbonization presents new challenges, prompting
a debate on the capital structure and the state's role."
Antigoni
Theocharidou, co-author and a Research Assistant at the Center for Climate
Finance & Investment also says, "The implications of this paper extend
beyond national borders and stress the need for better information and
investors' education on the carbon pricing mechanisms in hard to abate
sectors."
Looking
ahead, the authors conclude that decarbonizing the Asian steel and cement sectors looks to be a
daunting financial hurdle, particularly in the absence of subsidies.
They also
stress the need for further research on second-order impacts, such as inflation
and the redistribution of carbon pricing revenues, as well as the
role of voluntary carbon markets
in helping companies achieve their climate goals.
More information: Report: Financial
Implications of Carbon Pricing in the Asian Cement and Steel Industries