Banking on clean energy

Banks are urged not to finance coal power

By John Donnelly
Boston Globe
January 16, 2007

WASHINGTON -- A new front in the fight to slow down global warming follows trails of money, not wisps of polluting chemicals, straight to the doorsteps of banks.

A coalition of environmental groups, including Boston-based Ceres , is demanding that banks reject loan requests for projects that emit high rates of greenhouse gases, which contribute to global warming. The groups say they have won commitments from more than a dozen banks in the last few weeks to turn away from supporting coal-fired electric plants.

But because of the financial potential, several banks remain bullish about underwriting energy projects, including those that emit high rates of greenhouse gases.

Now, the issue is coming to a head in a plan by the Texas utility TXU Corp. to build 11 new pulverized-coal power plants at a cost of $11 billion. The plants, most of which would be built on the cattle-grazing plains of central Texas, would release an estimated 78 million tons of carbon monoxide per year, the equivalent of the exhausts of 14 million automobiles.

At the moment, three banks -- Merrill Lynch, Citigroup, and Morgan Stanley -- have agreed to arrange TXU's financing, and are trying to persuade investors to buy in.

Banks' moves are under scrutiny as the United States is undergoing a resurgence in proposals to build coal-fired plants, amid a growing awareness that climate change could soon disast rously affect the earth.

"That's why the lending of money to these projects is coming to a head here in the United States," said Dan Bakal , director of electric power programs for Ceres, a nonprofit group that aims to persuade investors to back environmentally friendly projects.

Bakal and other environmentalists believe that coal-fired energy plants pose not only environmental and reputational risks to banks, but financial hazards as well. With federal climate-change legislation expected to be approved in coming years, they argue, the plants could be faced with costly new levies and pollution controls.

Just one US bank -- Bank of America, which more than two years ago bought FleetBoston -- has committed to cut back all its funding of energy projects that produce large quantities of greenhouse gases. In its energy lending portfolio, Bank of America hopes to show a 7 percent reduction in its investments' greenhouse gas emissions .

"We are changing the mix of our loan portfolio, and adding customers who are using renewable energy resources," said Eloise Hale , a Bank of America spokeswoman. "We're applying good fiscal practices to good environmental behavior, and routinely asking them about their greenhouse gas emissions." She declined to say whether Bank of America would be involved in funding the TXU project, citing confidentiality.

Rainforest Action Network , an environmental group based in San Francisco, provided two faxes from banks in the Netherlands, Rabobank and Finance for Development, that said they would not invest in the TXU plan. A spokesman for a third bank, the Bank of Montreal, said in an e-mail it also will not fund the project.

The Bank of Montreal , wrote spokesman Ralph Marranca , "is committed to the principles of sustainable development and, in particular, to the belief that the quality of our lives improves when economic growth is integrated with respect for the environment."

But not all banks agree that coal power plants would run afoul of their environmental principles.

Forty-five banks have signed the Equator Principles , a set of guidelines used to determine the social and environmental risks associated with a project. Citigroup , one of the three banks arranging the financial package for the TXU project, has signed the principles.

The two other TXU backers , Morgan Stanley and Merrill Lynch, declined to comment.

Shawn D. Miller , Citigroup's director of environmental and social risk management, said in an interview last week that he could not discuss the TXU project, but added that Citigroup applies the Equator Principles to every loan request that has capital costs exceeding $10 million.

"For project financings, we go through a pretty judicious process to make sure Citigroup is investing in something that is not just meeting relevant laws and regulations, but is also meeting our internal robust standards," he said.

Asked how a coal power project would meet Citigroup's standards, Miller replied, "Currently, if a coal-fired power plant in the United States receives its environmental permits, receives an OK from relevant environmental authorities, goes through a public commenting process that allows locally-affected people and civil society to give their own point of view, and goes through our internal and independent environmental and social review, then I think it is meeting a robust standard."

Several banks also have vowed to reduce their own emissions of greenhouse gases. For instance, Citigroup, which owns or rents 13,000 properties, has pledged to cut its emissions by 10 percent by 2010; Merrill Lynch aims for a cut of 2 percent a year.

Tim Greeff , a global warming specialist at the Natural Resources Defense Council , a Washington, D.C.-based advocacy group, said Citigroup's internal and external environmental policies were not consistent. "It is sort of like allowing [tobacco-maker] Philip Morris to claim they are fighting tobacco addiction by asking their own employees not to smoke, while continuing to sell cigarettes to everyone else," Greeff said.

A decision by Texas regulators on the coal plants is still probably several months away.

TXU spokeswoman Lisa Singleton said the environmentalists' campaign was not yet interfering with the projects. "At this point, we're not concerned," she said. "We're continuing discussions with everybody. It's a complex issue, balancing the need for power with environmental concerns." The project, she said, would add 9,100 megawatts of new energy.

And another TXU spokesman, Thomas Kleckner , said that "cutting-edge technology" would result in emissions that would be "80 percent cleaner than today's average coal plant."

But Dana Clark , a global finance campaigner for the Rainforest Action Network, said her group is asking banks if they "really want to be associated with this massive increase of greenhouse gases that undermines everything?"