Listed Company Water Risk Assessment Tool and Water Risk Assessment Report of Listed Coal Companies.pdf

Corporate Water Risk Assessment Tool A Look at China’s Coal Companies An Institute of Public however, policymakers have paid little attention thus far to this industry’s problems regarding water consumption and wastewater discharge. The coal industry is heavily reliant on water and, not surprisingly, water risks facing coal companies are becoming more acute. Although Chinese policymakers have not targeted coal’s water footprint, the national government has ramped up policies and management of water overallfrom the release of “Assessment s for Implementing the Strictest Water Resource Management Systems,” the “Water Prevention Action Plan” a.k.a. Water Ten Plan, and other policies. IPE initially used this tool to assess 30 top earning coal companies listed in Shanghai and Shenzhen. The results showed high overall water risks among these 30 companies, with an average of 58.27 points out of 100; the higher the score, the higher the risk. Of these companies, Kailuan Energy Chemical, China Coal Xinji Energy, and Shanxi Meijin Energy were at the top of the list, while Shenhua Energy, Haohua Energy, and Sundiro Holding displayed relatively low water risks. This preliminary study faced limitations due to inadequate corporate ination transparency. IPE sincerely hopes to discuss these issues in further depth with these 30 listed coal companies in order to provide a more accurate assessment of their water risks and join efforts to improve the sustainable development of businesses, industries, and regional economies. O1 Coal Industry Water Risks 1.1 Coal Industry Overview Photo Credit Coal Mine in Xishan, Shanxi, China, courtesy of Flickr user MWM Energy 3 oalthe reigning king of China’s energy sectorgenerates 74 percent of the country’s electricity and is the main source of the staggering air pollution blanketing Chinese cities. Prompted in large part by the air pollution problem, the Chinese leadership has begun to pivot away from coal by strengthening monitoring and enforcement to limit coal-fired power plant emissions, piloting CO 2 emissions trading projects, accelerating expansion of renewables, and committing to CO 2 reductions in the Paris climate agreement. While coal’s air pollution already places a huge burden on the economy, environment, and human health in China, the risks for water supplies in the country’s arid north are potentially even greater. Half of China’s population and two-thirds of its farmland are already vulnerable to worsening droughts and water pollution. Nearly half of the groundwater in northern China is so polluted it cannot even be used for industrial purposes. Beijing, which is one of 71 cities in northern China facing severe water shortages, is only able to provide its residents an average of 100 cubic meters per capita each yearsimilar to water scarcity levels in Saudi Arabia. 1 Most of coal’s water footprint, both in terms of consumption and pollution, occurs in three main production areascoal mining and washing, coal-to- chemicals industries, and power generation. CWater Used in Coal Production Coal Mining and Washing 7,8 11.79 Coal-to-Oil 9 18.59 Coal-to-Gas 10 94.93 Coal-to-Olefins 11 33.68 Coal-Fired Power 12 214 Table 1. Water Used for Coal Production in China Tons/10,000 RMB 4 oal mining and washing refers to all types of extraction, washing, and grading, but does not include the manufacture of coal products or coal exploration. During coal extraction, the original runoff of groundwater can be easily contaminated, causing losses to water resources. In 2005, China emitted 4.54 billion tons of mining wastewater, and water reuse rates in mining were below 50 percent. Groundwater levels dropped in mining regions, causing a shortage of drinking water and affecting agricultural production in some locations. 2 At the same time, total wastewater from coal mining now reaches 3-6 billion tons per year. The primary pollutants found in coal industry wastewater include suspended solids, acid pH, chemical oxygen demand COD, and petroleum that contain heavy metals and other elements. These contaminants in the water can leech into the environment causing varying degrees of damage to soils, forests, and other resources. 3 Coal-to-chemicals refers to using chemical processes to trans coal into gas, liquid, solid fuels, or other chemical products. This mainly includes coal gasification, liquefaction, and tar processing. Coal-to-chemicals projects consume an enormous amount of water, at least 2.5 tons of fresh water per ton of coal. The amount of wastewater produced in coal-to-chemical projects is also very highat least one ton of wastewater per ton of coal. Coal-to-chemical projects are typically located in China’s coal-rich but arid northwest. The water resources in these regions are insufficient, with some areas completely lacking bodies of water that can accommodate wastewater. 