The Twilight of Dirty Coal

Many of the issues we work on take decades to get the results we want. But at other times, things begin to fall into place with surprising speed. That’s happening now with dirty coal.

Over the past year, one after another coal-fired power plant has been blocked by the environmental community across the country, and many more are still disputed. And just this last week, the Wall Street Journal announced that  three of our largest financial institutions adopted new lending principles that take into account the growing risks of investing in conventional coal plants. See the New York Times Sunday editorial

Why does this matter? Because Wall Street is sending a potent signal to the energy sector that it views dirty coal plants as shaky financial prospects and that the smart money is heading toward cleaner, more sustainable energy options. 

Governor Dave Freundenthal of Wyoming--the biggest coal producing state in the nation--said of the announcement: “It’s probably, frankly, a signal more powerful than one from the federal government.” 

You see, when an electric utility builds a new power plant, it has to attract capital from investment banks to cover the enormous costs of construction. It takes a good 20 to 30 years to recoup that money. 

America will certainly enact new carbon regulations well before the banks will get their money back. Because coal plants have the highest carbon pollution per unit, they will take the biggest financial hit when limits are set. Banks that invested in coal plants will have to wait even longer to get a return on their investment. Or worse, they will be left with bad debt when the plants have to spend lots of money to buy pollution allowances. 

On top of that, the market for conventional coal power will likely shrink. Already, California utilities are prohibited by law from making long-term investments in power generation that has high greenhouse gas emissions. In other words: dirty coal. 

All of this adds up to a lot of uncertainty, and the financial community hates uncertainty. That’s why three of the biggest lenders-- Citigroup, J.P. Morgan Chase and Morgan Stanley--decided to attach new terms to the hundreds of millions of dollars they typically loan to utilities. These heavy hitters will now focus on energy-efficiency and renewable energy before backing coal plants. 

We have seen before the power of the financial community to impact energy decisions. As my NRDC colleague Ralph Cavanaugh--a man who has tracked the utility sector for more than 30 years--has said, “There are 150 plants in on the books today, many of them still looking for investors. Back in the 1980s, more than 100 nuclear plants were cancelled because the financial community lost confidence in them. My prediction is the same will happen with conventional coal.” 

Looks like Ralph’s prediction is coming true.