Quantifying the Implicit Climate Subsidy Received by Leading Fossil Fuel Companies

Chris Hope (), Jimena Alvarez and Paul Gilding
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Chris Hope: Cambridge Judge Business School, University of Cambridge
Jimena Alvarez: Cambridge Judge Business School, University of Cambridge
Paul Gilding: Cambridge Institute for Sustainability Leadership, University of Cambridge

No 2015/02, Working Papers from Cambridge Judge Business School, University of Cambridge

Abstract: Fossil fuel companies sell the products that cause the vast majority of anthropogenic climate change. These companies don't pay for the economic damage these products cause to society. The IMF calculated that in 2011 this implicit subsidy amounted to about $800 billion globally. This implicit subsidy represents a risk to individual companies because as society seeks to reduce or recover the economic costs fossil fuels create, company profits could be lost and assets stranded by the resulting shift to low carbon energy. As a result attempts are being made to identify companies most at risk. However, no company-level model exists to compare present-day implicit subsidies and therefore risk level. Here we calculate these subsidies, by company, for the years 2008 to 2012. For all companies the implicit subsidy exceeded their post-tax profit (averaged over five years). For all pure coal companies, the implicit subsidy exceeded total revenues. There is substantial variation between companies within the same fuel type. We anticipate that these results will be a useful starting point for investors seeking to manage their exposure to climate change risk, and for policy makers interested in fossil fuel companies' net contribution to society.

Keywords: fossil fuel; climate change; carbon tax (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-ene, nep-env and nep-pke
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