Dividends and China’s aluminum sector must make cuts to meet climate goals, report says

Most of us do not really think about how companies operate or receive their inputs because we expect the companies are competitive because they control their costs and can achieve a market share to earn profits. In an article from Reuters, the climate think tank Ember noted China’s aluminum sector must shun dedicated power capacity equivalent to more than Germany’s entire coal fleet over the next decade to keep Beijing on track to meet its carbon pledges.

In North America, the key to manufacturing of aluminum is relatively inexpensive hydro costs or the reason why you find the aluminum plant is because of hydro dams nearby. In many instances, the hydro is partly owned or highly dedicated to the aluminum plant first. Then the power can be used by the community or exported to other areas on the grid.

In China, much of the aluminum manufacturing is in Shandong province although it should be in Yunnan which has abundant hydropower resources. It is of course easily to move in theory, it is harder in reality because the assets are built. In Shandong, the aluminum makers have long relied on the off-grid captive power plants for the energy intensive smelting process. The aluminum companies account for 65% of the power used. Essentially, China has built many coal plants to produce power and coal has a problem of emissions. In China’s case the plants have emitted more than some countries such as Indonesia and Brazil.

In China, more than 45% of China’s inefficient captive coal capacity is in the smelting heartland of Shandong province, with more than a 1/3 or 17 GW belonging to top private sector producer China Hongqiao Group.

Linking to dividend paying stocks, in the coming years and it is starting now, investment managers are deciding to include environmental impact in their decision making to own stocks or bonds in companies. Some of the biggest banks in the world are saying they will not lend or use their investment banking abilities for some industries. It means that besides making profits companies have to be doing their part to ensure the planet stays healthy. If the environmental impact is “too high” then the cost of financing for the company will be higher compared to its competition.

There are more questions than answers, till the next time – to raising questions.

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