1. The Great Coal Cap
China’s energy policies
and the financial implications
for thermal coal
Luke Sussams
Senior Researcher
Carbon Tracker Initiative
Hong Kong, 5th June 2014

2. The role of China in the global coal consumption

3. The dynamics of China’s thermal coal sector are changing
Lowering power demand growth
Lowering competitiveness of thermal
coal
Air pollution Water scarcity
Increasing competitiveness of non-
coal power sources

4. Drivers Peaking China’s Thermal Coal Demand

5. Asset stranding from ‘early-peaking’ of thermal coal demand
However timing still debated with forecasts ranging from 2015 to 2030
Stranding of assets would entail financial consequences for market actors
great level of ‘asset stranding’ because the difference between the
expected trajectory of demand on which investments were based and
the realised pathway of lower demand and pricing would be greatest.
‘early-peaking’ scenario
Investors Policy
makers

6. Coal-fired power capacity at risk of stranding with near-term
peaking coal demand

7. The report provides analysis to
support a reassessment of exposure
to assets with the greatest value-at-
risk as a result of stranding
China has significant future supply
that could be at risk from an early-
peaking demand future.
Over two decades
of proven coal supply

8. Over two decades
of proven coal supply
Shanghai, Shenzhen and Hong
Kong stock exchanges are
potentially vulnerable to value
destruction.
Over 80% of non-state owned
assets attributable to companies
listed on these exchanges.
Hong Kong Stock Exchange
runs the greatest exposure.

9. Coal capital expenditure by stock exchange (CNY bn)

10. Identifying wasted capital expenditure (CAPEX)
Debt levels
Factors investors should consider when determining potential exposures
Coal quality
Geographic location
Political support
Revenue sources

11. Risks to the international coal market
Over the past 10 years, China has transitioned from being a net-exporter of
coal to the largest net-importer globally and the biggest influencer on the
future demand and price of traded thermal coal.
Are they at risk of being left with excess supply?
Australian and Indonesian exporters
heavily rely on China’s demand growth
‘early-peaking’ scenario

12. Recommendations
Investors
Policy- makers
Companies

13. Recommendations
Investors
• Require improved disclosures from coal companies
with regards to future capital expenditure strategies in
thermal coal sector and quality of resources and
reserves.
• Ensure risk factors that determine resilience to lower
demand are clearly and accurately factored into
investment decision-making
• Implement effective risk monitoring processes to
ensure timely response to market upheavals

14. Policy-makers
• Requiring stress-testing of banks and other financial
institutions for potential on balance sheet exposure to
stranded asset risk
• Financial market impact analyses of major environmental
policies and developments to determine likely impact on
financial institutions
• Set up a framework to assess risks to the future stock of
financial assets
• International cooperation to enhance broader risk
management of stranded assets
Recommendations

15. Recommendations
Companies
• Provide markets with information and analysis on potential
exposures and resilience to the risk of stranded assets
(Exxon, Shell, Total)
• Adopt more conservative capital spending strategies
• Stress-test the benefits of diversifying revenues sources
from pure coal to a broader range of prospering
technologies

16. Thank you.
Luke Sussams
Senior Researcher
Carbon Tracker Initiative
luke@carbontracker.org
@carbonbubble
www.carbontracker.org