Research just released has an alarming warning for some of the world’s major industries, suggesting they face having their profits all but wiped out by the advance of carbon pricing systems.

A new paper from Trucost, part of S&P Dow Jones Indices, suggests major companies across the electric utilities, chemicals and carmaking industries could suffer “significant losses” from new carbon pricing policies or carbon taxes introduced as part of nations’ climate efforts.

Since nations around the world signed up to the United Nations sponsored Paris Agreement in December 2015, there has been a growing momentum behind carbon pricing schemes.

Not only has the European Union finally agreed substantial reforms to the EU Emissions Trading Scheme (ETS), to take effect from 2021, but China has started the launch of its own long-awaited carbon trading program and countries across North and Central America have teamed up to deliver further action on cross-border carbon trading.

While this might be good news for cracking down on greenhouse gas emissions, it is not such good news for companies ill prepared for the financial implications of carbon trading.

The Trucost research warns that although current carbon prices average US$40 a tonne, they are expected to increase to US$120 a tonne by 2030, if the world follows the two degrees Celsius trajectory set out in the Paris Agreement.

Even if government’s fail to increase prices in line with a 2.0°C trajectory, reforms that are already planned in the EU and elsewhere are expected to drive up prices considerably during the 2020s.

Rising carbon prices will have a direct impact on energy costs for many businesses, but measuring the impact of this shift solely in terms of a firm’s carbon footprint could leave businesses and investors blind to its impact in other areas, Trucost argued.

“Carbon footprinting is a great measure of how companies may be exposed to carbon pricing risk in the long term,” explained Libby Bernick, global head of corporate business at Trucost reported by British environmental news website BusinessGreen.

“It is standard practice, it’s good practice, for companies to measure their carbon footprint.

“It’s a measure of the intensity at which they operate.

“But what we found in the research is that carbon pricing risk often is dictated by the specific location where the business operates, and the business model.

“And the carbon footprint doesn’t provide any insights on those two aspects.

“So while carbon footprinting is a good first step, if that is the only measure a company relies on to understand their risk, then there are blind spots.”

To shine a light on these “blind spots”, Trucost used its in-house carbon pricing tool to measure the total risk faced by companies in each sector.

It concluded that although the profit risk for companies varies widely within sectors and geographies, carbon pricing risk across the auto, chemicals, and power sectors is set to grow significantly over the next two decades.

BusinessGreen reports the electric utilities sector, perhaps unsurprisingly, is judged to be the most vulnerable, with profits at risk potentially running to 90 per cent of margins by 2030 and 150 per cent by 2050 under a 2.0°C scenario.

“The amount of carbon pricing risk that an electric utility would be exposed to would more than wipe out all of its profit under a 2.0°C scenario,” Ms Bernick warns.

The variation in risk exposure is mainly down to the carbon intensity of the businesses, Ms Bernick explained, as well as where operations are based.

For some sectors, the need to shift towards greener business models is all but certain.

The utilities sector, for example, faces a complete decimation of its profits if it ignores the low-carbon shift underway around the world.

For other companies in other sectors, the risk may currently be less pressing, but are still material.

If the world sticks to its promises and limits warming to less than 2.0°C, profits will be hit unless firms take steps to limit their exposure.

It seems the measuring a businesses carbon footprint is only the first step in that journey.