The Washington Post reports that pension fund managers representing $1 trillion have petitioned the Securities and Exchange Commission (SEC) to required public companies to disclose the impact of global warming on their business prospects. If the SEC agrees, the change could threaten investors in utility stocks -- which are among the biggest private sources of carbon dioxide emissions that cause global warming.
Here's a list of utility stocks which could be most affected:
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American Electric Power (NYSE: AEP). AEP produced 145.4 million tons of carbon dioxide in 2006. In Europe, where legislation already limits carbon dioxide emissions, allowances for a ton of carbon dioxide sell or 20.5 euros, or about $28.50. So if its 2006 carbon dioxide had been emitted in Europe, AEP would have had to pay over $4 billion.
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Dominion Resources (NYSE: D)
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Xcel Energy (NYSE: XEL)
Coal producer, Peabody Energy Corp. (NYSE: BTU) could also be among those companies affected.
While in theory this sounds like a good idea to me, I am intrigued by the intellectual challenge of how to put a number on the potential costs and business opportunities which climate risk could place in the path of a company. For instance, how big would the lost opportunity be for AEP if it could not build a new power plant because of political opposition resulting from its contribution to greenhouse gases? Conversely, how much additional money could AEP make by trading its carbon emissions rights or by selling a new technology it invented that reduced greenhouse gases?
I think the effort to measure these costs and opportunities is a crucial first step to managing them. No doubt those who want to avoid the regulation of these carbon dioxide emitting industries would prefer to be left alone. But if we can summon the political will to cut back on smoking in public places, we ought to be able to do the same thing with greenhouse gases.
Quantifying their costs and opportunities for business would be a crucial step in that process.
Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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