| Americans, the world's largest polluters, consumed | | | | There are negotiations for 60 CDM projects currently |
| almost four tons of coal per person in 2006. Every | | | | underway. Of the twenty approved by the state |
| ton of coal burned sends more than two tons of | | | | government, most are coalbed methane recovery |
| carbon dioxide into the atmosphere. | | | | projects. |
| By 2009, experts believe China will overtake the | | | | China hopes to double the sale of the country's |
| United States as the world's largest emitter of | | | | carbon credits. The next five years could show |
| carbon dioxide. | | | | intensified activity in carbon trading as Japan and |
| According to the country's National Reform and | | | | Europe rush to the 2012 deadline for meeting their |
| Development Commission (NDRC), China will produce | | | | emission reductions targets. Using the present rate of |
| 1.45 trillion kWh of electricity in the first half of 2007. | | | | China's market share as a yardstick, this could mean |
| About 75 percent of the China's energy is generated | | | | more than US$7 billion in 'foreign aid' in 2007. |
| by coal. By 2050, to serve China's growing population, | | | | Financial institutions are scrambling to deal with the |
| the country is expected to add the sum total of | | | | trading action. Fortis Bank, a Belgian Dutch financial |
| Canada's generating capacity every four years! | | | | group, which has carbon trading desks in Europe and |
| While China hopes to rely more upon nuclear, coal is | | | | the United States, plans to expand its Hong-Kong |
| continues taking its toll until the country solves its | | | | trading desk this year to capitalize upon the 'easy |
| energy quandary. | | | | pickings' of methane projects. Fortis ranks 18th on |
| On Tuesday, China's state environmental watchdog | | | | Fortune's Global 500 list with 2006 revenues of more |
| reported that more than 62 percent of the country's | | | | than US$112.3 billion. |
| cities suffer from air pollution. Thirty-nine cities were | | | | Fortis' Asian carbon market director Shane Spurway |
| placed on the State Environmental Protection | | | | said, "Methane will probably be one of the most |
| Administration's 'Black List," because they suffered | | | | popular projects in the next three to four years." |
| severe air pollution. | | | | While degasifying China's coal mines helps save lives, |
| Seven of those cities are located in China's northern | | | | the financiers aren't attracted to methane projects |
| Shanxi province, the country's largest coal supplier. | | | | for humanitarian reasons. Because methane gas is far |
| Coal-fired power plants are reportedly the major | | | | more potent a greenhouse gas than carbon dioxide, |
| culprit. Many were given preferential pricing terms to | | | | every ton of methane gas captured and utilized is |
| install sulfur removal systems. Some took the pricing, | | | | the financial trading equivalent of twenty tons of |
| but skipped the systems. | | | | CO2. |
| China's runaway pollution has become an international | | | | As a result, we believe China's coalbed methane gas |
| problem. | | | | should become a very valuable commodity and |
| In early April, an American satellite spotted a dense | | | | attract widespread foreign capital to those |
| yellow cloud of gases, chemical and desert sands | | | | companies developing CBM in China. We also suspect |
| floating across Seoul (Korea) - emissions from China's | | | | that foreign-owned CBM companies developing these |
| coal-fired smokestacks. This weekend, the Korean | | | | projects could become beneficiaries of carbon trading |
| government retaliated by launching Greenbelt | | | | credits - potentially adding cash to their revenue |
| Plantation Project. The Korean forestry service plans | | | | streams. |
| to plant 1.5 million trees in Mongolia to help reduce | | | | Until now, coalbed methane projects have lagged in |
| sandstorms wafting across the Yellow Sea, which | | | | development. The CER mechanism in the Kyoto |
| bring its residents respiratory illnesses. | | | | Protocol shoots them to the top of the list. Carbon |
| It is not that China is ignoring the problem, but that | | | | traders make money so the CBM projects will |
| the country's breakneck GDP growth rate is not only | | | | become easier to finance. They neither require the |
| impacting global commodity prices (oil, copper, nickel, | | | | capital-intensive component of nuclear energy power |
| uranium, etc), but could also be accelerating the | | | | plants nor the gamble of an offshore natural gas |
| effects of abrupt climate change and global warming. | | | | discovery. |
| Just Bad Weather? | | | | Kyoto's CERs and China's CBM projects appear to be |
| One can politely compartmentalize the disrelated | | | | a banker's dream project, for at least the next few |
| weather events which occurred over the past seven | | | | years as the world's richest nations rush to capitalize |
| days and call those a coincidence, or one can imagine | | | | upon those carbon trading credits. |
| the horrors Dr. James Lovelock has warned could | | | | China's Guizhou Province |
| occur as this century unfolds, as he told us a year | | | | China hopes to reduce greenhouse gas emissions by |
| ago. | | | | phasing out many obsolete thermal power plants and |
| A week ago, Cyclone Gonu was recorded as the | | | | replacing them with small-scale natural gas or coalbed |
| strongest tropical storm since 1945 in the Arabic Gulf | | | | methane electric power plants. Holding one of the |
| region. It peaked as a Category 5 along the coastline | | | | world's top coal reserves, and the world's largest |
| of the Gulf of Oman. At the time, many worried it | | | | producer and consumer of coal, China relies upon coal |
| might disrupt oil exports from the Middle East. It was | | | | for its energy. The country's top experts know coal |
| the first cyclone in recorded history to enter the Gulf | | | | better than any other energy source. |
| of Oman. Eastern Australia was battered by heavy | | | | Consequently, China's turning to CBM gas as one |
| rains and suffered major flooding and landslides this | | | | means of reducing air pollution and continuing to |
| past weekend. So great was the impact that some | | | | power its double-digit GDP growth is a natural |
| compared it to 1989's earthquake, near the same | | | | extension for its scientists, miners and |
