[Skip to content]

Sign up for our daily newsletter
The Actuary The magazine of the Institute & Faculty of Actuaries

Energy companies set to exceed carbon budget and leave profits at risk

Major European utilities companies are set to exceed carbon targets by 1.3 billion tonnes, the equivalent of Japan’s entire annual CO2 emissions, according to a report by CDP.

Energy companies are "at a crossroads" ©Shutterstock
Energy companies are "at a crossroads" ©Shutterstock

Charged or Static reveals that many are locked into high emissions due to long-term investment in fossil fuel power plants, and by not taking advantage of competitive prices for green energy, are putting €14bn of their earnings at risk.

It shows that, on aggregate, the 14 companies studied are set to overshoot the ‘carbon budget’ required to keep temperature rises below 2°C by 14%, while almost half are producing more than 20% of electricity from coal.

CDP CEO, Paul Simpson, said: “EU utilities are at a crossroads and must make some rapid decisions. The last year has seen a step change in support for, and engagement with, low carbon policies but the industry remains heavily reliant on fossil fuels to meet electricity needs.

“Market prices are showing that renewable energy sources like wind and solar power are more cost competitive than ever and utilities should look to capitalise on the strong growth that is forecast for these technologies.”

The electric utilities industry is responsible for a quarter of global emissions, and must reduce greenhouse gas emissions by 67% in the next 13 years if they are to meet the goals of the Paris agreement.

The companies studied have an average total market capitalisation of €256bn, with Verbund, Iberdrola, Fortum, and Enel some of the best for meeting carbon targets, while RWE, CEZ, Endesa, and EnBW rank among the lowest.

Despite being set to miss carbon targets, the report does highlight that there are positive signs for the sector, such as the UK’s decision to close all coal fired power plants by 2025, but that more needs to be done.

CDP investor research senior analyst, Drew Fryer, said: “In Europe, major utilities must transform their business models to achieve the climate goals laid out in the Paris agreement.

“Verbund is leading the way in planning for the future, targeting a 100% renewable energy generation portfolio by 2020 and is decommissioning remaining fossil fuel assets.

“But many other utilities remain reliant on coal for a significant share of power generated, and will break their carbon budgets in years to come based on existing fossil fuel assets.

“Rapid deployment of renewables is critical for the sector as it transitions to a low carbon future.”

Sign up to our free newsletter here and receive a weekly roundup of news concerning the actuarial profession