Citigroup, JPMorgan and Morgan Stanley Unveil ‘Carbon Principles’

by | Feb 4, 2008

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carbon_principles2.jpgCitigroup, JPMorgan Chase and Morgan Stanley have announced new standards that will make it harder for companies to get financing for the construction of coal-fired power plants in the U.S., the Wall Street Journal reports.

According to Reuters, the banks will form “The Carbon Principles,” climate change guidelines for advisors and lenders to power companies in the U.S. The banks say the move is in anticipation of the government capping GHG emissions in the coming years and that the biggest motivation for it was financial. The new standards are the result of nine months of negotiations among the banks, environmental groups, and large utilities.

The principles were developed in partnership by Citi, JPMorgan Chase and Morgan Stanley, and in consultation with power companies American Electric Power, CMS Energy, DTE Energy, NRG Energy, PSEG, Sempra and Southern Company. Environmental Defense and the Natural Resources Defense Council were also involved.

“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, one of the NGOs that advised with the banks in creating the Principles. “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.”

The standards do not preclude bank financing for building traditional coal-burning power plants,but they do set up a more rigorous evaluation process, according to the Reuters’ article.

The banks are open to financing coal plants that capture their GHG emissions and shoot them underground, but they say they will encourage renewable energy before coal and will help utilities push for government policies that make renewable energy and efficiency more practical.

“A rational set of carbon principles to help guide energy investment strategy is vital to our nation’s energy and economic future,” said Michael G. Morris, Chairman, president and CEO of American Electric Power. “Recognizing that energy efficiency, renewables, cleaner fossil technologies and other diverse solutions all have significant roles in addressing climate challenges while maintaining economic and energy security establishes a framework for making the best decisions regarding our nation’s energy future.”

Last year, a coalition of environmental groups said it had won commitments from more than a dozen banks to turn away from supporting coal-fired electric plants.

Here are the principles as written by the banks:

Energy efficiency
An effective way to limit CO2 emissions is to not produce them. The signatory financial institutions will encourage clients to invest in cost-effective demand reduction, taking into consideration the value of avoided CO2 emissions. We will also encourage regulatory and legislative changes that increase efficiency in electricity consumption including the removal of barriers to investment in cost-effective demand reduction. The institutions will consider demand reduction caused by increased energy efficiency (or other means) as part of the Enhanced Diligence Process and assess its impact on proposed financings of certain new fossil fuel generation.

Renewable and low carbon distributed energy technologies
Renewable energy and low carbon distributed energy technologies hold considerable promise for meeting the electricity needs of the US while also leveraging American technology and creating jobs. We will encourage clients to invest in cost-effective renewables and distributed technologies, taking into consideration the value of avoided CO2 emissions. We will also encourage legislative and regulatory changes that remove barriers to, and promote such investments (including related investments in infrastructure and equipment needed to support the connection of renewable sources to the system). We will consider production increases from renewable and low carbon generation as part of the Enhanced Diligence process and assess their impact on proposed financings of certain new fossil fuel generation.

Conventional and advanced generation
In addition to cost effective energy efficiency, renewables and low carbon distributed generation, investments in conventional or advanced generating facilities will be needed to supply reliable electric power to the US market. This may include power from natural gas, coal and nuclear technologies. Due to evolving climate policy, investing in CO2-emitting fossil fuel generation entails uncertain financial, regulatory and certain environmental liability risks. It is the purpose of the Enhanced Diligence process to assess and reflect these risks in the financing considerations for certain fossil fuel generation. We will encourage regulatory and legislative changes that facilitate carbon capture and storage (CCS) to further reduce CO2 emissions from the electric sector.

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