Thermal Coal Invisibility - Literature review Example

Literature review tasks for ‘Thermal Coal Invisibility’ assignment Writing Requirements: Main purpose of this order is to reinforce the literature review sections in the ‘Required reading’ below. The literature section has specific comments in the yellow highlighted part. Please address all the comments in the highlighted yellow parts in the ‘Required reading’ from literature review prospective (please also see the bottom appendixes for the highlighted yellow parts) Please write about 5 pages for the literature sections all together, and if other questions please contact me thanks. Required reading: 1. Introduction and Research Background The purpose of the paper is to evaluate the long-term viability of thermal coal as an investment that creates positive shareholder value. Thermal coal is used to produce circa 40% of global electricity but it is also the predominant source of carbon emissions (Greenpeace, 2008). These contrasting yet distinguishing characteristics lead us to potentially divergent scenarios over the next 20 years on a regional basis, influenced by multiple stakeholders, technology, and economics. In order to gain a holistic understanding of the true value of thermal coal, we aim to incorporate financial as well as non-financial factors into our research and assess this relationship. a. Why thermal coal? The research focus is on the investibility of thermal coal, as opposed to metallurgical coal, since it is the most abundant coal source and accounts for the majority of global coal demand. It also has a greater potential for substitution compared to metallurgical coal. According to Cache Coal (2015, p.1), thermal coal has a greater potential for substitution than metallurgical coal because, it is lower in carbon content as well as calorific value and it is higher in moisture value. Metallurgical coal has less potential since it is less abundant in the requirements for making coal. There are only specific forms of metallurgical coal that contain the essential characteristics that are required in making coke. The semisoft coking coal type of metallurgical coal usually produces coke for lesser quality together with the lower sales. Metallurgical coal also has technical limits to be substituted for hard coking coal within their blend of coking coal. Metallurgical coal is also more expensive than thermal coal thus giving it the characteristic of its scarcity (Lydersen 2013, p.1). Thermal coal is the fuel source for 40% of all electricity power generation (World Coal Association, MIT, 2007). Thermal coal is expected to be a dominant fuel source, due to its low cost and availability, particularly in India and China over the next several decades, where it currently represents in excess of 70% of power generation (Lee & Chang, 2008). b. What do we mean by investability and what is the rational for a 20-year timeframe? Investibility can be viewed through a financial as well as non-financial lens. Bloomberg (2014) defines investor imperatives (or financial factors) as scale, liquidity, yield and growth. Certain fossil fuel securities in the oil and gas sector meet this criteria, however, it is widely debated whether this remains the case for thermal coal securities. Non-financial factors include economic development and the environment (Soner, 2012). These non-financial factors are important, particularly to governments, which not only consider the financial viability of power stations, but also whether policy goals are supported. (Belke et al., 2010). Soner (2012) argues that while this may be so, there still needs to be an appreciation of externalities as too many costs are excluded from the current market price of coal. In order to range bound the time period in which the investigation is completed, we have chosen a 20-year outlook (Caldecott et al., 2014). We believe that many of the structural trends and discontinuities discussed below will have had the time to lead to divergent and plausible outcomes during this period. c. Research design and methods To address the research question a primarily qualitative1 step-by-step inductive methodology has been used (Figure 1). Although the broader concept of sustainability deals with the interaction between natural and social systems (Kates, 2011), the research question seeks to understand the conditions and patterns under which thermal coal could remain a more or less investible over the next 20 years, which is more of a social sciences perspective. The qualitative research paradigm is most akin to deal with understanding patterns and conditions (Schwandt, 2001) and also happens to be the predominant research paradigm used in the social sciences (Giddens, 1979). Figure 1: Research process Source: Adapted from Cornelius, Van de Putte and Romani (2005, 100) The first step during the research process was to conduct a literature review to identify potential key factors influencing the research question. These key factors formed the basis to