Banks to weigh CO2 emissions in power lending

NEW YORK Mon Feb 4, 2008 3:34pm EST

A man is reflected in the Citibank logo in Tokyo November 5, 2007. Citigroup Inc, JP Morgan Chase & Co and Morgan Stanley will form ''The Carbon Principles,'' climate change guidelines for advisors and lenders to power companies in the United States.

A man is reflected in the Citibank logo in Tokyo November 5, 2007. Citigroup Inc, JP Morgan Chase & Co and Morgan Stanley will form ''The Carbon Principles,'' climate change guidelines for advisors and lenders to power companies in the United States.

NEW YORK (Reuters) - Three Wall Street banks said on Monday they will set standards for factoring in environmental risks posed by carbon emissions when lending to power companies that seek to build coal-fired power plants.

Citigroup Inc, JP Morgan Chase & Co and Morgan Stanley will form "The Carbon Principles," climate change guidelines for advisers and lenders to power companies in the United States.

The standards do not preclude bank financing for building traditional coal-burning power plants, said Jeffrey Holzschuh, vice chairman at Morgan Stanley. Instead, they set up a more rigorous evaluation process, such as looking at the costs of storing carbon emissions and other risk factors.

"The Carbon Principles" establishes a process to include the impact of future global warming legislation on the loan risk of building new coal-fired power plants.

The principles are intended to be an industry-wide framework, and more financial institutions are expected to jump on board.

"I think there will be several other banks that will join in over the next few weeks," Holzschuh told Reuters.

Coal generates about half of U.S. electricity, but is the dirtiest emitter of the main greenhouse gas, carbon dioxide.

Traditional coal-fired plants have come under pressure from states and environmentalists, while Congress considers several bills that would cap greenhouse gas emissions. Presidential candidates also say they favor regulating the gases.

PLANS SCUTTLED

Plans for new coal-fired plants have been scuttled recently in Texas, Florida and Kansas as environmental groups work with banks to highlight their emissions risks.

But dozens more of the plants are in various stages of planning as the government predicts power demand to grow steadily in coming decades.

"The days of conventional coal are over," Mark Brownstein of Environmental Defense, one of the groups helping to form the framework, told Reuters.

The three banks developed the principles in consultation with environmental organizations and power companies, including American Electric Power Co, the nation's largest consumer of coal, and Southern Co, the largest utility company in the coal-heavy Southeast.

When assessing new coal-plant financing, the principles will also look at energy efficiency, advanced cleaner-coal technology for emitting less carbon, and renewable sources of power.

"Having just come from the subprime mess, financial institutions are taking a second look at their risk management practices," Brownstein told Reuters.

"Taking into account future CO2 liabilities is the way to make sure that the investments you make today don't come back to bite you tomorrow," he said.

Wall Street banks have been hit hard by the subprime mortgage debacle, taking tens of billions of dollars of write-downs on the loans to people with poor credit histories.

"They've bitten off a little piece," said Rebecca Tarbotton of Rainforest Action Network, an environmental group that did not participate in the standard setting talks.

"What we really need is an actual carbon principle that would include a commitment to reduce the financed-emissions across all sectors," Tarbotton said.

(Additional reporting by Timothy Gardner; Editing by Brian Moss and Tim Dobbyn)