High carbon emitting businesses in Asia are facing a daunting reality – consistent negative profits if they fail to decarbonize. A new report published by the Center for Climate Finance & Investment at Imperial College Business School, in collaboration with the Singapore Green Finance Center, has shed light on the dire financial impact of carbon pricing on the Asian cement and steel industries. As carbon pricing takes center stage at the COP28 climate summit, this report seeks to quantify the effects of carbon pricing systems on leading cement and steel producers primarily based in China and South Korea.
Carbon pricing, an instrument designed to account for the external costs of greenhouse gas emissions, has emerged as an essential policy tool for climate mitigation. The Asia Pacific region, being the fastest-growing carbon trading market, is particularly vulnerable to the effects of climate change. However, many countries in the region remain hesitant to implement carbon pricing schemes, fearing that high carbon prices may hinder the competitiveness of domestic industries.
The report’s findings point to decarbonization as the only viable solution for cement and steel companies to mitigate their carbon price liability. The researchers emphasize that failure to decarbonize will lead to negative profits for these companies. However, the report also highlights a significant challenge – the extensive funds required for firms to fully decarbonize may surpass their current valuations. This raises questions about the feasibility of decarbonization for these industries and the need for additional financial support.
The consensus among experts is clear – carbon pricing must rise significantly to incentivize climate action. Currently averaging at $6 US dollars per ton globally, experts believe that carbon pricing should reach $75-$150 US dollars by 2030 and potentially even rise to $100-$250 US dollars by 2050. Such steep increases in carbon prices have become a pressing concern for organizations, particularly in the steel and cement industry, as they may render many companies financially unviable.
While the specific impact of rising carbon prices varies across firms, industries, and countries, the report indicates that most cement and steel companies in Asia will struggle to survive. The urgency for these industries to prioritize decarbonization is now more critical than ever. Dr. Anastasiya Ostrovnaya, the lead author of the report and Senior Research and Teaching Fellow at the Center for Climate Finance & Investment, states, “This study highlights the urgent need for Asian steel and cement firms to decarbonize – if nothing else, for their own survival.”
In addition to the immediate call for decarbonization, the report underscores the importance of further research. While focusing on second-order impacts, such as inflation and the redistribution of carbon pricing revenues, it also emphasizes the potential role of voluntary carbon markets in helping companies achieve their climate goals. By exploring these aspects, policymakers and industry leaders can gain a more comprehensive understanding of the challenges and opportunities presented by decarbonization efforts.
The financial implications of carbon pricing on the cement and steel industries in Asia are grave. The report’s analysis highlights the urgent need for these industries to prioritize decarbonization to avoid continuous negative profits. Carbon pricing must rise significantly to incentivize climate action, necessitating a careful balance between financial viability and environmental responsibility. As Asia grapples with the pressing issue of climate change, decarbonization remains the key to ensuring the survival and sustainability of the cement and steel industries.
Leave a Reply