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1 May 2009

SRI-Adviser: Electric Utilities Are Unprepared for Carbon Regulation

Source: www.sri-advisor.com

by Robert Kropp

A new report by the Carbon Disclosure Project finds that disclosure by electric utilities on greenhouse gas emissions has improved, but falls short of the demands of a low carbon economy.

The urgency of a global transition to a low carbon economy is no longer in doubt, and companies that address the challenges of the transition are more likely to succeed over the long term. Sustainability investors whose portfolios are designed for long-term growth require clearly articulated disclosure of corporate strategies for addressing the risks and opportunities of climate change.

The International Energy Agency (IEA) estimates that more than half of electricity output worldwide in 2030 will come from power plants already in operation today. According to a recent report issued by the Carbon Disclosure Project (CDP) and written by RiskMetrics Group, "This underlines the importance of policies that put a price on carbon, slow electricity demand growth, and encourage faster turnover of power generating capital stock."

Yet the report, entitled CDP Electric Utilities Report 2009, found that only 16% of electric utilities are currently setting and disclosing absolute greenhouse gas (GHG) emission reduction targets, despite the fact that the industry accounts for 25% of global GHG emissions, the largest of all industry sectors.

The CDP, a nonprofit organization which represents 475 institutional investors with assets under management of $55 trillion, analyzed the responses of 110 electric utilities to its questionnaire. Its report concluded that while 61% of utilities forecast GHG emissions, and 59% have emission reduction plans in place, less than half disclosed current electricity generation capacity and production by fuel type. Only 14 respondents provided data on forecasted capacity and production.

Because few utilities have set and disclosed absolute emission reduction targets, while a higher percentage have set targets that allow for growth in overall GHG emissions, the reports questions the extent to which utilities are willing to pay for the reduction of emissions that will be required of them in a low carbon economy.

The report concludes, "Improved disclosure on forecasted capacity and production would help investors to better assess exposure to such carbon limits at this pivotal time in national and global climate regulation."

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