4 Wastewater from coal-to-chemicals projects contains many types of pollutants and waste residue that can pollute groundwater supplies if not properly managed. 5 Coal-fired generation is an industry by which coal is burned to produce electricity. Coal-fired plants use a large volume of water, and are often located in arid regions. According to public data from 2005, thermal generators consumed 63.5 billion cubic meters of water, accounting for 49.7 percent of China’s total industrial water consumption 127.8 billion cubic meters and 11.4 percent of the country’s total water consumption 557.8 billion cubic meters for that year. 6 In 2008, thermal generators accounted for up to 40 percent of the country’s industrial water usage. The average generator used 40-50 percent more water than leading international units, equivalent to consuming 1.5 billion more tons annually. Coal-fired generators mainly demand water for the cooling system. Currently there are two main s for cooling water-cooling and air- cooling. Although replacing water-cooling systems with air-cooling systems decreases the generation efficiency, it conserves water resources. According to data from the China Electricity Council, in 2013 air-cooling systems were installed in 150 GW of China’s generation fleet, accounting for 17 percent of thermal generation. Because most coal-fired generators still rely on water-based cooling systems, there is great potential for further water conservation. C5 o improve understanding of water scarcity and pollution among the coal industry, the Institute of Public Analysis on the Water Resources of China’s Coal Industry Chain 14 Wastewater discharge reduction perance and measures Company’s actions and outcomes of wastewater management 2015 Listed Company Social Responsibility Reports Regional Proportion of incomes from subsidiaries located in poor water quality region How much of the company’s revenue comes from business based in poor water quality regions Synergistic Analysis of Standard uation and Environmental Capacity of Important Water Function Areas in China Regional wastewater discharge policy and regulations Whether the regional wastewater management policies and regulations are stringent compares to national standards “Water Ten Plan,” provincial action plan and State Council Notice See Above Compliance risk Business Number of environmental supervision records and instances where online monitoring data exceeds standards Feedback from supervisiory monitoring and online monitoring results toward compliance status Records from IPE Database of publicly disclosed ination Penalties in past three years Cost of penalty for non- compliance Records from IPE Database of publicly disclosed ination Regional Pollution Ination Transparency Index PITI Key cities’ environmental monitoring records for discharge standards violation IPE Annual Pollution Ination Transparency Index Report 2014-2015 Table 3. Water Risk Criteria for Listed Coal Companies 9 or each of the three primary water risks consumption, wastewater discharge, and complianceIPE has chosen clear criteria for creating the score for each See Box 1. Appendix A provides further details on the specific measures. The calculation of cumulative water consumption risks that a company is facing is assessed across four main measures weighted at 32 points. Companies can receive a maximum of 8 and minimum of 2. Proportion of income derived from coal-fired power and coal-to-chemical activities Water conservation and recycling measures Proportion of income derived from high-intensity water-consuming activities Proportion of subsidiaries located in regions with stringent water use policies Cumulative wastewater discharge risks are also measured across four categories for a total of 32 possible points. Proportion of income from coal mining, washing, and coal-to-chemical activities Measures for regional wastewater discharge policy and regulations Proportion of subsidiaries located in regions with poor water quality Regional wastewater discharge policies Cumulative compliance risks 36 points are divided into three categories Amount of violation records, penalties, and PITI index. The maximum score for the first two is 12 each. The final score is adjusted by PITI index to factor in the different levels of provin- cial ination transparency Maximum 1.5, Minimum 0.3. 