Major U.S. Banks Will no Longer Finance “Dirty” Power Plants

Environmental activists have a strange new group of allies.

wallstreetImage by Ramy Majouji

Several of the world’s largest investment banks will introduce new environmental standards, making it much harder for companies to get financing for such projects as coal-powered electricity plants.

The Wall Street Journal has reported that JP Morgan Chase & Co, Citigroup Inc, and Morgan Stanley will all introduce tighter standards on funding such projects.

As you might expect from some of the biggest financial firms in the world, there’s a firm monetary, rather than altruistic, motive behind the move. These companies are expecting the U.S. government to place a cap on greenhouse gas emissions, particularly from power plants, within the next few years. So from now on, anyone seeking funds for “dirty” power plants will have to show that the plants could survive and profit under the suspected emissions caps.

The banks, of course, would not want to be stuck with an enormous debt for a power plant that ends up being useless if there are emissions caps.

While the banks may be motivated by a desire to avoid risk instead of sincere concern for the environment, their actions will have some very positive consequences.

For one, it just got a lot harder to open up a coal-fired power plant in the United States. Activist protests bring a lot of attention to the environmental issue of coal power, but it’s money that really talks.

You’ll notice that coal power plants from now on will have to be able to operate under certain emissions caps, despite the fact that there are no actual laws capping emissions for these power plants. Sure there are other places that a company hoping to open a coal-fired power plant might go for financing if they didn’t want to deal with this stipulation, but these are some of the largest players in the U.S. financial market. I have trouble believing other institutions won’t be following their lead. With the recent credit crunch and economic downturn banks are going to be doing all they can to reduce their risks, including distancing themselves from anything that would lose money if it couldn’t operate under environmental protection law.

So in essence, these 3 banks have just imposed emission caps on all new coal plants. And I’d be willing to bet a fair bit of money that the government won’t be too far behind in passing emission capping legislation as well. If three massive financial companies are betting on it, it’s a pretty safe assumption it will be coming soon.

Info from Reuters

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