develop a survey, which has been sent to 152 experts2 selected from China, Europe, India, Kazakhstan and the United States3 active in the following fields: asset managers, venture capitalists, traders; government; non-governmental organisations (NGOs); business leaders associated with coal; technology companies; international organizations; academics, consultants, media (See Appendix A). In appendix B, the health effect in china is a social issue that is prioritised on the top because it has a high impact on the health of people. It is also social issue that is threatening the people due to its high uncurtaining. These findings were supported by the Centre for Media and Democracy (2015) that argues that, thermal coal influences the health of people by reducing their life expectancy, increasing respiratory hospital admissions, incidences of black lung from coal dust, congestive heart failure, non-fata cancer, renal dysfunction as well as increased incidents of asthma. These are health concerns that need to be addressed to reduce their effects in the lives of people. The findings clearly indicate that, the prospects for zero emissions coal based hydrogen productions are the technological issues of thermal coal that have high degree of uncertainty and an important issue in the long term. The reason is that, achieving clean coal has been a challenge and a technology that will serve to produce clean coal should be the major goal for carbon capture and sequestration. According to the World Nuclear Association (2015), coal is an important fuel that is used and will continue being used in most parts of the world. Therefore, a technology that will burn it without the addition of global carbon dioxide level is important. This will help in achieving coal with zero emissions by using coal in making hydrogen from water together with burying the resulting carbon dioxide by-product as well as burning the hydrogen. Economically, achieving the price of coal that reflects true cost in terms of health CO2 among other emissions is an economic issue that experiences critical uncertainties and it is an issue which is important in the long term. The Yale Environment 360 Forum (2009) argues that, putting a price on carbon and coal emissions has been a challenge. The reason is that, it is difficult to predict the cost that those emissions will influence the health of people. Even if it will not be free in the future, the law that places the price of coal emissions among other emissions to the atmosphere must be able to discourage painful economic consequences and also encourage the development of renewable source of energy. Trade-off between economic development and sustainability is a political issue of thermal coal with highest impact, with middle critical uncertainties with no much importance. This means that, there is an increase in energy demands among coal users. If the current policies on energy remain the same, there will be fall in energy consumption, supply as well as prices within an uncertainty band in the business (OECD 1999). Appendix C provides the survey questions and a summary of the results of the survey. The survey results provide an initial idea about which conditions are most important to consider. However, surveys have limitations when conducting academic research because they do not allow the researcher to dynamically interact with what is being researched. Therefore, as a next step, a semi-structured interview guide was developed to allow for two-way communication between the interviewer and the interviewee. Not only is the semi-structured interview the most common technique used for qualitative data collection (Bryman, 2004), it also allows for new insights to surface during the interview process. 31 experts from the initial pool of 152 experts have been interviewed. Geographic and sector diversity was taken into account when selecting the interviewees. Qualitative data was coded and grouped to provide insights under what conditions thermal coal could remain more or less investible. A coding example is provided in Appendix C, the interview results reveal that Coal fired power in Europe is being scaled back, whereas China, the World’s largest coal producer cannot meet its own demand. These findings were supported by the Centre for Media and Democracy (2015), whereby since the year 2007, China has been importing coal due to its demand for coal outpacing its supply hence becoming a net importer of coal since then. In Europe, the increase in coal emissions has been a threat to the country’s target in dealing with climate change. This is why new coal power stations are being scaled back to help in achieving EU’s emissions target (Mathiesen 2014). The interview results also reveal that, Coal consumption was down in China in 2014, the big question is whether this is a fluctuation or whether it represents peak coal consumption. China’s goal is for an emissions peak in 2030 which requires demand to peak in 2020. If China can lead the way on an energy transition