Climate, Coal and China

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China is putting forth a vision of continuing economic growth in conjunction with a reduction in greenhouse gas pollution.  The plan calls for a peaking in carbon dioxide emissions by 2030, and net carbon neutrality before 2060.  This may be difficult.  We have previously discussed China’s dependence on coal.  (See our blog dated 2019-2-13).

China’s current annual carbon dioxide emissions are 28% of the global total, approximately the same as the next three biggest emitters, the US, the EU and India, combined.

In order to meet its environmental goals, China will have to significantly reduce its reliance on coal.  The contemplated transit away from coal is stimulating an unusually contentious debate in China over how much and how soon.  In order to make meaningful progress, the country will have to confront the costs of closing mines and factories, protecting the millions of miners and other workers currently employed by the coal industry, and deploying and financing alternative energy sources.

Investors should be thinking about some of the implications involved in the possible “greening” of a country the size of China.  For example, is it politically feasible to turn significant parts of the country into new “Appalachias”?  Are there any practical alternatives to nuclear, considering the scale of China’s current and increasing energy needs?  If nuclear is necessary, is it feasible?  How does current investor enthusiasm for environmental, social and environmental (ESG) business models connect to China’s capital requirements?

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

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