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Emissions may cost power plants

Ashley Milne-Tyte Feb 4, 2008

Emissions may cost power plants

Ashley Milne-Tyte Feb 4, 2008


KAI RYSSDAL: We get about half of all the electricity we use in this country from coal-fired power plants. Generating all that power generates a lot of greenhouse gases — carbon dioxide, mostly. At the moment there aren’t any federal limits on carbon emissions. Some big investors think it’s only a matter of time before there are, though. So today Citigroup, JP Morgan Chase and Morgan Stanley announced new rules for how they’re going to be financing those utilities. Ashley Milne-Tyte reports.

ASHLEY MILNE-TYTE: If the government puts a price on greenhouse-gas emissions, utility companies will have to buy allowances to offset the pollution they create.

Dan Esty is director of the Yale Center for Environmental Law and Policy. He says that’s bad news for investors.

Dan Esty: The utilities, which are very heavily coal-dependent, in particular, might really become less economically viable. And I think the banks are saying “Gee, we want to really think hard before that’s where our money is going.”

He says banks could be on the hook for hundreds of millions of dollars if utility companies default on their loans.

Mark Brownstein is with Environmental Defense. His group worked with the banks to come up with a set of guidelines called the Carbon Principles.

Mark Brownstein: It’s a series of steps that requires you to take a look at energy efficiency and renewables.

He says some companies may decide they can’t run on an energy-efficient or renewable-energy platform. Then they’d need a plan B, which could include storing emissions underground.

Brownstein: Looking at the ability of the plant to capture its carbon dioxide and geologically sequester it.

By drawing up these guidelines the banks are facing the inevitable, says Yale’s Dan Esty. They don’t want to find themselves exposed when there’s a change in the law.

Esty: It goes further to the argument that there is an economic logic to beginning to take seriously climate change.

He says this doesn’t mean carbon-exposed companies won’t be able to find investors in the future. But financial firms including private-equity will want to find a way to reduce their risk, or get paid for it.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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