away from carbon, this will be enormously powerful for other emerging (and developed) countries to learn from and follow. This was confirmed by the New Economy Climate (2014) by arguing that, China will achieve this through shifting to production of low carbon energy supplies in future. The results also show that, China will focus on pollution in cities but will not let environmental considerations over ride growth unless there is a climatic event. Egan (2010) confirms that, continual production of coal will continue in China while considering environmental friendly directions that push them to the cities to achieve economic incentives. The results from the interview also support that, China has higher ratios but will continue to see large absolute demand for thermal coal. This is true because of the increase in the growth of Chinese population that grows by 8 million people every year (Egan 2010). Following the data collection phase, a set of two scenarios has been developed. Scenarios are plausible, divergent and internally consistent views of the future (Van de Putte, 2012), and the scenario development process has been used to make sense of otherwise unconnected data. Therefore during the scenario development process, the team has developed two system thinking maps (STMs) reflective of the divergent set of conditions, as viewed by the experts, which would have an influence on whether thermal coal remains more or less an investible. As a final step of the analysis phase, the team has consulted with thirteen experts during an affirmation workshop on March 27th in London to test the plausibility and internal consistency of the conditions under which thermal coal would remain more or less investible over the next 20 years. Appendix D provides the names and organisational affiliations of the experts involved in the affirmation workshop. Following the workshop, the STMs have been revised and are presented in Appendix E. Triangulation or the use of multiple sources of evidence, surveys, semi-structured interviews, and a workshop with experts with different skills and expertise from different regions in the world has further strengthened the relevance of the conclusions presented in Section 3 (Yin, 2003). 2. The Sustainability Challenge Posed by Thermal Coal The drivers surrounding the future investibility of thermal coal are manifold and complex; however, the discussion is dominated by a few chief overarching macro trends. Lelong, et al. (2013) argue that the following structural trends are already affecting change across the coal industry and will increasingly constrain levels of demand, particularly in the OECD: i) Global environmental regulations that discourage investment in coal-fired power plants ii) Gas and renewable fuel resources that will increasingly compete with coal as part of the global fuel mix iii) Increasing macro energy efficiency will reduce the absolute level of coal consumption relative to ‘business as usual’ assumptions, allowing GDP growth to decouple from energy requirements Thermal coal, which is characterised by many segregated markets, has benefitted from a long period of strong demand positioning it at the top of the global fuel mix (accountable for circa 40% of global electricity generation today). Lelong, et al. (2013) report that between 2007-2012 seaborne thermal coal demand growth increased at an average annual rate of 7.2%. However, they expect annual growth to decline to 1.0% in 2013-2017, primarily due to the structural trends outlined above. Lelong, et al. (2013) argue that future demand for thermal coal will be geographically bifurcated with non-OECD countries experiencing continued material growth, while OECD countries will see stagnant to declining growth in thermal coal. Peabody Energy (2014) states that thermal coal is the only accessible fuel source to support the growth in electricity demand that is expected from non-OECD countries. The reason is that, coal continues to serve as a growing source of energy in many parts of the world including OECD countries as well as non-OECD countries like China and India. This growth is highly targeted to the non-OECD countries. It is also aimed at forming a major part in producing natural gas all over the world. The growth in demand for coal is perpetuated by the dynamic changes that are evident in the international coal market (International Energy Agency, 2012, p.2). For example, in the year 2011, China accounted for the extra three quarters of the coal that was produced, with the domestic consumption being three times more of the international trade (International Energy Agency, 2012, p.2). Additionally, the growth of coal as a source of energy in non-OECD countries is as a result of high usage of gas in the United States where the market of coal has diminished due to low gas process which was associated with the revolution of shale gas. This has led to the producers of thermal coal seeking other markets internationally. Coal producers also need to supply an energy