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Smith School Programme onAsset Stranding:

Financial Sector Governance for Natural Resource Sustainability Conference, 16-17 May, SSEE, Oxford University

Ben Caldecott, Programme Director

Nicholas Howarth, Post-doctoral Research Fellow

Yuge Ma, Research Assistant

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Outline

Introduction to the programme: Ben Caldecott

Stranded Down-Under (Yuge Ma)

Stranded Assets in Agriculture (Nicholas Howarth)

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China: a coal fired economy

China accounts for 47% of the world’s total coal consumption in 2011, which is the 12th straight rising year (IEA).

China became a net coal importer in 2009 for the first time.

Ever since then, the amount of China’s coal imports has drastically increased, so too has the number of its coal trade partners

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China

1/ The third largest export markets of Australian thermal coal (19.9Mt in 2011)

2/ The fourth largest export markets of Australian coking coal (9.84Mt in 2011)

3/ 10% of the total Australian coal export and is projected to increase

Australian coal’s dependence on China

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Potential drivers of asset stranding related to the China-Australia coal trade

Asset strandingdrivers in Australian coal export related sectors

Development of domestic shale gas displaces coal generation capacity in China

Clean Air Act passed slowing growth in coal generation

Breakthrough in renewable energy diffusion in China lowers domestic demand for coal

Chinese emissions trading scheme reduces demand for carbon intensive energy

International trade laws change to recognise embedded emissions in Chinese exports.

Who is exposed? Australian publically-listed coal intensive companies; companies exposed to the supply chain – infrastructure and transport

Investors and employees in Australian listed coal companies

State and federal governments:

What is exposed? Value of mineral resources in the ground

Value of infrastructure investments

Revenue from mining royalties and company tax; losses from joint ventures and under-utilised or unused infrastructure

Towns and cities exposed to significant mining sector employment:

Water constraints and water regulation

Lower Chinese gas prices driven by imports (e.g. from the U.S. or Australia)

Shifts in the type of coal demanded in China

Exis ting Investm ent Paradigm

Infrastruc ture

Policy

Environm ent Techno logy

Culture

M arkets F utureInvestm ent Paradigm

AssetsStranded asparadigm shifts

Assets

Assets

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Outline

What are stranded assets in agriculture?

What are the mechanisms by which assets become stranded?

Who is exposed?

What are the implications for investors, corporates and governments from this work?

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United StatesUSD 619,124

CanadaUSD 100,518

MexicoUSD 121,134

AustraliaUSD 115,090

New ZealandUSD 57,624

BrazilUSD 212,209

ArgentinaUSD 79,463 Chile

USD 22,663

ColumbiaUSD 102,648

Russian FederationUSD 167,552

UkraineUSD 59,200

KazakhstanUSD 47,162

JapanUSD 292,402

ChinaUSD 559,504

IndiaUSD 100,102

South AfricaUSD 43,831

NigeriaUSD 60,871

Europe*USD 728,629

Gross value of capital investment in agricultureUSD 5 trillion (2007)

What are stranded assets in agriculture?

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What are the mechanisms by which assets become stranded ?

Existing Investm ent Paradigm

Asset strandingDrivers

Infrastructure

Policy

Environment Technology

Culture

Increasing ground and surface w ater

Increasing weather variab ility

Changing biofuel

GH G regu la tion of fertilizers and livestock

G M O regu la tion and d iffusion

Increased com m odityprice vo la tility

Changingproduction zones

M arkets FutureInvestm ent Parad igm

AssetsStranded asparadigm shifts

AssetsAssets

Water markets and increased com petition for water rights

Land degredation

Environmentaltrade restrictions

Physica l d rivers

Econom icdrivers

Increased risk o f d isease and viruses

Transition

Period

The green ing of the supply cha in

Land useregu la tions

Consumer-behaviour or c itizen-politica l change

Biod iversity pressures on ecosystem

Increasing cost of fue l and fertil izer driven by higher o il prices

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Who is exposed?

Natural assets: such as farmland (e.g. land improvements) and water entitlements (allocation/access rights);

Physical assets: such as animals, plantation crops, farm buildings, on-farm infrastructure (e.g. irrigation networks), off-farm and community infrastructure (e.g. processing facilities, dams, roads, towns);

Intellectual capital: such as research and development expertise, agricultural technologies (e.g. genetically modified organisms, fertilisers and pesticides) and management practices;

Financial assets: financial products that are tied to agricultural production (e.g. farm loans, financial derivatives);

Human capital: human know-how which has been built up through education and experience; and

Social capital: Policy and community networks such as producer organisations can build trust and support access to markets and finance which increases resilience and reduces risk.

Private investm ents by farm ers, agribusiness and in the agricultural supply chain w ith equity

Private investm ent by financial institutions th rough loans to farm ers, agribusiness or specia l purpose agricultu ral funds w ith d irect equity or debt

G overnm ent investmentin agricu ltu re and R&D

Com m unity and o ther socia l investm ent in education, institutions and in frastructure.

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Pred

icta

bilit

y of

ass

et st

rand

ing

High

Low

Amount of knowledge about stranding and the effective measures to deal with it

Small Large

Emphasize resilience over anticipatory strategies

Strengthen resilience

Use anticipatory strategies: adaptation planning

Emphasize resilience over anticipatory strategies

What are the implications for investors / corporates / governments of this analysis?

Source: Adapted from Comfort, L . K ., Boin, A. and Demchak, C . C. The Rise of resilience, in Designing resilience: preparing for extreme events. Pittsburg: University of Pittsburgh Press, 2010.

Resilience is…..

… Bouncing back faster after stress, enduring greater stresses, and being disturbed less by a given amount of stress…

… maintaining system function in the event of a disturbance…

… The ability to withstand, recover from and reorganise in response to a crisis…

For a firm

For a system

For an adaptive system

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Thank you