Fossil-fuel companies enjoy an “implicit subsidy” that totaled US$800 billion in 2011, a figure that could pose an investment risk should it be impacted by regulations that eliminate or reduce it, a research paper published by the University of Cambridge contends.

The subsidy involves “hidden” costs in which oil, gas and coal companies are not obligated to pay for economic damage caused by carbon emissions, the paper’s authors at the university’s Judge Business School wrote. The writers developed a framework to assess subsidies by individual company, allowing investors to compare risk levels.

“The focus of this paper is on a way to quantify the comparative level of climate change risk for those companies most exposed to it—producers of coal, oil and gas,” the researchers wrote.

“There is already concern among policymakers about direct subsidies for fossil fuels,” they wrote. “The analysis in this paper suggests the subsidy is actually much greater than perceived.”

The report examined 20 global oil, gas and coal companies, including ExxonMobil, BP, Royal Dutch Shell, ConocoPhillips, Coal India, Peabody, Shenhua Group, China Coal Energy, Consol Energy, Gazprom, Pertamina, Statoil, BHPB, Lukoil, ENI, Occidental Petroleum, Total, Petrobras, Petrochina and Chevron. Researchers estimate that the companies studied were responsible for 23% of global fossil fuel emissions in 2012. Collective revenues for the group were nearly US$3.2 trillion with after-tax profits of $275 billion.

The after-tax profit margin of 8.6% does not account for the “social cost of CO2,” which researchers peg at US$105 per tonne for 2008, using a model developed by the U.S. Environmental Protection Agency. That put the hidden economic cost for these 20 companies at $883 billion in 2012.

“This hidden or externalized cost is an implicit subsidy and accordingly represents a risk to those companies,” the authors argue. “There is a reasonable chance that society will act to either reduce this societal cost by regulating against fossil fuel use or recover it by imposing carbon prices. Investors are increasingly focused on this risk and seeking to understand and manage it.”

Joseph Markman can be reached at jmarkman@hartenergy.com.