Carbon Tax to Revenues/Assets in Disclosing Firms

Source: ICE Data Services, Orbis (Bureau Van Dijk), Network for Greening the Financial System ([NGFS]); IMF staff calculations. Category: Transition to a Low-Carbon Economy Data series: * Carbon Cost to Revenues in Disclosing Firms * Carbon Cost to Assets in Disclosing Firms Metadata: Data from the private data vendor ICE Data Services are used for firm level emissions. ICE Data Services provides company-level data on emissions disclosures, estimated emissions, emission targets, and model-based emission projections up to 2050. The Carbon Cost to Revenues and Carbon Cost to Assets in Disclosing Firms indicators leverage firm-level emissions disclosures and projections of these firms for the period 2025-2050. The sample is restricted to firms whose emissions disclosures are deemed complete. Data for a firm are considered “Complete” when at least 95% of a company’s worldwide Scope 1 and 2 emissions within an appropriately chosen reporting boundary are covered by their reporting. Firm identifiers (ISIN or LEI codes) from ICE Data Services are mapped to Orbis dataset for the compilation of the indicators. Orbis is a dataset compiled and maintained by Bureau Van Dijk and owned by Moody’s Analytics. The Carbon Cost to Revenues and Carbon Cost to Assets in Disclosing Firms indicators are calculated using the information on company revenues, assets, country of incorporation, and ISIC core sector provided by ICE. The Network for Greening the Financial System ([NGFS]) produces model-based simulation of the joint climate-economic systems under different scenarios. The Carbon Cost to Revenues and Carbon Cost to Assets in Disclosing Firms indicators are calculated using NGFS Phase 3 scenarios from the simulation of the model [REMIND-MAgPIE 3.0-4.4], downloaded by IMF staff in December 2023. Methodology: Carbon Tax to Revenues/Assets in Disclosing Firms indicators are calculated at the level of ISIC Section (letter code), ISIC Division (2 digits), and WEO country grouping, but not crossing the sectoral and geographic dimensions. In addition, the indicators are also calculated for both Scope 1 and Scope 2 emissions, and for each projection year between 2025-2050. Specifically, for each of the sectors or geographies, the indicator is defined as total emissions in each scenario/year times the corresponding carbon price in that scenario/year from the NGFS phase 3 scenarios, summed over all companies, and divided by the total revenues or assets of all companies in that sector/geography in the base year. The underlying assumption when calculating these indicators based on Scope 1 emissions is that companies will be directly and fully taxed at the assumed carbon tax rate under the given scenario. As estimates of future revenues are not available, results are derived in comparison to the 2021 revenues to scale the carbon tax burden on the firms. However, current revenues may not fully reflect future revenues. To address this, a second version of the estimates is calculated by relaxing the constant revenues and assets assumption. For this set of indicators, firms’ revenues and assets are adjusted by a growth factor by considering past growth trends (based on five years sector-country average growth rate pre-covid) and WEO growth assumptions. As for Scope 2 emissions, results are based on full carbon taxation of Scope 2 indirect emissions. This is interpreted as an upper bound to the potential impact in a scenario in which either the energy producing sector fully passes through these costs downstream to higher energy prices, or companies get taxed directly on their purchases of energy. Scope 2 Market Based emissions are used in the calculations as this allows the reduction in the accounting of indirect emissions that arises from the purchase of “green certificates” or other instruments that companies can use to offset their carbon footprint. To guarantee the preservation of a reasonable degree of confidentiality/ representativeness of the underlying company-level information, results are not calculated in those instances in which either the number of disclosing firms in each sector/geography is strictly less than 10 (9 or lower), or the share of either assets or revenues (whichever is applicable) of the top 2 firms exceeds 85%.