 First is around the rationale for basing out coal-fired power stations. Second is to talk a bit about an international framework. We are doing so in some of the policy mechanisms of doing that and some of the issues and practicalities are doing so. Third is around some of the political economy issues that arise from basing out coal and how those can be managed. And then finally and briefly a bit on how some of these developments and issues might affect coal companies and investors of those companies. So, why must coal go? And there are a number of reasons why we should be basing out coal-fired power stations around the world. The first of which is air pollution. So, in the UK alone, according to a recent study, 6,900 people die each year as a result of coal-related air pollution. And that costs the NHS several billion pounds a year. That story is of course replicated in other countries. It's much more acute in other countries. There have been studies of China and literally how millions of years of people's life expectancy has been reduced because of air pollution in China. And a good chunk of that air pollution is from coal-fired power stations. It's also from vehicle emissions and cookstones, but a lot of it is from coal-fired power stations. Another reason is water stress, and in a changing climate, and indeed with more people using water and consuming water, and more industries consuming water, water availability is a very important problem. And coal, particularly for the sufficient coal and lots of coal-fired power stations using once through cooling methods, use a lot of water for their cooling, so it contributes to water stress in water stress parts of the world. The mining of coal, for coal-fired power generation, of course, destroys natural landscapes. And open-cast mining and other mining methods can have a very significant impact on local landscapes, and that can destroy indigenous lands and other areas of outstanding natural beauty. Another reason is around governance and safety. So mining accidents kill about 3,000 people a year in China, 1,500 people a year in India. Those numbers vary each year, but it's quite a significant number in other places as well. And then in terms of governance and corruption, coal companies, coal miners, there are a number of cases that one could point to where land rights and things have been acquired in a pretty dodgy fashion, where taxpayers' citizens have been defforded from the use that they might be due from coal mining companies, and, as I said, a number of examples of that. And then, finally, there is climate change, and the fact that coal contributes, coal-fired power generation contributes 20, 30% of global greenhouse gas emissions to many of the study you look at, which report you look at. So in the context of the Paris Agreement that was agreed in December dealing with coal-fired power generation and its emissions is really keen for delivering on that agreement to try and keep temperatures well below 2 degrees. Now this slide just shows you, it's from the carbon brief, and it shows you the number of years of current emissions that carbon budgets would allow for different levels of warming, and the probability of achieving that level of warming or that level of warming. It's a bit small, but basically it's a, so for example, to have a 50% chance of keeping below 1.5 degrees, we would have about 10 years of emissions at current levels, and to keep about 2 degrees, it would be 20, 80 years, and for 3 degrees, 65 degrees, so if you want to aim for 1.5 degrees, which is what the Paris Agreement is talking about, we have a 50%, if you want a 50% chance of keeping below 1.5 degrees, that's 10 years of current emissions, or 6 years if you want 66% chance of keeping to below 1.5 degrees. So those are very stringent, very demanding targets and give them the role that coal-fired power stations play in generating emissions from the power sector, it's critical that they are phased out. This is from a bit of work that colleagues of Oxford have been looking at the idea of committed cumulative carbon emissions. So cumulative carbon emissions, the carbon budget is what drives warming and climate change, and so each of those warming targets has a different carbon budget, and this is looking at how existing power stations on the system, if they exist and generate electricity and produce carbon emissions based on their life expectancy, it calculates how much carbon will be emitted. So you see the carbon budget again, small. So that's the total carbon budget for 2 degrees, a 50% chance of achieving 2 degrees. That's all the carbon that's emitted from 1870 to 2010, that's the remaining carbon budget. These numbers are at your time of date. This is what was emitted from 2011 to 2013 and that gives you the 2014 carbon budget, which of course is going to be less now. So if you split up these different budgets between different sectors, here's the amount that you would allocate to electricity generation. This is the amount that's committed already from existing infrastructure that's already on the system power station that it is today, and that's your budget remaining allocated to future power stations that might be built. The pressing thing is that this tracks the carbon budget remaining. This is emissions from the power sector. These lines are emissions profiles depending on different IPCC scenarios, but they keep you within 2 degrees. So we're looking at, to distill it down, basically we would have built the infrastructure to lock us in to 2 degrees if you're quite conservative about the IPCC scenario by 2070 and 80. So that's like next year. Or if you're a bit more ambitious 2027, 2028. And these figures are being refined at the moment by colleagues. It actually looks like it's probably already happened. So this year or last year we've actually locked in a 2 degree budget because all the stuff we've really built, and if you assume it's going to be producing emissions, we've achieved that. So if you want to get 1.5 degrees, you really do have to do a net dismantling of different assets around the world. Now the other thing about coal and coal and CCS, so some people talk