Credit Rating Agency Measures Impact of Carbon Pricing

NEW YORK–(BUSINESS WIRE)–KBRA releases research that focuses on the importance of measuring the real impact of a carbon tax.

There has been a great deal of debate about what it will take for individual companies to reduce their carbon dioxide (CO₂) emissions. Many argue that either a carbon tax or cap-and-trade program is the most viable option. Some even maintain that such policies should include all greenhouse gases (GHG), including methane, nitrous oxide, etc. In any case, it is difficult to form thoughtful views on emissions taxes because much of the debate is highly politicized, with assumptions that carbon taxes would be harmful to companies and economies. These assumptions ignore the external impacts, such as rising food prices and health care costs, that carbon emissions have on economies, which seems increasingly illogical in this day and age.

Although there are many different approaches to reduce carbon emissions, most economists and policymakers agree that the best way to shift away from fossil fuels and reduce emissions is to put a price on carbon. There is no uncertainty that there will be further emission regulation, but questions remain about what the policies will entail and what their impacts will be on corporate credit.

Key Takeaways

• KBRA believes meaningful reductions in carbon emissions will require that a price be assigned to the impact emissions have on the economy.
• Politicization of carbon pricing clouds the reality that many companies can easily absorb or pass through the cost of emissions.
• Transparent carbon pricing schemes would likely accelerate the development of technologies that reduce emissions or remove carbon from the atmosphere.

Click here to view the report.

Related Publications

• ESG Global Rating Methodology
• Carbon Pricing and Its Potential Credit Impact
• Credit Ratings Deserve ESG Risk Analysis, Not ESG Scores
• Corporates: KBRA’s Framework for Incorporating ESG Risk Management in Credit Ratings
• Midstream Energy Companies: KBRA’s Framework for Incorporating ESG Risk Management in Credit Ratings

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.