Hey peeps, so many of you just got admitted to different programs at different universities here in Sweden, well, CONGRATULATIONS to all of you! Specially for those ones that chose the best one, KTH! Haha! Soon enough you’ll start your studies and you’ll find yourselves immerse in a dream (now a reality) called, Sweden; but underestimate not your time here! In a blink of an eye you’ll be finishing your courses and writing a thesis, like me 🙂
Many of the friends that read my blog have asked me what am I writing about and also have suggested that I could share it on a post, so, why not? The topic that I decided to write about is within the scope of my Master’s (Sustainable Technology), but I decided to focus it a bit more to those third parties that have a key role in decreasing global GHG emissions, investors. Yes, I’m trying to not only change the misconception of environmental and economic issues as 2 unrelated topics to one another, but to assess and enhance the role people have in allocating their money (investments) in the right companies; how am I doing this? well, my thesis is in carbon pricing and the impact on financial markets.
If you are one of those adventurous future students moving to Sweden, you’ll see that some things like gasoline prices or anything that depends on fossil fuels is waaay too expensive here; why? carbon tax! Sweden has the highest carbon emission tax in the world 114 EUR/tonne in 2019. This is good! Not all high prices or high taxations are bad, at least not this one for environmental-related issues. So now, imagine you are a company that not only buys electricity produced by burning fossil fuels (unlikely in Sweden but still possible), but you need to burn some gas/gasoline/coal for your industrial processes! First, that would mean that you are paying a high price on the fuels based on the carbon emission tax (electricity + own processes), and second, you are most probably included in the EU Emissions Trading Scheme (EU ETS); this program, sets a limit for the amount of emissions you (company) release each year and stipulates that if you go above your budget, you’ll have to pay for those extra emissions (around 20 EUR/tonne). Wow! You are polluting and it is costing you a lot!
As a company, all of these pricing mechanisms (taxes and ETS) have a direct impact on the costs. What I’m currently evaluating during an internship at a leading international financial consultancy, is to understand, assess, and quantify the carbon price risk and exposure a company may have; this would be really useful for investors to see how their portfolio has been performing in terms of decoupling their in-puts from fossil fuel resources and their investment in cleaner and efficient technology/processes. It is important for me to highlight, that even though Sweden has been doing great on carbon pricing stablished at a 100+ EUR/tonne for tax and 20+ EUR/tonne on an ETS, globally speaking, emissions are being underpriced and don’t express directly their real cost of polluting. In other words, emissions are being charged with < 30 EUR/tonne in most places around the world. This is bad! The reason? The OECD has estimated that emissions should be priced by 2030 at somewhere 80+ EUR/tonne and 120+ EUR/tonne by 2050; all these if we want to stay within a 2º temperature-rise scenario.
The challenges of my thesis are that there are hundreds of taxes schemes out there, ETS being placed in different regions, different industries are covered with different prices, economic uncertainty on future carbon prices… and the list go on for me to model or create a tool that can quantify this at a company level 😛 but I’m excited of accomplishing my goal, enhance responsible investing with the help of KTH and ISS-ESG (the financial consultancy) 😀