How environmental issues effect investment decisions at Alliance Trust China and its environmental problems The Problem Environmental problems in China are increasingly getting to a point where the sacrifice for its rapid economic growth becomes unbearable. The problems range across the full spectrum, including the legendary smog, which includes dangerous particle matter, carbon emissions, and other dangerous pollutants, such as Sulphur Dioxide and Nitrogen Oxide. The smog around Beijing has reached dangerously high levels. According to Bloomberg, air pollution in Beijing January 2013 was considered worse that an airport smoking room! According to The World Bank, 16 of the world’s 20 most polluted cities are in China. Much of China’s problems stem from its reliance on coal as an energy source. Coal consumption accounted for 83% of total CO2 emissions, and the majority of PM 2.5 pollutants. Vehicle emissions is another source of pollutants, and is growing rapidly, as more and more Chinese people own motor vehicles. The Chinese Government’s Solution; the 12th Five Year Plan The need to wean the economy’s dependence on coal is at the heart of a sustainable long-term solution. The Chinese government unveiled the 12th Five Year Plan in 2011 and addressing environmental problems was a cornerstone of the plan. The government has set ambitious targets to combat their problems by 2015. The targets aim to achieve growth with a lower environmental impact, and to cap overall consumption of harmful fuel sources, in particular coal. There is a need to rapidly increase gas and other more sustainable sources of energy, as well as reducing the amount of Sulphur Dioxide and Nitrogen Oxide which is produced when burning fossil fuels. Winners and Losers The big winner from this will be gas as an energy source, which has a much lower carbon footprint and emits much less harmful pollutants into the atmosphere. The government is aiming to nearly double the amount of gas used. Much of this is sourced through Liquefied Natural Gas from Australia and Papua New Guinea. It will also benefit the City Gas companies, who will provide infrastructure for getting the gas from the pipelines into the cities and industrial parks. The Alliance Trust portfolio invests in Oil Search, BG and ENN Energy, three key positions set to benefit from investment related to the 12th 5 year plan. The next beneficiary will be companies which provide technical solutions to reduce emissions from China’s coal plants. China’s coal plants are on average 35% less efficient than the global average, according to Macquarie Research. Technical solutions such as desulphurisation and denitrification are readily available alternatives. This should benefit Industrial Gas companies in China such as Praxair, which is a core portfolio position. Focused companies which could benefit include Guodian Tech, which sells the scrubbers coal plants use to reduce harmful emissions. The need to supply more fuel efficient cars will also benefit those companies that enable this. Examples in the portfolio include Borg Warner, Elringklinger and Johnson Matthey; core holdings across the Sustainable Future fund range.
Posted on: Tue, 25 Jun 2013 13:28:32 +0000
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