source that is reliable, affordable as well as clean energy for all OECD and non-OECD countries. This will serve to promote energy security among these countries by collectively responding to physical disruptions that occur as a result of oil supply. The producers of coal will have the capacity of achieving securing OECD member countries in accessing a reliable as well as ample supply of all forms of energy and in particular coal energy. According to Mills (2014, p.2), since there is an increasing demand for energy all over the world, the sources of energy must also grow fastest and coal among other renewables will serve a large responsibility in meeting the increasing demands of energy. The producers of coal are aimed at promoting energy policies that are sustainable for the purpose of spurring economic growth as well as protecting the environment within the international context (International Energy Agency, 2012, p.4). This will be achieved through the reduction of greenhouse emissions that promote climate change by producing clean source of energy which is coal. The production of coal will also support the collaboration of energy technology all over the world so as to secure future supply of energy as well as mitigation of environmental impact. This will be achieved through improving energy efficiency through the production of coal ad well as the deployment of technologies that are low in carbon. Accounting for circa 50% of global thermal coal consumption, China drives the global thermal coal market predominantly to fuel its fleet of coal-fired power stations. However, China’s coal consumption growth is slowing (2012 revealed the lowest consumption growth in a decade embodied in part by the global structural trends outlined above). This is also due to an expected reduction in China’s absolute power demand as the economy transitions from dependence on an energy intensive industrial sector to a services sector (Reuters 2015, p.1). In recent years, we have seen the environmental and social externalities or ‘true costs’ associated with coal combustion, rapidly climb the global political agenda. Ahuja & Tatsutani (2009) argue that, before the industrial revolution, the use of natural energy flows, animal as well as human power as a source of energy for heating, lighting and working are no longer reliable sources of energy. This use of energy did not go beyond 0.5 tons of oil that is equivalent per year. Due to industrialization, the consumption of energy has grown enormously all over the world. Assessments that have been made in relation to the cost of alleviating a consistent climate change reveal that, the efficiency in energy improvements provides the highest as well as the reduction potential of emissions ate the least cost. These assessments also show that, benefits on the cost of energy savings, reduction in imported fuels dependence as well as improved economic effectiveness is achieved. For example, as China’s policy makers grapple with an escalating air pollution crisis (most notably in the provinces with the highest levels of coal consumption), regulation is becoming an increasing threat to the country’s demand for thermal coal. Policies, such as air quality targets, emission trading schemes and the possibility of a carbon tax coupled with an increasing competitiveness of low carbon, substitution energy sources (domestic shale gas in particular) are all likely to accelerate peak demand for thermal coal in China (Carbon Tracker Initiative 2014). Given this structural backdrop and after accounting for the disparity among different geographies, Lelong, et al. (2013) believe that the overall outlook for thermal coal demand is gradually worsening. This has particular implications for equity investors. Sussams, et al. (2014) describe how the stock price performance of listed coal companies has substantially underperformed other fossil fuel energy companies in the oil and gas sector since the onset of the global financial crisis in 2008. Furthermore, over the last three years, the Bloomberg Global Coal Equity Index has lost half of its value while broad market indices have gained over 30%. Depressed thermal coal valuations combined with a bleak outlook has prompted many of the large diversified mining companies, e.g. Rio Tinto and BHP Billiton, to redirect capital expenditure away from thermal coal production and into other commodities. Conversely, non-diversified coal mining companies remain hopeful that current depressed valuations represent a cyclical market trough as opposed to a structural sector decline. Further, non-diversified coal mining companies are reliant on demand from growth countries, such as India and China, to improve future prospects and long-term valuations. Peabody Energy (2014) and the World Coal Association (2014) argue that electricity is a key component of economic development, and that thermal coal is the only scalable and low cost fuel source to support future GDP growth expected in non-OECD countries. Coal has led to