As new forms of carbon capture technology bubble up in the labs, U.S. financial institutions are starting to see the value in using technology to capture carbon for the creation of cleaner coal plants. With the assumption that the U.S. will soon implement a cap-and-trade system that will force carbon offenders to pay to emit, Citigroup, J.P. Morgan Chase and Morgan Stanley have drawn up ‘The Carbon Principles’ aimed at guiding the way in which they finance coal plants and other forms of electricity generation.
The environmental standards mean the lenders are less likely to be financing traditional carbon-spewing coal plants, as a carbon cap-and-trade system would make those too costly within a few short years. But the banks could still be willing to finance coal projects that would use carbon capture and sequestration technology whenever it becomes available.
The banks’ environmental principles are a significant commitment to the realities of a future carbon-constrained world, and stand in stark contrast to the government’s decision to effectively shank the FutureGen project, which would have built a test coal facility for capturing and storing carbon. The banks’ move is also on par with the famous “TXU” case, in which environmental advocates convinced two private equity firms that shuttering plans for eight coal-fired plants while acquiring Texas utility TXU would make good financial, as well as environmental, sense.
But the coal financing standards are not perfect. The language, at least in the release, is pretty vague:
Due to evolving climate policy, investing in CO2-emitting fossil fuel generation entails uncertain financial, regulatory and certain environmental liability risks. It is the purpose of the Enhanced Diligence process to assess and reflect these risks in the financing considerations for certain fossil fuel generation. We will encourage regulatory and legislative changes that facilitate carbon capture and storage (CCS) to further reduce CO2 emissions from the electric sector.
Basically they will acknowledge carbon emissions as a risk for financing, but there’s no hard and fast rules. Environmental advocates like Mark Brownstein, the managing director of business partnerships for eco-advisors Environmental Defense, who helped the banks draft the principles, see the standards as “a first good step.” Though Brownstein added that “it makes no sense at all for them to finance any new coal-fired power plants.”
And given that the technology to capture and store carbon from coal plants isn’t expected to be viable for at least a decade, anything built between now and then will likely only come with the promise of carbon capture technologies, not the real thing. If you’re a skeptic, like climate scientist James Hansen, then you doubt that utilities are planning on implementing carbon capture technology, even when it becomes available. Hansen said on a call a few weeks ago:
In most cases where utilities are saying they will have the capability in the future to capture the CO2, they’re really just saying that in order to get approval, without really intending to do that. If they would sign a guarantee that they are going to start capturing it within five years that would make it a different story.
We don’t know all the details of the banks’ commitments, but we’re hoping they involve some kind of signed guarantees by their utility customers to implement carbon capture technology.
Regardless of the details, in readying themselves for the future cap-and-trade system, the banks are smart. A carbon cap and trade system is coming. Even venture investor Vinod Khosla is getting more optimistic; he told us in an interview that while five years ago he didn’t think a cap-and-trade system was near, he now sees one within the next eight years — thanks, hopefully, to the next U.S. president.