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Many know that coal is the worst and natural gas is the best, and that somewhere in between lies oil. But if we drill down into each fossil fuel source, it’s clear emissions that result from burning these fuels vary widely depending on the inherent dirtiness of the end-market fuel and the efficiency of the power plant or engine that consumes it.

For example, explains a 2013 report in Scientific American, “producing and processing tar sands oil results in roughly 14 per cent more greenhouse-gas emissions than the average oil used in the U.S.” – though that’s a generous assessment compared to some other estimates that goes as high as 37 per cent.

Same goes for coal. Anthracite, the hardest and highest quality coal, is considered the least dirty when it comes to smog-causing pollutants. But it also releases 7 per cent more CO2 per unit of energy compared to bituminous coal, which is the most popular type of coal used for U.S. power generation.

The type of power plant burning that coal is also hugely important from a climate change perspective, given that coal-fired facilities supply about 40 per cent of the world’s electricity. About 75 per cent of that comes from subcritical coal plants, compared to 22 per cent for supercritical and 3 per cent for ultra-supercritical.

That’s a big problem, points out a recent report from the University of Oxford’s Smith School of Enterprise and the Environment, because subcritical coal plants are the least efficient and biggest polluters of the lot. They also depend on a heck of a lot more water for each kilowatt generated.

“The average subcritical coal-fired power station (SCPS) emits 75 per cent more carbon pollution than an average advanced ultra-supercritical – the most up-to-date form of coal-fired power station – and uses 67 per cent more water,” according to the Oxford report, which is titled “Stranded Assets and Subcritical Coal: The Risk to Companies and Investors.”

The report title hints at where I’m going with this. If we’re serious about reining in emissions to prevent an average 2 degrees C increase in global warming – beyond which climate change is expected to become unmanageable and really scary – it means two-thirds of the world’s stated fossil fuel reserves can’t be burned. It also means the first casualty of fossil-fuel weaning will be coal power, and more specifically, the dirtiest of the dirty coal power: subcritical power stations.

According to the International Energy Agency, 290 gigawatts of subcritical generation need to be powered down by 2020 to avoid blasting past that 2-degree threshold.

“Since SCPSs are the least efficient and most GHG-intensive centralized generation technology, they are both vulnerable to regulation and a logical first step in any climate mitigation strategy,” the Oxford report states. “Furthermore, because subcritical plants are typically the oldest part of nations’ power generation fleet, they may also represent a practical policy choice for closure by budget-constrained policymakers looking for cost-effective emissions reductions.”

Who owns these coal plants? Are they a part of your investment portfolio? You might want to know. (See spreadsheet below).

Investors take note

The Oxford report is unique in that, as a service to investors, it identifies most of the subcritical coal-fired power stations in the world, highlights their location, and connects them to the companies – publicly traded, private, or state-owned – that own and operate them.

It’s not an exhaustive effort, but it’s pretty darn close. In all, 100 companies with the largest SCPS portfolios were singled out. Together, these companies represent two-thirds of subcritical coal generation worldwide.

Here are some interesting high-level findings:

• Government-owned companies account for 59 of the Top 100 portfolios, the biggest number of them in China.

• Of the 41 non-government-owned companies, the U.S. claims 26, followed by the EU with five and India with three.

• Measured by carbon intensity, the 20 most vulnerable large company portfolios are based mostly in India, former Soviet countries, and in China.

• A disturbing number of Indian and Chinese portfolio companies have operations in areas with the worst air pollution and that are under acute water stress.

• Chinese companies clearly dominate the worst of the worst list, followed by U.S. companies. Seven out of the 10 largest company portfolios are Chinese, while six out of the largest 20 are American.

It’s generally thought that government-owned companies in countries heavily dependent on coal are less vulnerable than publicly traded companies, but that’s not necessarily the case. “This view is being contradicted by recent policy tightening in both China and India,” the report states.

This is particularly true in China, where subcritical coal-fired power stations face a “poor outlook,” according to the report, which points out that assets in China’s heavily polluted and water-scarce northeastern region will be most impacted. “Given the young age of Chinese SCPSs and enormous size of the SCPS stock in northeastern China, this may well create a significant number of stranded SCPS assets through forced closure and impairment of profitability.”

In the U.S., subcritical coal fleets are also in trouble. It’s expected that regulations not related to greenhouse-gas emissions will result in the closure of 16 per cent of America’s SCPS capacity by the end of 2015. Proposed regulation aimed at reducing GHG emissions at the state level are expected to see $28 billion in industry value wiped out.

The upshot for investors? “There is a strong case for financial institutions to utilize the information contained in this report to evaluate the risk of companies that hold subcritical assets and, where appropriate to then screen, engage, or divest,” the report concludes.

It recommends that investors demand companies to publicly confirm their exposure to these assets, highlight assets most at risk of being stranded, and disclose how this might impact future capital expenditures.

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