a rise in new opportunities in the expansion of energy supplies. It is abundant and affordable to many people as well as economies that are fast growing. This source of energy is considered to be the default option that will assist in fast expansion of electricity supply and a key source of energy for many industries. Coal power is reliable, controllable and scalable with many institutions supporting it. In addition, countries that are rich in coal rely on the locally available supply at a cost as low as 20 US dollars per tonne and not more than 50 US dollars per tonne. Even at prices that are higher than these, coal is the overall cheapest option for as a source of electricity production (The New Climate Economy, 2013). Indeed, India and China, which are home to the largest listed coal companies globally, have initiated large programs to increase their installed capacity of coal fired power generation. Peabody Energy (2014) notes that other fuel sources are simply not abundant or priced sufficiently to support the economic development of growth countries. New technology, such as, carbon capture and storage ‘CCS’ and supercritical/ultra-super critical technologies, if deployed on a cost competitive basis, could reinvigorate the thermal coal mining industry. Peabody Energy (2014) observes that if the stock of existing coal powered assets were replaced by supercritical power assets then CO2 emissions would be reduced by 25% from old coal power station emission levels. The IEA suggests that CCS has the potential to account for 14% of total emission reductions by 2050 under a 2 degree global warming scenario. While recognising the challenges facing CCS, Alsford and Felton (2014) argue that this technology offers several benefits including functionality for a number of industries and the ability to use fossil fuels without GHG emissions. The technology also enables coal users to access affordable carbon storage options locally. This is achieved through the capacity of capturing carbon as well as storage using technology that captures 90% emissions of carbon dioxide from industrial facilities and store them inside geologic formations that are underground. Such accessibility of stored carbon will ensure enough carbon capture for industrial processes. The problem is that, the technology is a bit expensive which is reaching its maturity for generating power as well as other industrial processes and may not be available or readily accessible to all coal users locally (Center for Climate and Energy Solutions 2014, p.1). While the structural trends effecting global demand for thermal coal are garnering momentum, it is also important for investors to analyse the hefty costs and consequent breakeven prices necessary for coal mining companies to turn a profit. Mines are long-lived and capital intensive assets, and as such, there are considerable operational costs associated with, for example; extraction, processing and distribution. Cost curve analysis done by the Carbon Tracker Initiative (2014) shows that for about half of the potential 2014 thermal coal export production, current prices fail to cover cash costs. This is a particular issue for new ‘greenfield’ mines needing to support the costs of new and expensive infrastructure. Decreased regional demand for thermal coal coupled with high operational costs negatively impact valuations resulting in oversupply and an increasing threat of stranded assets. Global financial stakeholders are demonstrating a heightened awareness of the financial and reputational risks aligned with owning shares in thermal coal mining companies. For example, we have seen pension funds come under increased pressure to integrate environmental considerations into their decision making processes while simultaneously demonstrating to their clients that they are financially benefitting from investing in companies that provide solutions to major global issues such as climate change and resource scarcity. We are also witnessing a growing number of ethical and impact investors, not least within generation Y, who prioritise moral over financial considerations. Schwarz (2014) states that in recent years, 180 institutions and hundreds of wealthy individual investors have pledged to sell assets tied to fossil fuel companies and invest in cleaner alternatives instead. Ansar, et al. (2014) assess how non-renewable fuel companies could be affected by realigned asset allocation strategies of institutional divestment campaigns. They found that the oil and gas sector, given its size and liquidity are unlikely to be affected, but that the coal industry, which is relatively small and illiquid, would be influenced more by restrictions to share ownership. The implications of this growing trend towards divestment could be negative for thermal coal mining companies and ultimately, investors. The research question investigates whether or not thermal coal could remain an investible asset over the next 20 years. Our research will analyse the economic, environmental, regulatory and technological considerations to understand how the landscape is changing both for thermal coal mining companies considering investing in further reserves, as well as for global investors assessing their future allocation to listed and unlisted coal companies. We seek to use rigorous academic and practitioner research to identify plausible and divergent scenarios, which could significantly impact the demand and supply dynamics for thermal coal over the next two decades. Cornelius, et al. (2005) describe how ‘scenario planning differs fundamentally from forecasting in that it accepts uncertainty, tries to understand it, and makes it part of the reasoning.’ Furthermore, scenarios help prepare for a range of alternative and different futures through coherent and credible stories, describing different paths that lead to alternative futures. Shell (2013) anticipates two possible energy scenarios to 2050 in light of the global challenges surrounding energy demand, energy security and environmental damage. They define these divergent scenarios as ‘Mountains’ and ‘Oceans’. While recognising that neither is ideal, the former reflects a more reactive approach to the consequences of increased energy supply whilst the latter is founded upon revolutionary change and proactive decision-making. Security of supply and economics of coal are essential incentives for the use of coal in the future (Lee & Chang, 2008) and it is highly anticipated that in absence of new policies, the demand for coal will more than double by 2050. Adopting a scenarios based research approach will enable us to assess the conditions under which thermal coal could remain a relevant source of fuel over the next two decades and, therefore, more or less investible. 3. Conditions Affection Whether Thermal Coal Investable Over Next 20 Years Figure 1: From Global to Focused Scenarios and Implications Source: Adapted from Cornelius, Van de Putte and Romani (2005, 101) A. The Jetstream Scenarios b. The Thermal Coal Scenarios c. Implications by Region and Stakeholder Type d. Limitations and Areas for Future Research REFERENCES Ahuja, D, & Tatsutani, M, 2009, Sustainable energy for developing countries, Surveys and Perspectives Integrating Environment and Society, Available: http://sapiens.revues.org/823 Alsford, J. & Felton, R., 2014. Sustainable and Responsible Carbon Capture and Storage - A Realistic Solution? Ansolabehere, S. et al., 2006. The future of coal: an interdisciplinary MIT study, Available at: http://scholar.harvard.edu/sansolabehere/publications/future-coal [Accessed October 25, 2014]. Atif, A., Ben, C. & James, T., 2014. 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In 21st Century Coal: Energy Access, Clean Coal Technologies and Sustainable Mining. Reuters, 2015, China's coal use falling faster than expected, Available: http://www.reuters.com/article/2015/03/26/china-coal-idUSL3N0WL32720150326 Schwandt, T.A. et al., 2007. The SAGE Dictionary of Qualitative Inquiry Third., Thousand Oaks: SAGE Publications, Inc. Available at: http://srmo.sagepub.com/view/the-sage-dictionary-of-qualitative-inquiry/SAGE.xml. Soner, G., 2012. An Overview of Financial Aspect for Thermal Power Plants. In M. Rasul, ed. Thermal Power Plants. Shanghai: InTech, pp. 179–194. Available at: http://www.intechopen.com/books/thermal-power-plants/an-overview-of-financial-aspect-for-thermal-power-plants [Accessed October 25, 2014]. Sussams, L., Robinson, J. & Zadek, S., 2014. The Great Coal Cap: China’s energy policies and the financial implications for thermal coal, Available at: www.carbontracker.org/chinacoalcap. Schwartz, J., 2014. 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Available at: http://books.google.com/books?id=FzawIAdilHkC&pgis=1. APPENDIX A: SURVEY RESPONDENTS BY PROFESSION AND LOCATION Number of experts surveyed: 152 Number of survey respondents: 118 Table A1: Respondents by profession Profession Response Percent Response Count Asset Manager, Venture Capitalist, Trader, Research Analyst 36.0% 41 Government 7.0% 8 NGO, Think Tank 16.7% 19 Business Leader Associated with Coal 7.0% 8 Technology Company Associated with Coal 6.1% 7 International Organisation 6.1% 7 Academic, Consultant, Media 20.2% 23 Insurance Company 0.9% 1 Answered question 114 Skipped question 4 Table A2: Respondents by region Profession Response Percent Response Count Asia Pacific 19.3% 22 India and Kazakhstan 18.4% 21 The United States 25.4% 29 The European Union 34.2% 39 Other 2.6% 3 Answered question 114 Skipped question 4 APPENDIX B: LIST OF ISSUES AND ISSUE PRIORITISATION Thermal Coal Survey results: Following the literature review, a total of 49 issues have been identified and organised into the categories of the STEP framework: social, technological, economic, political (Table B1). Table B1: Issue list Social Technological Economic Political 1. Health effects in China 2. Health effects in India 3. Public support for carbon regulation in China 4. Public support for carbon regulation in India 