Wall Street cools on Big Coal

Three major Wall Street investment banks have pledged to adhere to a set of “Carbon Principles” to assess the risk — ecological and economic — of investing in planet-warming fossil fuel power plants. But does this signal that Wall Street’s ardor for Big Coal is cooling, or are we seeing a rather sophisticated greenwash that will allow further investment in dirty power to carry a green seal of approval?

Probably a bit of both.

Citi (C), JPMorgan Chase (JPM) and Morgan Stanley (MS) collaborated with with such coal-dependent utilities as American Electric Power (AEP), NRG Energy (NRG) and Southern Company (SO) along with national green groups Environmental Defense and the Natural Resources Defense Council to draft the Carbon Principles.

In short, the banks — all of which have come under fire from environmentalists for financing power projects that are a major contributor to climate change — have agreed to evaluate the economic viability of coal-fired plants in light of a widely expected national cap on greenhouse gas emissions. Such a cap would force utilities to reduce their carbon spew or pay a price per ton of carbon dioxide emitted over the limit.

But there’s some caveats here. According to the Carbon Principles, the financing criteria “does not establish specific performance criteria that companies or their projects must meet nor does it lay out specific types of transactions that the financial institutions will avoid.”

In other words, absent a hard target for power plant emissions, the banks can continue financing those projects, principles or not. (The Sierra Club lists proposed coal-fired power plants and their financiers here.) “There was resistance on part of the financial institutions to set specific targets or reductions,” Mark Brownstein, Environmental Defense’s managing director of business partnerships, told Green Wombat. “Banks do not see themselves as regulators but they are responsible to shareholders and investors with regard to risk.”

Still, says Brownstein, “I think that if the principles are honestly implemented, if companies honestly wrestle with data they collect and do honest due diligence, it will make a difference in the direction of investment in the utility space. We’ll see much less conventional coal, and more investment in renewable energy and low-carbon coal technologies.”

“I think we’ve been surprised, frankly,” adds Brownstein, “for whom these principles and this due diligence is in fact new.” Brownstein previously was an executive with New Jersey-based utility Public Service Enterprise Group (PEG), which was one of the utilities that worked on the Carbon Principles.

Whether the Carbon Principles result in any canceled coal projects remains to be seen, but Brownstein says that one consequence might be a higher cost of capital for those plants that do obtain financing.

JPMorgan spokesman Brian Marchiony told Green Wombat in an e-mail that, “We are certainly going to take a harder look at those projects and encourage other alternative energy options.”

Citi and Morgan Stanley did not respond to requests for comment.

Marchiony says that JPMorgan already had been using some environmental criteria to screen fossil fuel power plants. “We’ve added additional questions to our checklist and strengthened those that we were already asking in order to incorporate the carbon issue more formally into the financing discussion,” he says.

Given growing opposition to new coal-fired power plants from local communities and regulators, the big investment banks had already been reconsidering coal-related investments.

Brownstein says Environmental Defense will continue to push for Wall Street’s disengagement from Big Coal. “We very much look at these principles as a floor and not a ceiling,” he says. “We feel as an organization it would be both environmentally irresponsible and financially irresponsible for them to move ahead and invest in conventional coal.”