about coal and CCS being a solution, is that we've got to make sure that the power system, the carbon intensity of the power system falls quite significantly, very dramatically in fact, to deliver on 2 degrees of 1.5 degrees. So this is from the other way. And this shows that this is their plot for how the carbon intensity of the global power system should fall from 2050 to 2050. So it goes from something like 500 grams of CO2 per kilowatt hour to basically 10 or 20. And then we'll have to go into negative emissions after that. If you look at CO2 emissions from subcritical coal, that's at 900 grams of CO2 per kilowatt hour, so subcritical coal is the solution for that coal by power station, often using lignite or brown coal, often the oldest side of power station, dreadful of the environment on every level. And then that's supercritical, which is supposed to be much better. And that's not actually that much better in terms of carbon emissions. And then you have ultra supercriticals in the coal industry. We'll talk about the ultra supercritical in the future. And it's up there and then we've got IGCCs, which are basically taking coal and converting it into syngas, and that's supposed to be a bit less efficient than ultra supercritical. And then CCS, if you can actually get CCS, post combustion capture CCS on brand new ultra supercritical by power stations, the average, if you could get them built before 2040, 2037, they would be contributing to reducing the average intensity of the power system. But after that point, they're above the average intensity that you need to be. So this just highlights how coal really, even with CCS, is not compatible with a power system that can deliver two degrees or 1.5 degrees. And the other reason, though, is a lot of policy conversation hinges on your view of CCS. So in addition to those points I was making about intensity, I think there are other reasons that we should be skeptical about CCS and coal and how coal CCS is not a solution. One of the problems, of course, is that CCS deployment is well below the levels you would need to make a significant contribution to two degrees. So there are a couple of demonstration plans. Governments are very reluctant to support these things now. We've got one CCS power station operation on 2014, three more expected by the end of 2016. All of these are heavily dependent on enhanced oil recovery. So you take the carbon, the CO2 from the power station and you pump it into an oil well, which, you know, obviously you take the oil out and then you combust it. So it doesn't seem like a great solution to climate change. There are also CCS on power generation, very significant penalties in terms of efficiency and cost. And of course they are competing with zero carbon technologies like wind and so on, where people are seeing gross cost reductions. There are questions about storage and permanence and transporting CO2 to save geological storage. There is actually finite storage. Geologists will say, oh, there's infinite amounts of storage. You don't need to worry about storage. But actually if you think about, if you start applying some common sense criteria to storage, it's viable, as in storage is economic, you actually do have finite storage. It's not open to them. It's not to be relatively close to where the sources are. And a lot of the assumptions in the modelling about CCS assume that the storage costs and transport costs are very, very low. So these are a bunch of other reasons why CCS is not a solution. We recently did a bit of analysis looking at the ability to do CCS retrofitability and CCS retrofits on coal-fired power stations. A lot of the work that has been done sort of goes top-down. It just assumes that a certain proportion of coal-fired power stations are going to get retrofitability. It doesn't really look at the underlying coal-fired power station. There are all sorts of reasons why you might not want to retrofit a coal-fired power station. It might be very small. It might be old. You don't want to make the capital investment. It might not be near any storage at all. It might be very, very far away from other bits of your power system or industries that might not make sense to connect to a CCS network. So, essentially what we did is we looked at all the different coal-fired power stations in the world and we put together some sensible criteria that we developed with experts and investors and others. So, where are the coal-fired power stations that are relatively young, under 20 years old, relatively large for above 100 megawatts, relatively close to suitable or highly-suitable reservoirs and storage, and the number of power stations that actually fit those criteria is surprisingly, it's not surprisingly actually, it's just a very small number. And so, if you look at the top 100 coal-fired utilities, about 65 of them have no power stations that could be retrofitted based on the very simple and actually quite robust criteria. So, that's sort of why we need to phase out coal, why CCS is not the solution to coal that won't allow it to stay on the system. So, how can we phase it out? Obviously, there are a number of ways to do that. I think that the first thing to do is to think about this more, obviously to think about this internationally. The UNFCCC, the Paris Climate Change Agreement, are very significant, but they require 190 different countries to sign up to these things, and as a result they're very difficult to achieve and necessarily complex. So, I don't think we should try and do a sort of a coal phase-out agreement at a UNFCCC Paris Agreement-type level. I think what we do need, though, is some sort of pluralatural effort amongst some of the really big users of coal, and there are some sectors where those sorts of efforts could be very effective. Coal is one of the forests of another. There aren't that many countries that are deforestation. Cement is another. There aren't that many countries that use coals of cement. So, if you were going to target, do a sort of a pluralatural agreement on coal, you would try and involve the top of 10 coal users. The top five account for 77% of coal-fine capacity. Those top five are China, the