5. Public support for carbon regulation in the US 6. Public support for carbon regulation in the EU 7. Public opposition to certain energy projects (e.g., nuclear, fracking in China 8. Public opposition to certain energy projects (e.g., nuclear, fracking) in India 9. Public opposition to certain energy projects (e.g., nuclear, fracking) in the US 10. Public opposition to certain energy projects (e.g., nuclear, fracking) in the EU 1. Commercially viable Carbon, Capture & Storage (CCS) 2. Advances in coal preparation technologies 3. Potential for coalbed methane recovery 4. Advances in coal gasification 5. Prospects for zero-emissions coal-based hydrogen production 6. Advances in wind power technologies 7. Advances in solar power technologies 8. Advances in energy storage technologies 9. Advances in nuclear generation technologies 10. Advances in the deployment of micro grids 11. Improvements in fuel switching technologies for freight transportation 12. Advances in energy efficiency technologies 1. Electricity demand growth in emerging markets and access to the grid 2. Natural gas prices 3. Price of coal reflecting true cost (health, CO2 and other emissions) 4. Economic growth in emerging markets 5. Economic growth in OECD countries 6. Subsidies for environmentally friendly technologies 7. Asset allocation to coal equities and commodities (ethical perspective) 8. Asset allocation to coal equities and commodities (economic perspective) 9. Availability of debt finance to coal companies 10. Cost of future coal supply 11. availability of finance (public/private) for alternatives, e.g., renewables, nuclear 12. Taxes levied on thermal coal 13. Role of public sector in financing alternative fuel types 1. Regulation of coal mining in emerging markets of India and China 2. Regulatory pricing of carbon emissions (e.g., emissions trading schemes) in emerging markets 3. Regulatory pricing of carbon emissions (e.g., emissions trading schemes) in OECD 4. Mandates for renewables as part of the electricity mix in emerging markets of India and China 5. Mandates for renewables as part of the electricity mix in OECD 6. Mandates for energy efficiency in emerging markets of India and China 7. Mandates for energy efficiency in OECD 8. Sharing of enviromentally friendly technologies across borders 9. Security of energy supply 10. Trade-off between economic development and sustainability 11. Willingness of supranational institutions (e.g., the World Bank) lending on thermal coal 12. International climate change treaties Environmental 1. Availability of coal as a resource 2. Shale gas development outside the US, e.g., China 118 experts completed the survey based on geographic location and stakeholder representation. Table B2: Issue Maps: Issue Prioritisation Further instruction on comment [A7]: the ‘table B2: Issue Maps: Issue Prioritisation’ are the result of the ‘table B1: Issue list’. E,g We need to find literatures for few of these finding results for Megatrends and Critical uncertainties. Need to find literatures for those issues which are positioned high up in term of the ‘Degree of impact’ and ‘Degree of Uncertainty’. Please look for literatures for the these findings on the Issue Maps: ‘1. Health effects in China’ ; ‘5. Prospects for zero-emissions coal-based hydrogen production’ ; ‘3. Price of coal reflecting ture cost (health, CO2 and other emissions)’ ; ‘10. Trade-off between economic development and sustainability’, please look for these issues on the Issue Map below: 1. Health effects in China: Social (the blue colour refer to ‘Table B1: Issue list’. it is the highest on social aspect in term of Megatrends and it is ‘issues important in the short term’) 5. Prospects for zero-emissions coal-based hydrogen production: Technological (the red colour refer to ‘Table B1: Issue list’. It is the highest on Technological aspect in term of Critical Uncertainties and it is ‘issues important in the long term’) 3. Price of coal reflecting ture cost (health, CO2 and other emissions): Economic (the green colour refer to ‘Table B1:Issue list’, it is the highest on the Economic aspect in term of Critical uncertainties and it is ‘issues important in the long term’） 10. Trade-off between economic development and sustainability: Political (the orange colour refer to ‘Table B1:Issue list’, it is the highest on Political aspect in term of Megatrends but also in the middle of Critical Uncertainties and it is mid size of circle for the importance) Some explanations for the ‘Table B2: Issue Maps: Issue Prioritisation’. Please refer to the newly added ‘Appendix D’ for the mapping details of ‘Table B2: Issue Maps: Issue Prioritisation’ which is the same as the ‘Table B1’: ‘Degree of Uncertainty’ around the issue: The range of values an issue can take over time within the context of the research question and time horizon ‘Degree of Impact’: How important is the issue at hand given the research question and time horizon? ‘Timing’: Timing when the impact of the issue becomes important APPENDIX C: CODING EXAMPLE Questionnaires for the semi-structured interviews included the following five areas in the Social, Technological, Environmental, Economic and Political fields. Example questions under the Economic section (sub-section: economic growth) included: 1. What impact do you think increasing urbanisation in emerging markets will have on demand for coal (i.e. grid access)? 