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ENERGY: Wall Street Majors Seek Cleaner Coal Portfolios

Abid Aslam

WASHINGTON, Feb 4 2008 (IPS) - Fear of regulation and financial loss related to climate change has spurred three leading U.S. banks to adopt environmental standards to tighten support for the coal industry.

Citigroup, JP Morgan Chase, and Morgan Stanley – three of the biggest brands on Wall Street and all major international players – on Monday unveiled "Carbon Principles" under which utility companies seeking finance for new coal-fired generators first would have to devise plans to minimise and mitigate carbon dioxide pollution from the new power stations.

Carbon dioxide is a leading greenhouse gas, so called because scientists blame it for trapping heat and fueling climate change.

"The need for these principles is driven by the risks faced by the power industry as utilities, independent producers, regulators, lenders, and investors deal with the uncertainties around regional and national climate change policy," Citigroup said in a statement.

With Monday's announcement, Wall Street took its first step towards catching up with the re-insurance industry, which for years has led the financial services pack in wrestling with climate change's potential to wreak havoc: Hurricanes and the like destroy not only people and businesses on the ground but also their insurers and re-insurers, which cover the insurance companies.

The move also comes amid rising interest in coal as an abundant means to reduce U.S. dependence on foreign oil. The United States is estimated to have around 200 years worth of coal reserves, mostly under the Appalachian Mountains and in the Southwest, according to official figures.

U.S. firms have faced little pressure over climate change from their government. This could be changing as the severity of weather-related losses become increasingly apparent and political momentum builds behind efforts to bring the United States in line with the international community's stand on the issue.

As a result, power companies face an increasing risk of what some call public policy intervention – or government regulation. This risk could come to haunt their financial backers. In all this, a growing number of corporate executives have come to see a need to pre-empt mandatory regulation with voluntary measures such as Monday's.

"Global warming is changing the competitive landscape," said Dale Bryk, senior attorney at the Natural Resources Defence Council, an environmental lobby here.

"Clean power is the name of the game today. Conventional coal facilities are already facing intensive scrutiny. We think the serious money is increasingly going to be on clean, efficient solutions," added Bryk. His group and another lobby, Environmental Defence, advised the banks on their initiative.

Seven power companies also helped to shape the programme: American Electric Power, CMS Energy, DTE Energy, NRG Energy, Public Service Enterprise Group, Sempra, and Southern Company.

Also fueling the drive toward self-policing is mounting pressure from investors. In recent years, shareholders in financial, mining, and power companies have filed a raft of non-binding but high-profile proposals seeking greater disclosure of the firms' carbon emissions and involvement in carbon-intensive projects or management promises to curb these.

Leading firms across all industries have confronted similar requests for information from the Carbon Disclosure Project, a coalition of 385 institutional investors holding some 57 trillion dollars in assets. Since 2000, the coalition has pressed firms to reveal the size of their carbon footprint, or the amount of carbon they add to the atmosphere, and has provided this information to member finance firms to use in making investment and lending decisions.

Environmental activists gave Monday's announcement a qualified endorsement.

"If this policy prevents the financing of new coal, it will be productive," said Rebecca Tarbotton, global finance campaign director at the Rainforest Action Network (RAN), which favours cutting off all investment in coal.

However, added Tarbotton: "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."

The latest initiative, she added, is limited to coal power plants yet even so, it stops short of setting firm targets.