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Wall St. lenders to set carbon standards

February 05, 2008|From Reuters

Three Wall Street banks said Monday that they would set standards for factoring in environmental risks posed by carbon emissions when lending to companies that seek to build coal-fired power plants.

Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley will form "The Carbon Principles," climate-change guidelines for advisors and lenders to power companies in the U.S.

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" establish a process to include the effect of future global-warming laws on the loan risk of building coal-fired power plants.

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

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

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

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 being planned as the government predicts U.S. power demand to grow steadily in coming decades.

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

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.

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