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.

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3 Responses to How Citigroup helps destroy the planet

  1. Power O' Toole says:

    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.

  2. Power O' Toole says:

    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.

  3. Bernard Guerrero says:

    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.

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