Green stocks surged on Monday after details of the government’s carbon pricing policy were unveiled, with renewables and carbon offset groups performing particularly well.  One of the strongest gains came from Carbon Conscious, which jumped 16 per cent to 36c and has more than doubled in the past week as details of the package emerged in the media. Fellow offsets group Co2 Australia jumped more than 10 per cent to 27c.

Among the renewables, the recently ignored geothermal sector recorded a solid bounce on the hopes that $10 billion to be allocated for the Clean Energy Finance Corporation would finally unlock investment. Petratherm, currently doing important fracture tests in the Cooper Basin, jumped 20 per cent ot 20c, while Geodynamics was up 25.4 per cent to 42c, nearly four times its low from late last month. Smaller stocks such Hot Rocks (11.1 per cent), Panax (21.8 per cent) and Greenearth Energy (11.7 per cent) were also sough in heavy trading.

Elsewhere, wave energy developer Carnegie Wave Energy gained 11.5 per cent, wind farm developer and operator Infigen Energy was up 10.8 per cent, diversified renewable energy company CBD gained 12.5 per cent, solar research group BluGlass jumped 13 per cent, and solar and uranium technology company Silex Systems was up 7.2 per cent.

Losing power

One company to fall sharply on Monday was Origin Energy, which was down nearly 2 per cent to $15.20. The carbon price had been expected to have either a  neutral or even slightly positive impact on Origin, but it appears that changes to the compensation package for electricity generators – which will concentrate more funds to fewer entities – means that it could be impacted quite heavily.

Deutsche Bank analysts noted that the purchase of the generation rights from the black coal fired Eraring Power Station has transformed Origin’s carbon emission profile, and Eraring may now not be eligible to receive free permits under the revised guidelines. “As a result, the impact of Eraring’s carbon liability could have a significant impact on Origin’s earnings,” the analysts said. Based on its assumptions that 75 per cent  of generator costs are passed through across the network, and Eraring does not receive any free permits, the price on carbon could force Origin Energy’s earnings per share down 10.9 per cent in fiscal 2013, and its valuation down by 5.7 per cent.

“This is materially different to the scenario where Eraring does receive free permits, where the fiscal 2013 EPS impact would be +1.2 per cent. Under the CPRS, we believe Eraring would have received generator support. The ability for Eraring to pass through carbon costs is a key variable. We assume the electricity sector will be able to pass through 75 per cent of carbon related costs in the form of higher pool prices, however we note if 100 per cent of costs can be passed through, the impact of a price on carbon is positive for Origin.

Falling

Another stock to be impacted by the carbon price is Virgin Blue, which lost 4.3 per cent in early trade. Deutsche said domestic airlines are unlikely to be able to pass through the carbon price without impacting their revenue profile, whether it is passenger or freight traffic. “n relation to passenger travel, we believe that full pass-through is unrealistic given the highly discretionary nature of air travel, be it in the corporate or leisure segments,” they wrote. “Whilst the air freight market is time sensitive, it is also highly cyclical - full pass through is also unrealistic; however, we would expect better end-user cost acceptance than passenger traffic.”

Deutsche estimates that Virgin earnings could be hit by 20.5 per cent in fiscal 2013, while Qantas’ could fall 10.9 per cent. Qantas shares shares were down just 1c. Deutsche noted that the impact on major mining companies such as Rio Tinto, BHP Billiton, Newcrest and Iluka were likely to be very small, with each companies suffering a fall of less than 1 per cent of their net earnings in fiscal 2013.