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Which ASX-listed companies will suffer most from a carbon tax?

John Abernethy
24 May 2011

In anticipation of a possible carbon tax proposed by the Gillard Government, we have collected carbon footprint data for a number of ASX-listed companies.

Not surprisingly, the disclosing companies are either larger capitalisation companies and/or those companies that have been leaders in environmental and/or socially responsible areas.

It is our view that these companies are a good representation of the indicative trends of the effect of carbon tax on Australian companies and thus the Australian equity market.

The following represents a preliminary view of the affects of the carbon tax on profits. Clearly, there are major negotiations to take place before the tax is implemented and there will be many offsets.

Having noted the above, we believe the following outcomes are the most salient points for investors to understand:

  1. Mining, building material, steel manufacturers, utilities, energy producers and airlines are the greatest carbon emitters.
  2. While the major miners (that is, BHP Billiton and Rio Tinto) are the largest carbon emitters for the ASX-listed companies, the amount of tax payable (at $20/tonne) is actually very small compared to their forecast net profit after tax (NPAT). For example, it is less than 1.5 per cent of both their NPAT in financial year 2013.
  3. On the NPAT basis (based on FY13 forecast), the companies which are most impacted are Bluescope Steel Limited (BSL), Virgin Blue Holdings (VBA), Adelaide Brighton Limited (ABC), Envestra Limited (ENV), AGL Energy Limited (AGK), Alumina Limited (AWC), Boral Limited (BLD), Brickworks Limited (BKW), OneSteel Limited (OST), and Qantas (QAN) as the carbon tax is more than 15 per cent of their market consensus FY13 NPAT.
  4. On the other hand, the least impacted companies are the financials, particularly the major banks in term of the percentage of NPAT. Ironically, we also note that it is the banking sector, (particularly Westpac) which are the most environmentally conscious even though they are barely impacted by the carbon tax.
  5. It is likely that some of these companies will be able to pass on most of the tax to their customers. It is likely that airlines and utilities companies will find it easier to pass on most of the carbon tax to their clients compared to steel and building materials companies.
  6. At a $20/tonnes tax basis, the total amount of tax to be collected from reviewed companies is about $2.2 billion. This is equivalent to about 2.4 per cent of the total forecast NPAT of these companies in FY13.
  7. Assuming that these companies represent about 70 per cent by market capitalisation of the listed market, and that the entire listed market is about 35 to 50 per cent of the total Australian corporate Sector by value/size, it is probable that the carbon tax for the Australian Economy would be between $6 and $9 billion in FY13. This implies that it represents a tax of about 0.5 per cent of the Australian GDP.
  8. Some companies have already taken initiatives to offset their carbon emissions and developed a timeline to be carbon neutral. Thus, it is possible that the amount of ‘carbon tax’ that is projected above may be reduced and that the ultimate after-tax profit affect will be less pronounced.

Which companies are most at risk by a carbon tax?

The total carbon emission in term of tonnes as well as the percentage of the FY13 NPAT at $20/tonnes for carbon is shown in the below table. We highlight those companies in which the proportion of the carbon tax to their net profit after tax is greater than 10 per cent in red and more than 25 per cent in red bold font.

For a larger image, click here.

Table: Carbon emission figures for top companies (representing approximately 70 per cent of the ASX300 and the proportion of their NPAT if carbon is tax at $20/tonnes.)

Source: IRESS, Company's latest sustainability and annual report and Broker Research (JPM and GSJBW).

We will be updating the required return to take into account this most recent information and continue to monitor for further fine-tuning if required should this carbon tax materialise in the future.

Vincent Chin is a senior analyst with Clime. Clime Asset Management and MyClime are part of Clime Investment Management (CIW). MyClime is Australia’s premier online share valuation service. For a free two-week trial, click here.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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