US, India, Germany, and Russia. And the good news is that there are G7 economies that are already committed to phasing out coal, Buk. The first country in the world to use coal for electricity in 1882 became the first major economy to announce phasing out coal, which will be done by 2025, if not before. Italy, Canada are also quite far advanced in thinking about how to operationise coal phase outs. So, you could imagine a group of countries that might possibly engage in a pluralatural effort to coordinate a coal phase out. And the questions that would need to figure out, I know, when do we close down these power stations? Where do we close them down first? Who pays for this stuff? Not easy, but perhaps a bit easier than I would suggest. Clearly, the thing that would need to happen is that advanced economies like the UK, like Germany, like the US would need to close down their coal-fine power stations first. They could start with the least efficient power stations. They have some Christian coal-fine power stations and then have more time for emerging economies in the Asia, China, Indonesia, and so on to then close down their coal-fine power stations. And if the emerging economies that I just mentioned don't close down their coal-fine power stations in a reasonable amount of time, and we really, the idea of 2 degrees, 1.5 degrees, is just not going to happen, it really does hit and draw on them taking that action. And now I'm going to take that action if countries like the UK and Germany and the US which have really old coal-fine power stations that have paid back their capital costs and returned profits to their investors already aren't willing to close down their coal-fine power stations in time or quickly. There is a question about why downstream, why focused on power stations opposed to mines. So there are groups that are talking about proposing a moratorium on new coal-fines and how that could fit into an international agreement. And I think that's, I'm more interested in, I think the demand side is more effective as a point of intervention. One of the reasons for that is that there are already enough coal-fines operational to find a planet many times over. That's actually the main reason. There are other reasons as to whether there is a moratorium on new ones, doesn't seem to deal with the problem. Quickly on mechanisms, so I'm a pragmatist. I think that compensation for some owners of coal via power stations if they're closed prematurely that they should get some compensation. I think this is particularly the case when they're relatively new and relatively recently, that's more the case obviously, of emerging economies. Older farms in advanced economies, which are 40, 50 years old, a case of compensation is zero. They should be phased out using regulation. I don't think, I can't price emissions trading, there are all sorts of reasons why that's obviously a good idea, but in terms of inducing a timely closure, regulating them out is by far the most efficient. One of the reasons is that utilities that own these assets can try and gain a system that are incentivised to just keep staying on the system because they might want to change policy as option value in doing that, hence you need a regulatory approach. In terms of how you might organise compensation in some jurisdictions you could do reverse auctions to induce closure, so you could set up funds that could be established with funding from governments, rate payers, even the role for that through this crowdfunding who knows, they could be focused on specific countries or internationally they could be focused on some critical or all coal power stations that could be other criteria for prioritising the bidding process. I also think that actually utilities, some utilities in some jurisdictions are actually very keen to get out of out of coal and out of partly to do with the divestment movement and stigmatisation and those sorts of issues, but also the fact that increasing competition for the renewables and gas having a big impact and also every increasing environmental regulation, so requirements to have better scrubbers, pooling improvement and so on. The limiting factor for the ability to close down these power stations is, of course, replacement capacity. In countries with rapid demand growth like China, India, that is a very significant issue, so that would be the constraint on how quickly you could close down these power stations, but with essentialising renewables and interconnection and so on, I think that can be overcome and it has to be overcome. The other way in which to make sure that compensation is allocated in an efficient way in a way that doesn't make sure that great payers have to pay more than they should, options could be operated in conjunction with the architecture of more stringent environmental regulations. You could, you need to provide a bit of clarity in terms of when power stations might be regulated as they might introduce a digression, so that the amount of money that they will be proportioned falls off to the centre line to people to help. But with all of these things, of course, there is, designing this kind of mechanism can be quite difficult, there's going to be a political contestation of these mechanisms, but I think in some places, reverse options, compensation, in a reasonable way to speed up a process and deal with opposition that might be generated. So, just on that, I want to talk a tiny bit about the political economy of phasing out coal. I've said that it's necessary and I've set out some mechanisms for options for doing it, but of course doing it is not going to be straightforward and we need to recognise those challenges and be upfront about considering how we manage some of those challenges. So this shows you, just to illustrate how employment in UK coal mines has changed. So in 1920, there were about just over 1.3 million people working in UK coal mines. That number is now less than 2,000. It's about 1,500. And that transition, that process has taken a long time. What we are essentially saying with the Paris Agreement and with INECs is that that 100-year plus process needs to happen much, much more