Acknowledging Growing Financial Risk, Top Banks Issue New Emission-Based Principles for Power Plant Loans
Global Warming Emissions are Changing Competitive Landscape, Says NRDC
NEW YORK (February 4, 2008) – Investment bankers at three of the largest financial institutions in the world today adopted a new set of principles designed to change the way they assess the financial risks associated with hundreds of millions of dollars worth of capital borrowed by electric utilities by including global warming emissions as a concrete element of their lending calculus.
The move could sharply accelerate major strategic changes already emerging in the electricity industry, according to the Natural Resources Defense Council (NRDC), which advised Citi, JPMorgan Chase and Morgan Stanley on the principles. Electric utilities are responsible for nearly 40 percent of U.S. carbon dioxide pollution.
“Global warming is reshaping the competitive landscape for utility companies. This change is not lost on their bankers, who are going to be asked to invest many hundreds of millions of dollars,” Said NRDC Senior Attorney Dale Bryk. “Clean power is the name of the game today. Dirty facilities will not be cheap anymore, and they won’t be quick either. Conventional coal plants are already facing intensive scrutiny. We think the serious money is increasingly going to be on clean, efficient solutions.”
NRDC released a detailed statement about the principles, which appears below.
In recent months, backers have scrapped plans for new conventional coal plants in Alaska, Arizona, Colorado, Florida, Idaho, Illinois, Kansas, Kentucky, Maine, Montana, Nevada, North Dakota, North Carolina, Oklahoma Oregon, Texas, Utah, Washington, and Wyoming.
The move follows a broader trend in which global warming has emerged at the heart of key business decisions. Last year, global warming business strategy was at the center of the $44 billion buyout of utility giant TXU, whose new owners rejected plans for eight coal-fired power plants in favor of a cleaner, more efficient, and more competitive generating portfolio.
A growing list of leading American companies known as the US Climate Action Partnership issued an unprecedented call for a concrete federal cap on heat-trapping pollution, backed by a market system that rewards quick results and cuts costs for everyone. Today twenty five states are moving ahead with global warming pollution standards of their own, and pressure is building for Congress and the next President to deliver an effective national solution.
In addition to NRDC, the principles were developed in consultation with American Electric Power, CMS Energy, DTE Energy, NRG Energy, PSEG, Sempra and Southern Company, as well as the group Environmental Defense.
NRDC Statement on Carbon Principles
NRDC welcomes this acknowledgement by major lenders that investments in conventional coal plants pose substantial environmental and financial risks due to these facilities’ very high levels of global warming pollution, chiefly carbon dioxide.
NRDC advised the institutions drafting these principles that whenever possible electric power providers and lenders should avoid the need for new fossil power plants altogether by investing in efficiency and renewable energy sources, and that any new coal plants should capture and safely dispose of their carbon emissions. Such large and long-lived new sources of carbon emissions not only pose large financial risks to investors and consumers but are incompatible with society's urgent need to reduce global warming pollution to prevent further dangerous disruption of the climate. If the institutions apply their announced principles appropriately the result should be to expose the significant financial risks of such large new sources of carbon pollution to financiers and investors and to encourage alternate strategies for meeting generation needs or the use of carbon mitigation technology by any coal plants that do receive financing.
We are encouraged by the lenders’ recognition that there is enormous potential to invest in efficiency and renewable energy as preferred and lower cost alternatives to new fossil investments. We strongly support their commitment to encourage their clients to invest in these clean energy solutions and to advance policies that will remove barriers that currently prevent investment in energy efficiency, renewable energy and carbon capture and disposal.
We believe the enhanced due diligence requirements for electric utilities and independent power producers seeking financing from the lenders committing to these principles can be an important step forward in assessing many of the risks of building and operating new conventional coal plants. NRDC will continue to urge regulators in both the electric and financial sectors to require borrowers and lenders to disclose those risks for both public and private sector interests. Electric power providers, financial institutions, and state and federal regulators have all the tools, technologies and resources to support efficiency, renewables energy and fossil generation with carbon capture and disposal as cost-effective approaches to meeting future energy demands in all regions of the country.
We also believe it is essential that the lenders extend these principles and diligence process to plants proposed by municipalities and rural cooperatives, which represent over 30% of the power generation market and would greatly benefit from a rigorous examination of risks. NRDC will continue to urge these institutions to extend this process to municipal and electric cooperative proposals.
NRDC will also continue to comment on and monitor the implementation of these principles. To the extent these principles and diligence process shift investments away from conventional coal generation to low-carbon alternatives; it will represent progress. To the extent these principles prevent construction of any new coal plants that do not capture their emissions; it will be a tremendous step forward in our nation's transition to the clean energy economy necessary to address global warming.
NRDC’s Position on Coal