Big banks take issue with coal plants

Feb 5, 2008 - The Associated Press

Three of the nation's largest investment banks said Monday they've developed new environmental standards to help lenders evaluate risks associated with investments in coal-fired power plants.

Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley say they've produced "The Carbon Principles" together with several large power companies, Environmental Defense and the Natural Resources Defense Council, that will make it more difficult for new U.S. coal-fired power plants to secure financing.

The focus of the principles will be to steer power companies away from plants that emit high levels of carbon dioxide -- a greenhouse gas -- and to focus on new, cleaner and renewable technologies. The principles do not, however, strictly prevent any of the banks from financing the plants.

About half of the electricity in the United States is generated from coal-fired power plants, according to the Energy Information Association.

The new lending creeds come at a time when uncertainties for coal and power companies abound. Coal-fired power plants have been scrutinized by environmental groups and regulators over the emissions of harmful pollutants. Congress is mulling legislation that would limit greenhouse gas emissions. Plans for coal-fired power plants have also recently been squashed in several states, although more are being planned to account for a predicted surge in electricity demand.

Energy consumption in the U.S. is expected to double in the next 22 years, according to the North American Electric Reliability Council.

But the principles also come at a time when the country's biggest financial institutions have grown skittish after taking billions of dollars in write-downs from mortgage-related debt. Investment in coal-fired power plants could prove to be risky investments that many banks aren't willing to take.

"With these principles, we are making a very serious commitment to examine the risk around coal-fired power plants," said Eric Fornell, vice chairman of JPMorgan's natural resources investment banking unit.

The plants have economic consequences that "need to be carefully examined," he added. "Investors need to know what they are getting into."

Fornell said JPMorgan is talking to competitors about the possibility of adopting similar policies.

"Leading utilities and financial institutions understand that the rules of the road have changed for coal," said Mark Brownstein, managing director of business partnerships for Environmental Defense. "These principles are a first step in facilitating an honest assessment of electric generation options in light of the obvious and pressing need to substantially reduce national greenhouse gas pollution."

But Rebecca Tarbotton, director of the Rainforest Action Network's Global Finance Campaign, said the new regulations don't go far enough. The Rainforest Action Network has long fought the big banks to impose environmental standards in their lending practices.

"Calling them the Carbon Principles is an overstatement," Tarbotton said. "A serious climate change policy would commit the banks to emissions reductions in their financing and extend beyond coal into other carbon-intensive sectors such as coal mining and the oil and transportation industries."