from credit suisses notes yesterday

Note that MPO is one of the companies listed!

Climate Change
More than just politics
�¡ Climate change has become a �ehot topic�f. According to the Australian Greenhouse Office, 93% of the population are aware of climate change and 86% of Australians believe that action should be taken to reduce emissions.
�¡ The evidence to date strongly suggests to us that the climate change is caused by increased concentration of greenhouse gasses (CO2 being the main one) resulting from human activity, mainly burning of fossil fuels and deforestation.
�¡ The world can do one or more of the following three things: change the way we generate energy (supply side), change the way we use energy (demand side) and adapt to climate change. All of these things have costs associated with them and it is up to each country to choose their own way to tackle the problem, based on their own cost analysis.
�¡ The Australian Government has decided to head down the emission targeting and carbon trading path. The cost of such a scheme to Australia will depend on emission targets; the lower the target, the higher the cost.
�¡ An emission target schedule has not yet been set, but we do expect that the price of energy will rise and we should start thinking about companies affected by these upcoming changes.
�¡ The value of companies producing most energy per unit of carbon should rise, depending on the price of carbon, in our view. Some examples of affected companies in the energy industry: gas (AGK, ORG, MPO, QGC, AOE), nuclear (PDN, ERA), wind (BBW), biofuel (ARW, NFL, ABJ) and solar.
�¡ We note the same impact on companies that produce energy-saving technologies such as low(er) emission cars, engines, electric motors, generators, carbon filters, LED lights, gallium, insulation products. There are very few listed plays on this theme in Australia, but there are plenty globally. Some Australian examples are CSR, BLG, CFU and SLX.
�¡ The cost will likely be borne mainly by households and to a lesser degree businesses. As the price of energy rises over time, energy-intensive users will be hit the hardest. At $20/ton of CO2, we estimate the cost to Australia will be around A$6bn or about 0.6% of GDP per annum.
�¡ This may also have some impact on inflation in the medium term, in our view. According to RBA�fs model, if energy prices rise by 10% per annum over the next five years, the headline inflation would rise by 0.5%. Would believe that there would be some pass through to core CPI and potential implication on rates.