2. What impact do you think economic intensification in the EM’s (resulting from factors such as a growing middle class and population growth) will have on demand for coal? 3. How do you expect thermal coal demand in China and India to evolve over the next twenty years both in absolute and relative terms? 4. Are we underestimating potential demand from OECD countries? 5. Do you see a changing cycle in demand in China and India, whereby demand continue over the next ten years and then changes as alternative technologies or regulation comes on line? Example responses to the Economics subsection economic growth, included: Absent a truly remarkable change in the price of gas or nuclear power, coal will remain the dominant force in electricity generation. The proliferation of energy efficient power devices and increasing prevalence of distributed power (e.g. solar power at factories) will continually reduce power needs. India has low electrification ratios today and will see very robust demand growth. China has higher ratios but will continue to see large absolute demand for thermal coal. Coal fired power in Europe is being scaled back, whereas China, the World’s largest coal producer cannot meet its own demand. Russia has affected energy security regarding natural gas, particularly in Europe, which may also cause a shift back to thermal coal in short run. In the US, will decline in oil price curtail shale production and enhance possibility of thermal coal? Lots of uncertainties. India will continue to have a very high demand, as will rest of South East Asia. China will focus on pollution in cities but will not let environmental considerations override growth unless there is a climatic event. Key sensitivities to these scenarios are the cost of nuclear and the gas price; of which gas is completely priced out of Asia. Given population growth and economic growth in emerging markets and the availability of coal, there is no doubt that the demand for coal will continue to increase. By how much? By when will coal’s share start to decline? These are difficult things to predict and require a scenarios approach. It is very difficult to accurately project economic growth in emerging markets and OECD alike, but by using a scenarios approach we have anticipated the Asian financial crisis, the 2001 and 2008 and we (the GIC and Singapore economy) have been able to prevent the worse from. India doesn’t necessarily have to build more coal fired power plants to achieve required energy supply as they currently lose 25 percent in transmission and distribution i.e there are energy efficiency gains to be made first in India. That at least could protect future damage from new projects from a social and environmental perspective. Coal consumption was down in China in 2014 – big question is whether this is a fluctuation or whether it represents peak coal consumption. China’s goal is for an emissions peak in 2030 which requires demand to peak in 2020. If China can lead the way on an energy transition away from carbon, this will be enormously powerful for other emerging (and developed) countries to learn from and follow. Part 2 – this qualitative data was coded in the following way: Categories Data Relative price of energy 1. Absent a truly remarkable change in the price of gas or nuclear power, coal will remain the dominant force in electricity generation. 2. Key sensitivities to these scenarios are the cost of nuclear and the gas price of which gas is completely priced out of Asia. Energy efficiency measures 1. The proliferation of energy efficient power devices and increasing prevalence of distributed power (e.g. solar power at factories) will continually reduce power needs. 2. India doesn’t necessarily have to build more coal fired power plants to achieve required energy supply as they currently lose 25 percent in transmission and distribution i.e., there are energy efficiency gains to be made first in India. Energy demand in China 1. China will focus on pollution in cities but will not let environmental considerations over ride growth unless there is a climatic event. 2. China has higher ratios but will continue to see large absolute demand for thermal coal. Energy demand in India 1. India will continue to have a very high demand, as will rest of South East Asia. 2. India has low electrification ratios today and will see very robust demand growth. Energy demand in OECD 1. Russia has affected energy security regarding natural gas, particularly in Europe, which may also cause a shift back to thermal coal in short run. 2. Coal fired power in Europe is being scaled back. APPENDIX D Read More