10 Box 1. Weighted Criteria and Calculations F Photo Credit Smokestackr, courtesy of Flickr user Dean HochmanTable 4. Water Consumption Policies and Regulations Control Total Water Consumption Water Consumption Planning Identify Water Resources Water Rights Trading Excessive Groundwater Withdrawals Non-residential Water Price Non-residential Water Usage Quota and Pricing Scheme Improve Efficiency Water Consumption by GDP per 10,000 RMB Marginal Revenue of Industrial Water Consumption by GDP per 10,000 RMB Industrial Water Conservation Industrial Water Consumption Quota Promote Recycling Ratio of Recycled Water Enhance Industrial Water Recycling 2015 Mine Water Using Efficiency Water Consumption Risks 11 Assessment 2.3 Business water risks Examine the production characteristics associated with the main business operations within the industry and compare with industrial water withdrawal quotas to determine the categories of water- consuming activities based on intensity. Using corporate data, determine risks by calculating the proportion of income derived from high water consumption activities and examining the transparency of the company’s water recycling measures and other s to company’s water consumption risk refers to the potential for water scarcity arising from natural forces, human activities, or local policies to affect business operations. These can increase water consumption costs or impact a company’s production activities. reduce freshwater consumption. Regional water risks Summarize national and provincial policies to control total water consumption, increase water-use efficiency, and promote water recycling see Table 4. Assess the strictness of water consumption policies in the provinces where the company’s business that generates main sources of revenue is based and determine risk levels. Additionally, based on WRI China’s updated Baseline Water Stress Map, 15 categorize locations listed as high, extremely high, and arid and low water use as water-scarce regions. 16 Examine the proportion of income earned from productions operated in water- scarce regions and determine risk levels accordingly. A Below we outline details on how each of the three main water riskswater consumption, wastewater discharge, and complianceis assessed in terms of business and regional water risks. Table 5. Wastewater Discharge Regulations Pollution Management 2020 Goal Ratio of Regional Water Quality Meeting National Standards in Water Function Zones “Black an aquatic ecological protection red line should be established for lakes and rivers.” Shanghai Datun Energy’s subsidiaries are primarily located in the Yangtze River Delta of Jiangsu Province, where they face poor water quality and strict water discharge policies like businesses located in Beijing-Tianjin-Hebei region. The “Water Ten Plan” emphasizes that by 2020, the Yangtze River Delta and Pearl River Delta regions should “strive to eliminate the loss of functional water bodies” and that “by the end of 2017, centralized wastewater processing facilities should be built in industrial zones in accordance with regulations, and automatic, online monitoring devices should be installed. The Beijing-Tianjin- Hebei, Yangtze River Delta, and Pearl River Delta regions should complete these requirements a year in advance.” The issuance of the “Jiangsu Interim Measures on Ecological Subsidy Payment Transfers” signals that the province’s ecological subsidy payment transfer system is ally moving towards the implementation phase. Water discharge policies are relatively strict in Yunnan Province too, which enjoys much better water quality. These policies impact the operations and planning of Yunnan Coal and Energy. Yunnan Province’s “Water Ten Plan” requires that “water quality should remain stable at the groundwater testing sites, and that variations should be kept within approximately 1.9 percent.” This is astricter than the national requirement of 15 percent. The document also requires that “by the end of 2016, the construction of a dynamic management system and ination plat should be completed for key pollution sources at the provincial level.” 24 Photo Credit Old coal heating furnace and modern cell tower, courtesy of Flickr user vandenn Tuke Fertilizer Project Achieves Zero Wastewater Discharge Emerging coal-to- chemicals projects consume an enormous amount of water. However, one such project in Ordos, Inner Mongolia achieved “zero emissions” solving one part of the water resources problem inherent to the coal industry. By avoiding pollution and damage to the environment and ecosystem, the project has made an important step to ensuring sustainable operations. The Tuke Fertilizer Project is a large-scale coal- to-chemicals project built by China Coal Energy at the Ordos Tuke Industrial Park. The zero wastewater discharge system is composed of five main parts pretreatment wastewater gasification, organic wastewater biochemical processing, water reuse, brine evaporation, and brine Photo Credit Coal Mine in China, courtesy of Flickr user monsieur paradis 25 3.4 crystallization. In November 2014 the company installed a brine evaporator in conjunction with evaporation pools, which creates a dual-backup for high-concentration brine management. The installation has been in constant operation since then, achieving a water reuse rate of 98 percent, reducing primary water consumption by 29.7 percent, and saving 7.302 million tons of freshwater each year. This level of recycling and conservation has helped mitigate pressure on local water supplies. Additionally, the compa