How Citigroup helps destroy the planet

Back on Thursday, I mentioned that Citigroup had put coal-heavy utility company TXU on its list of companies which stood to benefit from global climate change. It's maybe worth quoting the report at some length:

“Grandfathering”
We discussed various types of corporate behavior above that are positive for the climate. Then, too, there are other strategies in response to climate issues that are not at all “climate friendly.”
A July 21, 2006 Wall Street Journal article, “Burning Debate: As Emission Restrictions Loom, Texas Utility Bets Big on Coal,” discussed how TXU Corp. is “racing to build 11 big power plants [over the next four years] in Texas that will burn pulverized coal.” A possible reason, according to the Journal, is:

The federal government may slap limits on carbon-dioxide emissions. If it does, plants completed sooner may have a distinct advantage. That’s because the government may dole out “allowances” to release carbon dioxide, and plants up and running when regulations go into effect may qualify for more of them than those built at a later date.

It seems that TXU’s grandfathering strategy could be a smart move — in a best-case scenario, its coal-fired power plants might be either “grandfathered” or “cleaned” by new sequestering technology, while, in a worst-case scenario, its “dirty” plants might face the same carbon emissions regulations that apply to all electric utilities across the U.S.

Does reading this kind of research make you feel a little bit, I dunno, dirty? The idea of playing the regulatory-arbitrage game, and buying coal-fired plants in a non-Kyoto country like the US, is a little distasteful. And now Tara Lohan, of AlterNet, is calling out banks who are facilitating this kind of strategy – and she's concentrating on TXU, and Citigroup, in particular.

Merrill Lynch is one of three major financial institutions, along with Morgan Stanley and Citigroup, that have agreed to arrange the needed $11 billion to finance TXU's plants...
What is the role of the global finance industry when it comes to climate change?
If TXU secures the necessary money and permits, their 11 plants will produce 78 million tons of CO2 emissions each year for the expected 50-year lifespan of the plants.
Let's put that number in perspective. According to Environmental Defense, TXU's projected output of 78 million tons of CO2 a year is more than entire countries, such as Sweden, Denmark, and Portugal. It is also the equivalent of putting 10 million Cadillac Escalades on the road or cutting and burning all the trees in a section of the Amazon the size of over 9 million football fields -- larger than the state of California.

Lohan is quite right to call out Citi, Morgan Stanley, and Merrill Lynch for their role in financing TXU – and also to praise the likes of Goldman Sachs, JPMorgan Chase, and Bank of Montreal, who have said that they're not going to participate.

She also praises Bank of America, which has pledged to "realize a 7 percent reduction in indirect emissions ... within our energy and utility portfolio."

Banks, within their own operations, are naturally pretty green: their carbon footprint per dollar of profits must be tiny. But if that tiny carbon footprint comes by helping to destroy the planet indirectly, it does no one any good at all. It's worth remembering: if a bank puts out long research notes on the subject of climate change, that doesn't mean it's actually going to do something about climate change.

Posted by Felix at 10:36 EST

Comments

The other delightful angle for TXU is that its new coal plants will achieve much lower heat rates (units of fuel required per watt of electricity) than its existing competitors. They should be more competitive. It's a little moot, though, because TXU has yet to get any of its new plants off the ground. Carbon sequestration will not really make sense until the US develops a non-voluntary carbon market, and TXU may be forced to look to the much more expensive, but much cleaner, IGCC technology, which would erode pretty much all of its competitive advantage.

Posted by: Power O' Toole at 12:51 EST, February 12, 2007

Questionable, Felix. Putting aside whether one cares very much about global warming or not (me, I hate winter and look forward to a Georgia-like clime in NY, but YMMV), it appears to me that there is no corporate responsibility beyond maximizing shareholder value within the confines of the law. If the law grandfathers TXU's plants, then regulatory arbitrage is precisely what is called for. Besides, it isn't as if they could take any economic profits from the grandfathering and plow them back into more grandfathered plants, that avenue becomes closed to them.

Posted by: Bernard Guerrero at 22:53 EST, February 12, 2007