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Peabody Carbon Asset Risk

WHEREAS: In 2010, nearly every national government agreed to “prevent dangerous anthropogenic interference with the climate system,” and that to do so, “the increase in global temperature should be below two degrees Celsius.”

To achieve a 66 percent probability of limiting the global temperature rise to 2° C, the Intergovernmental Panel on Climate Change estimates that approximately 987 gigatons of CO2 can be emitted through 2100. The International Energy Agency (IEA) estimates total proven reserves of fossil fuels to represent approximately 2,860 gigatons of potential CO2 emissions.

The IEA states that “No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2° C goal, unless carbon capture and storage (CCS) technology is widely deployed” and, “almost two-thirds of these carbon reserves are related to coal.”

Goldman Sachs states “most thermal coal growth projects will struggle to earn a positive return for their owners…” because “even when carbon prices are low or non-existent, the downside risks of future regulation can offset the cost advantage of thermal coal relative to alternative energy sources.”

HSBC indicates that declining coal demand after 2020, due in part to efforts to address climate change, could reduce the current discounted cashflow valuation of coal producers by 44%.

The World Bank and European Investment Bank have recently placed restrictions on the financing of coal projects.

Peabody’s 2012 10K states that public concerns about coal combustion’s perceived contribution to climate changes are spurring regulations, “which could significantly affect demand for our products.” Yet Peabody claims “it is not possible for us to reasonably predict the impact” they may have.

Investors require additional information on how Peabody is preparing for potential scenarios in which demand for coal is greatly reduced due to regulation or other climate-associated drivers. Without additional disclosure, shareholders are unable to determine whether Peabody is adequately managing these risks or seizing related opportunities.

RESOLVED:  Shareowners request Peabody prepare a report by September 2014, omitting proprietary information and prepared at reasonable cost, on the company’s goals and plans to address global concerns regarding fossil fuels and their contribution to climate change, including analysis of long and short term financial and operational risks to the company.

SUPPORTING STATEMENT:  We recommend the report include discussion of:

Risks and opportunities associated with various low-carbon scenarios, including reducing carbon emissions by 80 percent by 2050, as well as a scenario in which global coal demand declines due to evolving policy, technology, or consumer responses to address climate change;
 
Assumptions regarding deployment of CCS;
 
Whether and how the company’s capital allocation plans account for the risks and opportunities in these scenarios;
 
Plans to manage these risks, such as reducing the carbon intensity of its assets, diversifying its business by investing in lower-carbon energy sources, or returning capital to shareholders;
 
The Board of Directors’ role in overseeing capital allocation and climate risk reduction strategies.