Three leading Wall Street Banks today announced a set of guidelines, called the Carbon Principles, for evaluating and addressing carbon risks in the financing of electric power projects.
The Rainforest Action Network (RAN), which is calling on banks to end all coal investments, says the Carbon Principles are an important step toward recognizing the climate risks associated with financing coal plants but are limited by their lack of any binding commitments and their failure to address the impact of destructive coal extraction methods such as mountaintop removal mining.
The Principles were developed in partnership by Citi, JPMorgan Chase and Morgan Stanley, and in consultation with leading power companies American Electric Power, CMS Energy, DTE Energy, NRG Energy, PSEG, Sempra and Southern Company. Environmental Defense and the Natural Resources Defense Council, environmental non-governmental organizations, also advised on the creation of the Principles, which they say are intended to assist advisors and lenders address 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.
Rebecca Tarbotton, Director of RAN’s Global Finance Campaign says the standards are a sign that growing public support for a moratorium on coal development is finally influencing bank policy. However, she notes the principles do not require banks to set firm reduction targets for their investments in the coal sector.
"Calling them the ‘Carbon Principles’ is an overstatement," said 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."
RAN, which in the past successfully challenged several of the world’s largest banks–including Citi, Bank of America, JPMorgan Chase and others–to adopt project lending policies that help safeguard the environment and human rights, is currently pushing banks to stop funding coal and other carbon-intensive sectors that contribute heavily to climate change. RAN has called on banks to set meaningful reduction targets for their financed investments.
According to the banks, the Principles recognize the benefits of a portfolio approach to meeting the power needs of consumers, without prescribing how power companies should act to meet these needs. If high carbon dioxide-emitting technologies are selected by power companies, the signatory banks have agreed to follow the Enhanced Diligence process and factor these risks and potential mitigants into the final financing decision.
"There was full and frank dialogue around the table," said Matt Arnold, director of Sustainable Finance, which helped coordinate the development of the Principles and Enhanced Diligence process. "There was a remarkable amount of debate and exchange of information and views among the banks, power companies and environmental organizations. The dialogue resulted in a rigorous analysis of the carbon risks in power investments, and sets the stage for further discussion."
Citi, JPMorgan Chase and Morgan Stanley have pledged their commitment to the Principles to use as a framework when talking about these issues with clients. They say the Principles and associated Enhanced Diligence represent a first step in a process aimed at providing banks and their power industry clients with a consistent roadmap for reducing the regulatory and financial risks associated with greenhouse gas emissions.
The Principles are:
- 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.
- 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.
- 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.
"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 proof is in the pollution," said Tarbotton. "If this policy prevents the financing of new coal, it will be productive."
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