How would carbon pricing impact Asian
company earnings?
􀂄 Copenhagen meeting December 2009: potential catalyst for carbon pricing
Investors need to understand Asian companies’ earnings exposure to the
introduction of carbon pricing. The UNFCCC meeting in Copenhagen in
December 2009 will likely be a catalyst for the wider introduction of carbon
pricing in Asia. But even if it is not, it is highly likely that carbon pricing in one
form or another will affect a range of companies across every Asian market within
the next three years. We believe this is not being factored into consensus earnings
forecasts or current share prices.
􀂄 Estimating the impact of carbon pricing on Asian company earnings
This report examines a range of possible outcomes stemming from Copenhagen
and estimates the earnings impact of carbon pricing introduction for c300
companies by calculating the potential price rises in electricity, coal and fuel costs
and assuming UBS stock analysts’ estimates of companies’ exposures to each of
these items as well as companies’ margins, cost pass through abilities and export
exposures to the US and EU. To our knowledge, no previous research has
examined as wide a range of companies and tried in a systematic fashion to
estimate the impact of the introduction of carbon pricing on company earnings in
Asia.
􀂄 Analysis reveals significant variation in impact + identifies key ideas
The results of this analysis allow us to identify significant variations in the
potential impact on earnings of companies operating in the same sectors or
countries, and to highlight material differences in the impact of various forms of
carbon cost introduction on each sector and company. It also allows us to identify
investment ideas under a variety of possible carbon pricing scenarios.

Contents page
Executive summary 3
Carbon pricing catalyst: Copenhagen, December 2009 7
Scenario 1: Domestic pricing 10
— Concept .............................................................................................................10
— Relative merits and demerits..............................................................................10
— Assumed carbon price........................................................................................11
— Impact on electricity prices .................................................................................13
— Impact on fuel prices ..........................................................................................14
— Most and least impacted ....................................................................................15
— Direct beneficiaries.............................................................................................21
— Highlighted ideas under ‘Domestic Pricing’.........................................................24
Scenario 2: ‘Equalising’ carbon import duties 25
— Concept .............................................................................................................25
— Relative merits and demerits..............................................................................25
— Could this actually happen? ...............................................................................25
— Most and least impacted ....................................................................................26
— Direct beneficiaries.............................................................................................30
— Highlighted ideas under ‘Equalising Duty’...........................................................32
Scenario 3: ‘Climate Change’ carbon import duties 33
— Concept .............................................................................................................33
— Relative merits and demerits..............................................................................33
— Relative size of country impact...........................................................................33
— Most and least impacted ....................................................................................35
— Direct beneficiaries.............................................................................................40
— Highlighted ideas under ‘Climate Change Duty’..................................................41
Comparisons of impacts under each scenario 42
Appendix 1: Carbon tax scheme examples 47
Appendix 2: Carbon trading schemes examples 48
Appendix 3: Detailed impacts of ‘Domestic Pricing’ scenario 49
Appendix 4: Detailed impacts of ‘Equalising Duty’ scenario 57
Appendix 5: Summary of market-based climate change bills
introduced in the 110th US Congress 62
Appendix 6: Current and planned Asian domestic emission and
renewables targets 63