| location. | | | | environmentalists. |
| There have been other firsts over the past few | | | | After researching Shanxi province, which hosts |
| years. In 2004, Cyclone Catrina became the first | | | | one-third of China's coal reserves, we began studying |
| cyclone to form in the South Atlantic and also hit | | | | comparable coal provinces and regions to find which |
| Brazil. In 2005, Hurricane Vince became the first | | | | areas had prolific CBM reserves. Guizhou province |
| cyclone to hit the Iberian Peninsula. In 2006, super | | | | stood out. It is also about 400 miles northwest of |
| typhoon Chanchu formed in the South China Sea, | | | | Hong Kong. |
| hitting China, Taiwan, the Philippines and Taiwan. | | | | In the course of researching the U.S. Environmental |
| Many have concluded these could be early warning | | | | Protection Agency's Coalbed Methane Outreach |
| signs of much greater catastrophes expected as sea | | | | Program, we were fortunate to uncover an analysis |
| waters further warm up. | | | | released in late 2005 jointly published by the China |
| China Aiming for Solutions | | | | Coal Information Institute and the US EPA. |
| Electricity growth has been the global driver toward | | | | "Guizhou province has the largest coal reserve in |
| more nuclear and more environmentally friendly | | | | southern China as well as rich CBM resources. The |
| methods of power generation. For example, the U.S. | | | | CBM reserve in Guizhou is 3.1KB m3, accounting for |
| Department of Energy (DOE) forecasts an additional | | | | 22 percent of the total in China." |
| 90 gigawatts of electricity would be required over | | | | Guizhou ranks second behind Shanxi province. |
| the next twenty-five years in the United States. To | | | | The report continued, "The CBM resources in Guizhou |
| generate this new capacity, the DOE calculated it | | | | are not only rich but of high quality as well, with the |
| would take 151 coal-powered plants, 100 mid-sized | | | | CBM reserve 29KB m3 in the methane-rich areas of |
| nuclear plants or 60,000 wind turbines. | | | | over 8 m3 methane per ton coal, accounting for 94 |
| China's problem is magnified to accommodate its | | | | percent of the total amount of local CBM resources." |
| higher energy intensity per unit of GDP growth. Not | | | | This government report also noted the plan was |
| to mention its whirlwind growth. | | | | utilize the 'local rich CBM resources on a large scale.' |
| While we discussed several coal-replacement | | | | As a result, we anticipate Guizhou province may be |
| developments in our recent publication, "Investing in | | | | one of the targets of the certified emission reduction |
| China's Energy Crisis," one has piqued our interest as | | | | credits. The high quality and abundant CBM reserves |
| more easily implemented. And it is also one where | | | | could help develop the small-scale CBM plants now |
| China has focused. | | | | operational or under construction to the east and |
| Kyoto Protocol Drives CBM Projects | | | | north. The regional population is equivalent to more |
| Clean coal technology is being rapidly advanced in | | | | than 80 percent of the U.S. population. |
| China because of the Clean Development Mechanism | | | | In April, China announced Guizhou province would |
| (CDM), which is an integral component of the Kyoto | | | | utilize 100 million square meters of CBM this year. |
| Protocol and which China signed in 1998 and | | | | Later that month, the NDRC announced it would |
| approved in 2002. The CDM allows developing | | | | encourage coal mine investors to exploit CBM. In |
| countries to sell their 'certified emission reductions' | | | | May, a new preferential policy to promote CBM |
| (CERs) to the wealthier nations. | | | | exploitation was announced. |
| By trading CERs, China has developed an additional | | | | To our knowledge, only one foreign-owned company |
| revenue stream to fund local emission reduction | | | | holds properties in Guizhou province. Pacific Asia China |
| projects. According to the World Bank, China | | | | Energy is presently developing its Boatian-Qingshan |
| obtained 62.5 percent of the total UN-certified carbon | | | | property in the Longtan coal formation in this |
| credits in 2006. This amounted to US$3 billion. | | | | province. |
| One such project benefiting from the CER | | | | In summary, we don't believe the high-pitched |
| mechanism is the Jincheng coalbed methane (CBM) | | | | excitement for the next few years will be about |
| power plant, which is scheduled to begin operation | | | | China's nuclear power plants. Certainly there will be |
| this August. At 120,000 kw, it will be the largest of | | | | growth in China's nuclear, and over the next decade, |
| its kind in Asia. Annually, the power plant is expected | | | | nuclear could represent a higher level of electrical |
| to transform 180 million cubic meters of CBM gas into | | | | capacity. And China has announced it plans to build a |
| 730 million kWh of electricity. | | | | strategic uranium reserve. But, the country has also |
| The power plant is attached to the Sihe coal mine | | | | limited the amount of molybdenum it exports |
| from which the intense greenhouse gas will now be | | | | (effective earlier this month). Of course, this should |
| used to provide electricity. Jincheng Anthracite Mining | | | | drive those metal prices higher. |
| Group, which owns the mine and the power plant, | | | | However through 2012, China's coal mines and the |
| received US$150 million in funding in exchange for | | | | methane contained in those mines is more likely to be |
| certified emission reduction credits. | | | | a major energy driver in attracting foreign capital. |
| On June 1st, Jiangxi province's first coalbed methane | | | | After all, carbon trading credits can't be taken lightly. |
| (CBM)-fired power station was successfully | | | | The CERs are attracting foreign investment, bringing |
| connected to a power grid in this southern Chinese | | | | the country new technologies and gifting the Chinese |
| province. It had gone through two months of trial | | | | government billions of dollars for trying to reduce |
| operations. This CBM plant could become a model for | | | | their air pollution. |
| similar plants in other Chinese provinces. | | | | COPYRIGHT © 2007 by StockInterview. |