UK - The introduction of a carbon price floor for the power sector as detailed in yesterday's Budget could disadvantage UK companies, according to F&C Asset Management.
The Carbon Price Support (CPS) scheme will be introduced from 1 April 2013, starting at £16 (€18.3) per tonne in 2013 and rising to £30 in 2020, adjusted for inflation using 2009 as a base year.
This is roughly in line with current EU Emission Allowance (EUA) forecasts for 2013 and is therefore expected to have no impact on companies unless the EU carbon price falls.
However, in its assessment of the impact of yesterday's budget on ESG-linked investments and sectors, F&C said that, in the longer term, the rising floor price could disadvantage UK companies, as current forecasts for EUAs under phase III of the Emissions Trading Scheme (ETS) are estimated at €25/tonne, which would suggest a premium supplement for UK companies based on the current EU cap.
If the cap were brought down, EUA prices would rise and potentially be comparable.
Companies most likely to be hurt by the scheme would be coal-fired power generators.
Nuclear, on the other hand, and potentially gas could benefit, as total impacted emissions would be lower, but only where switching opportunities were easily available.
Renewables are expected to benefit as the cost of energy from coal rises.
The Budget included a reiteration of commitment to the Green Deal, including incentives to households, businesses and providers to promote take-up of this energy efficiency scheme, but there is no impact on companies as yet.
Overall, the Budget is not likely to have any immediate impact on energy-intensive UK industries such as manufacturing, but could potentially be negative in the longer term, F&C said.
The Budget confirmed that only £1bn of government funds would be available for the first carbon capture and storage (CCS) demonstration plant.
With the CCS levy being dropped, it remains unclear how the further three demonstration projects will be funded.
But one potential source could be the revenues from the CPS, which is expected to generate around £1.4bn per annum by 2015-16, according to F&C.
The government's commitment of an additional £2bn brings the total funding for the Green Investment Bank (GIB) - due to be launched in 2012 - to £3bn, which in turn could catalyse £15bn in private investment and be positive for F&C's Ethical Bond fund investment opportunities in the future.
The GIB will also have authority to issue green bonds from 2015-16 if the government's target for debt reduction has been met.
But the UK Sustainable Investment and Finance Association (UKSIF) is concerned borrowing will not be allowed until 2015 at the earliest.
UKSIF chief executive Penny Shepherd said: "While there is much to welcome in the announcement, it represents a lost opportunity to make the step change needed to green the UK economy and support UK leadership in green financial services.
"In particular, the delay and uncertainty about when the Bank can start borrowing does not send the right signals to pension funds and investment managers."