Wake-up call on carbon risks

Last week, three financial titans--Citigroup, J.P. Morgan Chase, and Morgan Stanley--announced "The Carbon Principles" to provide guidance to energy companies in managing carbon risks. The upshot of The Carbon Principles is that these big banks are stating explicitly that going forward, they will only provide debt financing to new power projects if proponents can prove that the proposed plants will remain economically viable under future climate change policies.

Put another way, Wall Street sees federal carbon legislation as imminent, and doesn't want power sector executives to try to "sneak in" any last coal plants before the legislation whose economics might be threatened in a carbon-constrained world. The banks' interest is not necessarily environmentally motivated--they simply don't want to see any more loans go bad--but the effect of this announcement is likely to be positive.

The energy sector can't claim they weren't at the table. The principles were developed by the banks in consultation with a who's-who of power industry giants: American Electric Power, CMS Energy, DTE Energy, NRG Energy, PSEG, Sempra Energy, and Southern Company.

But apparently, the willingness of these utilities to participate in the process of developing The Carbon Principles doesn't mean everyone in the energy sector is yet reading the writing on the wall regarding climate change. In the February 4 Wall Street Journal, reporter Jeffrey Ball quoted Jeffrey Holzschuh, vice chairman of institutional securities at Morgan Stanley, as saying, "We have to wake up some people who are asleep."

If a remarkable July 2006 letter (PDF) from Stanley Lewandowski, general manager of the Intermountain Rural Electric Association in Colorado is any indication, it would seem there's still a number of Rip Van Winkels out there in the electric utility world.

Rise and shine! Climate change is a real phenomenon, and carbon legislation is coming--let's begin to deal with it!

Given how Wall Street didn't seemingly exercise any leadership whatsoever on the subprime mortgage debacles, it's refreshing to see that they're actually out in front (at least a little bit) on the climate change issue.

[rcrusoe]

"Climate change is a real phenomenon". That's true. About 42 major changes in the past 4000 years if memory serves me. All of them long before my Honda rolled off the line.<br /><br />Thirty years ago scientists were warning us of a coming ice age, now carbon dioxide, which is only about 3 percent of total green house gases is about to destroy the planet. <br /><br />Boy, are we going to look stupid in future history books.

[enovikoff]

Yes, we sure will. Science has been able to model and predict global warming for 25 years now, but when the seas suddenly rise 15 feet in one year - probably in the next 10 years - we're going to have to take a look at how each of us contributed to this mess. There are two parts to the contribution: 1) Not wanting to see that global warming is caused by human activity, and 2) Not wanting to see that global warming is not only inevitable but like most of the large climate changes the Earth has experienced, it has a sudden tipping point. Even if you don't believe (1), (2) can be measured and predicted, whatever the cause. The result of putting our heads in the sand will literally be hundreds of New Orleans disasters all at once.

[billmosby]

So, does that mean loans to build nuclear power plants might be easier to get? Probably not. For one thing, if I remember correctly, they were not counted as being low-CO2 options under the Kyoto arrangement. The congress could well treat them that way in legislation. For another, many utilities see too much financial risk in them in case something goes wrong, like bad PR, "stop the nukes" lawsuits, and of course a small real risk of a large liability accident.

Has anyone stopped to consider that a warmer climate might have more benefits than deficits? Yes it would cause change, in the coast lines, for the wildlife, etc., but change always happens. Climates have changed in the past, and those caused major die offs. It is the cycle of life.

[biffhenerson]

People. The planet warms and cools and has done so for millions of years. Man has NO impact on this and man could spend every dollar on earth and still have NO impact on it. In fact, man could disappear from the earth and still have NO impact on it. People have not idea how big the planet earth is. They only have visibility of their community and that las summer seemed to be hot. People, look at Los Angeles on the globe. Its nothing but a spec. A tiny spec. The pollution in Los Angeles has no effect on the planet. None. People need to see beyond their little teeny tiny view of the world. These global warming people all get money to do their studies. It is how they make a living. Of course they do not want it to end. Of course they want to scare each of you into sending them more money. Dont be fools. Trust me. The world is not flat.