Who's Funding Global Warming?

Wearing hats shaped like smokestacks and carrying signs that said, "Coal Investments Cook the Climate," a group known as Billionaires for Coal raised awareness last week about the plans by TXU, a Dallas-based utility company, to build 11-new pulverized coal-fired power plants in Texas.

The activists delivered suitcases of coal, but the recipient of their gift was not TXU and they were a long way from Texas. Instead, their action took place in New York's financial district where they visited the headquarters of Merrill Lynch -- a company that is putting coal and profits above human health and climate change.

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.

It is widely known among scientists and regulators that coal-fired power plants are the most polluting form of electricity and right now, the world needs every opportunity it can to move away from the production of more greenhouse gas (GHG) emissions.

Some say the impetus is on the government to regulate GHG emissions; others put the responsibility on utility companies. But organizations like Rainforest Action Network (RAN) believe that banks that fund polluting projects like TXU also need to be held accountable.

The recent action by Billionaires for Coal in New York begs the question: What is the role of the global finance industry when it comes to climate change? It also highlights the ripple effect of global warming -- more coal plants in Texas will be everyone's problem -- including Wall Street's.

Banking on dirty money

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.

"This is the U.S. and its insanity at its very greatest. We are facing a climate crisis," said Brianna Cayo Cotter of RAN. "We are standing at the edge of a cliff and this is the sort of project that just pushes us over."

TXU seems to be striving to become known as the largest corporate greenhouse gas emitter in the U.S. With mounting political pressure in the United States and growing international action, what kinds of institutions want to be associated with them?

So far, the only three officially committed to the project are Citigroup, Merrill Lynch, and Morgan Stanley, and they are known as "lead arrangers," in charge of helping TXU get the $11 billion in financing.

RAN has sent letters to 56 global banks -- across the United States, Canada, Europe, and even in Japan and Brazil -- urging banks to reject requests to finance the project.

In the Netherlands four banks were being approached for financing despite the fact that TXU's project will produce six times the pledged CO2 reductions of their country -- negating the efforts (six times over) of the Dutch people to limit their contributions to climate change.

According to Cotter, at least 18 banks have already responded that they have no interest in financing the plan, and not one has affirmed that they will. So far there are also three major banks on public record saying they are not on board -- Goldman Sachs, JP Morgan Chase and Bank of Montreal. Wachovia and Scotiabank are among those still on the fence.

Many banks make it their policy not to comment on clients and so have not responded. However, a little reading between the lines sometimes can provide a sense of their position.

The London-based HSBC became the world's first bank in 2005 to commit to becoming carbon neutral.

While they said the could not comment on TXU, they did say, "We regard climate change as the single largest environmental challenge facing the world this century and have undertaken a number of initiatives to ensure we play our role in combating it," wrote Michael Goeghegan, Group Chief Executive of HSBC.

HSBC reports that it is committed to complying with the Kyoto Protocol and the EU Emissions Trading Scheme. It also has a Carbon Finance Strategy to assist in "a transition to financing low carbon and energy efficient projects," Goeghegan wrote. "We believe financial institutions will play an important role in the shift to cleaner energy and aspire to be among the leading financial institutions of a lower carbon economy."

Bank of America has taken things a step further by cutting emissions from the projects they fund. According to Dana Clark, who heads RAN's global finance campaign, "At this point Bank of America has made the strongest commitment to combating climate change." The bank states that they have pledged to "realize a 7 percent reduction in indirect emissions ... within our energy and utility portfolio."

Merrill Lynch is on the opposite end of the spectrum, with no environmental policy, and Citigroup has gone from being a leader in the industry to having to play catch up, said Clark.

In 2004, Clark said, Citigroup had a pioneering environmental policy that covered forests, biodiversity, and climate issues, but these days, she said, their commitments are rather minimal.

"They are committed to reducing their own footprint," said Clark. "That means the direct emissions from their buildings -- turning off lights, recycling -- all well and good but they are not committed to looking at the climate impacts of their investments, loans, and advisory services."

Citigroup doesn't see helping to fund TXU's project to be in contradiction to the bank's environmental policy as long as the utility company gets all their necessary permits from the state.

"Their approach is thinking within the box," said Clark. "They've made commitments to reduce GHG emissions from their operations, and yet they are turning around and funding a project that will emit 78 million tons of CO2 every year for the next 50 years -- that wipes out all the good things they are trying to do."

