The Great Coal Cap: China’s energy policies and the financial implications for thermal coal

Jay OwenSRI/ESG News

The Great Coal Cap: China’s energy policies and the financial implications for thermal coal | Carbon Tracker Initiative

Since the turn of the century, China has almost singlehandedly been driving global thermal coal consumption growth. Changes in the regulatory landscape and the competitiveness of different power sources suggest that future demand may not follow the same path. This could have significant financial implications for investors, regulators and civil society that do not foresee such changes.

Screen Shot 2014-06-04 at 16.36.06

–        What are the drivers leading many to predict the near-team peaking of China’s thermal coal demand?

–        What is the scale of thermal coal reserves, potential reserves and power generation infrastructure at risk of becoming stranded in this scenario?

–        How much capital expenditure is being committed by China’s coal sector to add to potentially strandable coal assets?

–        How does this translate to investor exposure to this risk through China’s stock exchanges?

–        Who is most exposed to this risk?

–        What implications does this have for the international thermal coal market?

–        What actions can be taken by investors and other stakeholders to minimise their exposure to potential stranded assets and, instead, take advantage of China’s transition to a more diverse power generation sector?

This report from Carbon Tracker and ASrIA (the Association for Sustainable and Responsible Investment in Asia) evaluates the environmental and economic regulatory drivers serving to slow China’s coal demand growth to a potential peak.

The research goes on to reveal that this lower-than-expected Chinese coal demand could create significant stranded assets and wasted capital both for those within China’s coal sector and international coal exporters.

The report has been launched in Hong Kong on June 5th. The invite can be found here.

Partnering with us on the report are Simon Zadek, Co-Director, Inquiry into the Design of a Sustainable Financial System, and  ASrIA.

The report can be downloaded here.


Click images for larger version


FIG1_summary graph drivers LOGO-01FIG.2 coal-fired power capacity at risk LOGO-01

FIG.3 china's total assets LOGOFIG.4 exposure china's stock exchanges LOGO

FIG.5 stock xgs china LOGO-01



Carbon Tracker Chief Executive Officer, Anthony Hobley, said:

‘China’s ‘Great Coal Cap’ could feasibly peak China’s thermal coal demand in the near-term, presenting a significant risk of asset stranding for those investing on a business as usual future. Questions need to be asked whether committing billions of capital to increase thermal coal supply in a shrinking market is a wise use of capital’.

ASrIA’s Chief Executive Officer, Jessica Robinson, said:

‘China is responding to its environmental challenges in part by diversifying its power generation away from burning thermal coal – investors need to dispel any belief that Chinese coal demand is insatiable and integrate this transition into their decision-making by stress-testing the relative risks of different future demand scenarios’.

Carbon Tracker’s Senior Researcher and Lead Author, Luke Sussams, said:

‘Investors in Australian and Indonesian exporters of coal, in particular, must factor much lower Chinese demand into their demand and price forecasts. If China becomes a zero imports market, which is possible, there is a noticeable lack of any viable alternative growth market for seaborne traded coal. Where will Australia’s US$50 billion of thermal coal go instead?’

?Fung Global Institute’s Distinguished Fellow, ??Andrew Sheng, said:

“…there is significant potential value-at-risk associated with a failure to recognize the impact of early peaking demand (for fossil fuel) within the sector.  This has serious risk implications for investors, energy companies and policy-makers alike – especially as China’s power sector transitions to a cleaner future and the world becomes serious about climate change.”

Please find here the media coverage report – 8th June 2014
Download here the Press Release – 5th June 2014