Publication / 04 Sep 2017

The Hidden Costs of China’s Coal-to-Chemical Sector

Trucost and Energy Foundation China provide market participants with a framework to stress test investments for environmental risk

Quantifying environmental externalities is one of the priorities in green finance development in China. Both Chinese and international policy makers are emphasizing the importance of stress testing environmental risks for investment, including the use of scenario analysis.

This report looks at the hidden environmental risks and financial implications in China from the bottom up, using the coal-to-chemical sector as an example. It presents an assessment framework to measure the hidden costs from seven risk factors under various scenarios and illustrates how investors could integrate this into existing risk and financial analysis:

  • Regulatory risks: energy standard compliance, environmental tax, national carbon emissions trading scheme, pollutant emission right trading system, water cap compliance, and water resource tax.
  • Physical risks: water stress.
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