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Banks Set Carbon Guidelines

Banks want power companies to limit carbon emissions when making financing decisions.

Potential government regulation of carbon emissions has led three top Wall Street banks to work with the coal industry to create a set of guidelines on financing and construction of power plants.

JPMorgan Chase

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Morgan Stanley

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spent nine months creating the Carbon Principles, the framework to be used by advisors and lenders when working with power companies.

"Expectations are rising fast for this industry," said Dale Bryk, senior attorney at the Natural Resources Defense Council, an environmental organization that worked with the banks and coal companies on creating the guidelines. "Global warming is changing the competitive landscape. Clean power is the name of the game today. Conventional coal facilities are already facing intensive scrutiny. We think the serious money is increasingly going to be on clean, efficient solutions."

The three principles are energy efficiency, renewable and low-carbon distributed energy technologies and conventional and advanced generation. The lenders encourage demand-reduction as a way to reduce carbon emissions. While the power companies agree, they will only consider demand-reduction caused by increased energy efficiency.

The energy companies will also be encouraged to invest in renewable energy technologies. Again, the institutions note that they will "consider" production increases from renewable energy. The banks also plan to push to remove legislative and regulatory roadblocks to such investments. The third principle is an acknowledgement that conventional energy sources such as natural gas, nuclear and coal are needed for reliable electricity for consumers and that while investments will continue to be needed, the banks will push for cleaner versions with carbon capture to reduce emissions.

The banks see the benefits of the partnership as addressing the energy demands of consumers, but will not suggest how power companies should go about meeting these needs. However, if power companies choose high carbon-dioxide emission technologies, banks will factor the risks they pose into their financing decisions, according to the principles.

The banks were assisted by Sustainable Finance Limited, a UK-based company that works with financial institutions on reducing risk and developing strategies and policies. The group also assisted in the creation of the Equator Principles used by the financial industry as a benchmark for managing social and environmental risk in project financing.