![]() ![]() That growing consensus around carbon pricing, however, is not yet universal. And the federal government is now committed to filling in the remaining policy gaps-by requiring every Canadian province and territory to put a price on carbon by the end of 2018. Several large provinces have already introduced well-designed carbon-pricing policies. They want to do their part and contribute to these efforts.Ĭanadians are also moving closer to agreement on how we should tackle these challenges. Canadians do not want to "free ride" on the actions of others. The study, Carbon Costs and Credit Risk in a Resource-Based Economy: Carbon Cost Impact on the Z-Score of Canadian TSX 260 Companies, appears in the Journal of Management and Sustainability.Despite its relatively small population, Canada has a role to play in the global efforts to reduce greenhouse gas (GHG) emissions to avoid the worst of these risks. “For Canada, we must analyze the financial consequences, develop risk assessment tools and indicators, and accelerate the transition to a low carbon economy.” “Implementing a carbon price is a first step, but not the last one if we are to achieve an orderly transition to a low-carbon economy with minimal disruption to credit,” said Olaf Weber, professor in the School of Environment, Enterprise and Development. In addition, central banks and other financial sector supervisors should start introducing indicators that measure the financial sector’s exposure to climate-related credit risks to be able to assess climate-related risks to the financial industry appropriately. This practice will enable them to analyze carbon-related credit risks accurately and set an appropriate interest rate for loans. The researchers propose that lenders should start or continue to consider a real and a shadow carbon price in their credit risk assessments. While the results show that high-emitting carbon borrowers and banks are at the greatest risk, their loss could gravely affect the rest of the economy and affordability within Canada, as companies tend to pass on increased costs to consumers, leading to increased prices that will further stretch the finance of the average Canadian. Using Toronto Stock Exchange data between 20 as a sample, the researchers applied the Canadian Government’s carbon price regime of $0 to $170 to analyze variables for predicting bankruptcy until 2030. “If we are not proactive, these investments could create increased costs, default rates and bad debt when you put these investments into context of the changing market and new government regulations.” “Canadian banks are deeply involved in lending to carbon-intensive clients and have increased lending to those companies by billions of dollars despite their public commitments to support global climate goals,” said Adeboye Oyegunle, PhD candidate in the School of Environment, Enterprise and Development. The study exposes the grave uncertainty facing the Canadian economy and the value for financial lenders and regulators to assess carbon emissions and carbon price scenarios as part of the credit risk assessment procedure. The results indicate that as carbon costs rise, high-emitting carbon industries such as mining and energy are at the greatest risk of default, with total assets of $256 billion at risk of being lost and almost a quarter of the Canadian GDP exposed to climate risk. In a first-of-its-kind study, University of Waterloo researchers analyzed the effects of Canada’s carbon price regime on the economy. By putting a price on the cost of carbon, the Government of Canada aims to curtail greenhouse gas (GHG) emissions, but it comes with an increased risk for financial lenders and borrowers with high carbon emissions. ![]()
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