Decarbonization Imperative: High Carbon Emitting Businesses in Asia Face Negative Profits

The Center for Climate Finance & Investment at Imperial College Business School, in collaboration with the Singapore Green Finance Center, has recently published a groundbreaking report titled “Financial Implications of Carbon Pricing in the Asian Cement and Steel Industries.” This report delves into the financial impact of decarbonization on cement and steel companies within selected Asian Emission Trading Schemes. Its main finding emphasizes that high carbon emitting businesses in Asia will face consistent negative profits if they fail to adopt decarbonization strategies.

Carbon pricing has emerged as a crucial instrument for capturing the external costs of greenhouse gas emissions. As such, it is widely recognized as an essential climate mitigation policy tool. Against the backdrop of the COP28 climate summit, where carbon pricing is strongly debated, this report presents a timely analysis of its financial implications in the Asian context.

Asia is currently the fastest-growing carbon trading market, with many countries in the region ranking among the world’s major emitters of greenhouse gases. The Asia Pacific region also stands out as the most vulnerable region to climate change. However, the adoption of carbon pricing schemes to promote decarbonization has been limited in this area. Many countries hesitate to introduce high carbon prices, fearing their negative effects on domestic industries’ competitiveness.

The researchers involved in this report make a clear case: the only viable solution to mitigate carbon price liability for high carbon emitting businesses is their full decarbonization. However, they also highlight the significant challenge these companies face. The funds required for complete decarbonization often surpass the valuations of these businesses themselves.

Currently, global carbon pricing stands at an average of $6 US dollars per ton. Experts widely agree that to incentivize climate action, carbon pricing must increase dramatically. The consensus points to a range of $75-$150 US dollars by 2030 and potentially $100-$250 US dollars by 2050. These projections paint a pressing concern for organizations operating in carbon-intensive industries such as steel and cement.

While the impact of rising carbon prices may vary across firms, industries, and countries, this study unequivocally suggests that most cement and steel companies in the Asian region will struggle to survive under such circumstances. Decarbonization emerges as the only viable solution to mitigate the financial challenges posed by rising carbon prices.

Dr. Anastasiya Ostrovnaya, the lead author of the report and Senior Research and Teaching Fellow at the Center for Climate Finance & Investment, stresses the urgent need for Asian steel and cement firms to embark on the decarbonization journey to secure their future. Failure to act in a timely manner could lead to consistent negative profits and financial instability.

As the report highlights the imperative of decarbonization, it also calls for further research on the second-order impacts that may arise from carbon pricing reforms. Factors such as inflation and the redistribution of carbon pricing revenues warrant closer examination. Additionally, the role of voluntary carbon markets in assisting companies in achieving their climate goals merits deeper investigation.

The findings of this report underscore the importance of immediate action to combat climate change in Asia and beyond. Governments, businesses, and civil society must collaborate to create a sustainable future. By embracing decarbonization strategies and shaping effective carbon pricing mechanisms, high carbon emitting businesses can not only safeguard their own survival but also contribute to a greener and more prosperous world.

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