Guidelines assess carbon risk of power industry

Three leading Wall Street banks have drawn up a set of climate change guidelines for advisors and lenders to power companies in the US.

The Carbon Principles, created by Citi, JPMorgan Chase and Morgan Stanley, aim to evaluate carbon risks in financing electric power projects.

Lenders will encourage power companies to invest in energy efficiency, and renewable and low-carbon energy technologies, and encourage changes in regulation and legislation to remove barriers to such investment.

However, they will also allow for continued investment in conventional energy, such as natural gas, coal and nuclear, although the uncertain financial, regulatory and environmental risks in this type of energy will be taken into account.

The banks spent nine months working on the project, in consultation with power companies and environmental NGOs.

“There was a remarkable amount of debate and exchange of information and views among the banks, power companies and environmental organisations, said Matt Arnold, director of environmental advisors Sustainable Finance Ltd, which helped to coordinate the development of The Princples.

“This resulted in a rigorous analysis of the carbon risks in power investments and sets the stage for further discussions.”

The Principles have been welcomed by the power companies involved in the discussions, including Ohio-based American Electric Power.

Chairman Michael Morris said: “A rational set of carbon principles to help guide energy investment strategy is vital to our nation’s energy and economic future.”

However, some environmental groups were more sceptical about the impact they would have.

The Rainforest Action Network (RAN) said the scheme was an important step but was limited by its lack of binding commitments.

“Calling them The Carbon Principles is an overstatement,” said Rebecca Tarbotton, director of RAN’s Global Finance Campaign.

“A serious climate change policy would commit the banks to emissions reductions in their financing and extend beyond coal into other carbon-intensive sectors such as coal mining and the oil and transportation industries.”

Kate Martin

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