WRI continues the march of environmentally-driven credit analyses with a new report on the chemical sector and how climate regulation could effect industry's ability to borrow. WRI looks at both congressionally- and EPA-driven scenarios for greenhouse gas regulation and maps how different chemical sub-sectors will be affected in each.
Differences between cap-and-trade legislation and EPA-implemented regulation are interesting and not entirely intuitive. For instance, based on previous attempts at cap-and-trade, legislation will probably provide free emissions permits to emissions-intense sectors for the first decade or so, leaving medium emitters the most exposed. Also, legislation will probably give companies more flexibility, allowing them to choose whether to purchase permits or invest capital into efficiency. However, implementation of EPA regulations will probably be simpler, as participating in the rading markets under cap-and-trade will require more sophistication and mangement across the business.
Interestingly, the fertilizer industry has high potential exposure in both, as it cap-and-trade could increase the price of its large energy purchases, and its N2O emissions are an easy target for regulatory limits.