quickly. Instead of it being 100 years, it needs to happen for key industries like coal in 20, 30 years. And as you can see in the UK, we've had a fair chunk of industrial disputes to do with the restructuring of that big industry and various minor strikes in the 20s, in the 80s. And I think in the UK context, there was very little thought given to how to manage those transitions as a restructuring. So how can you address unemployment in communities and in situations that are going to be effective? What are the interventions that you can take to manage that? Of course, before the minor strike in the 80s, none of that thinking was going on at all. So we need to be much, much smarter about how we do in coal, but also in other sectors. This just shows the first regulation to constrain coal use in the UK was 1273. So it's been a long old process. One of the things that we have now, which we didn't have then, is data that can help us design policy effectively to pre-empt opposition and deal with some of these frictions that might be generated from industrial trade. So we know where these assets are. We know who owns those assets in terms of debt and equity. We know where who works at those assets in those assets, whether it's a mile or a power station. We sort of know roughly where they live. We know who is working on the tax or everything that might be generated. So you can actually do a very, very granular analysis and you can run scenarios about transition and you can figure out roughly when a power station needs to close, roughly when a mine needs to close and then the government can come up with some sensible policy responses to deal with those issues. But we need to do this everywhere. Of course, the places that are going to be suffering in the most acute way where it really is a major issue are countries out in the United States, like China, like Australia, countries that produce a lot of coal domestically into New Zealand. Now, I just wanted to end quickly by talking about some of the implications for companies and implications for investors. So obviously, a coal phase out, as described, would have significant implications on the value of coal companies. But it's not just regulation and international agreement or international agreement on phase out that can affect the value of coal assets. Other things already affecting the value of coal companies and utilities and many of these things are related to the environment. So this is just some of the things that are already having the impact on coal fire power stations in different parts of the world. So obviously there is existing regulation and pollution regulation, carbon pricing and so on. You have physical environmental change, water stress, heat stress actually has a big impact on the performance of coal fire power stations. That's increasing with climate change. Emergence of shale gas is having a big impact. Visigation, NGOs and others suing coal fire power stations. As a case in Italy where a coal fire power station was closed because of a talk claim made by a community nearby that was being affected by pollution. Of course the competition for renewables partly is a result of policy support mechanisms to deal with climate change and that I talked about by Besson earlier. So there are a whole bunch of things that are already affecting the value of coal companies. These will continue. They obviously can accelerate very quickly if there is an international process to phase out coal in a structured way. And all those factors are affecting companies and assets across the coal, coal value chain, people that are doing exploration and obviously mining, exploration, coal washing, transport, shipping industry that they obviously have as well. And we did a big piece of analysis I wrote for you with it. Our relatively recently was published in January where we looked at all the different assets in three bits of the thermal coal value chain. We looked at coal fire power stations. We looked at mines and we looked at coal to gas, coal to liquid plants around the world. And we looked at the top 100 coal fire utilities, top 20 thermal coal miners and top 30 coal to gas, coal to liquid companies. And then measured the exposure of those different assets to some of the environmental risks I just talked about from climate policy through the industry stress and then looked at how which of those companies' portfolios was affected by those risks. And so this is an example of how bottom-up research looking at asset exposure to environmental risk can help investors understand which companies are more risk. It's coming yet more risk than company Y and that can inform actions related to divestment, to shell resolutions, to voting, to engagement. And this is all the risks we looked at. So I mentioned heat stress, renewables deployment and so on. And then you can list for all the companies but which companies have the oldest plants that might be most of risk from premature closure? Expulsion, solar energy number two. Which ones have coal fire power stations that are in areas that have very, very bad air pollution which makes them more likely to suffer from regulations to deal with additional requirements for scrumers or premature closure? A lot of those are in China and India. Which power stations are likely to suffer from future climate change? Taking looking at IPCC data over the next 20 years and some companies have power stations dotted around places that are going to suffer a lot from climate change and that's going to affect the operation. Which companies have power stations in places that have extreme water stress and also power stations that are in those locations that have very water intensive cooling? And so this is the sort of analysis that will help investors to differentiate. It can be extended, the plan is of course to extend this kind of analysis where the risks I talked about are also relevant. So that could be upstream or in a gas. It could be the automobile industry. It could be a real estate. So I will leave it there. But there are a growing number of opportunities for investors to understand risk in their portfolios and that's getting more and more sophisticated.