In the last few years, many banks in the global finance industry have begun to develop better environmental and social policies. "In the beginning, environmental policies were a lot about precluding banks from financing dirty oil pipelines or not being able to invest in illegal logging in Indonesia, which continue to be good things," said Cotter. "But the evolving notion of what a strong environmental policy is has changed."

That change has been the result of a surge in public awareness about the dangers of climate changed coupled with reports from leading experts, such as Jim Hansen of NASA and Sir Nicholas Stern of the United Kingdom, who have both concluded that decisive action needs to take place immediatley to change our carbon consumption within the next decade.

"This is a time when there is an imperative on the global finance sector to make a decision -- are they going to fund the future, or are they going to support and profit from climate destructive activities?" asked Clark. "It is time they put in place policies to reduce the carbon intensity of their investments and put their resources toward more sustainable energy sources."

Texas' problem is the world's problem

According to the Department of Energy, 154 new coal plants are in the works to be online by 2030 in the United States. Not surprisingly, Texas is leading the way, with 19 currently proposed.

If TXU is able to successfully build its 11 plants in Texas, it is hoping to export its model and build an additional 13 coal-fired plants in other states, taking its emissions up to 92 million tons of C02 a year, and making it the largest corporate GHG emitter in the United States -- no small feat for a country that leads the world in emissions.

"This is a serious issue -- the polar bears are losing their homes, Inuit women can't breast feed. All over the world the effects of climate change are being felt in very serious ways, and for banks to consider a project that would give us 78 million tons of GHG emissions every year is crazy," said Cotter.

The construction of new coal-fired power plants right now would lock residents into another 50 years of dirty energy at a time when the world is in agreement that we need to move toward cleaner, more sustainable energy choices.

"If we stop these plants from being built it will be even harder to get the other plants built under Bush/Cheney's 'clean coal' energy plan," said Cotter. "If we can stop a high-profile project early on in the game, then it will have an influence on whether this country goes down a path of no return on climate change by building more plants or whether we start acting sensibly and increase our efficiency and reduce our emissions."

The true cost of the plants will not just be the burden of global banks. There is an estimated $6 billion a year in externality costs associated with the TXU project. The GHG emissions will affect more that just Texas, as climate change is a problem shared globally, with the poorest people the most at risk first. Externality costs also take into consideration the health impacts of burning coal, including increased rates of asthma and premature deaths.

The Stern Review on the economics of climate change, released this fall, came to decisive conclusions about what global warming may cost financially. The United Kingdom's Guardian summarized his findings and concluded that

  • Unabated climate change could cost the world at least 5 percent of GDP each year; if more dramatic predictions come to pass, the cost could be more than 20 percent of GDP.

  • The cost of reducing emissions could be limited to around 1 percent of global GDP; people could be charged more for carbon-intensive goods.

  • Each tonne of CO2 we emit causes damages worth at least $85, but emissions can be cut at a cost of less than $25 a tonne.

  • Shifting the world onto a low-carbon path could eventually benefit the economy by $2.5 trillion a year.

  • By 2050, markets for low-carbon technologies could be worth at least $500 billion.

  • What we do now can have only a limited effect on the climate over the next 40 or 50 years, but what we do in the next 10-20 years can have a profound effect on the climate in the second half of this century.

The Guardian concluded that "the benefits of strong, early action considerably outweigh the costs." From an economic perspective, the only way to avoid disaster is to act immediately -- something it seems world financial institutions would be keen to do.

But so far, most banks have been extremely shortsighted.

"The problem that I have with people saying that we have abundant coal and it's cheap, so we should burn it -- is that it is not cheap," said Clark. "There are massive costs that are being externalized to the rest of society and the global environment that aren't getting factored into the analysis."

Texans seem well aware of the repercussions of the 11 new plants, so much so that virtually everyone besides TXU and the governor are opposing it.

The mayors of Dallas, Fort Worth and Houston are against the project, along with over 30 municipalities representing nearly 7 million people. Even the business community is concerned. Over 20 prominent business leaders in the Dallas area have formed Texas Business for Clean Air.

The permitting process for TXU's project was fast-tracked by an executive order from Gov. Perry, who received sizable contributions from the coal industry, including TXU in his recent reelection bid. "The permitting process was cut down from 1.5 years to six months and drastically limits the public's ability to have a voice in the process," Clark said.

"There is no carbon regulation in Texas or at the federal level," she added. "So it is deemed OK that these plants will emit 78 million tons of CO2 a year. Everyone knows the handwriting is on the wall, and once there is a new administration, things will change. So seeing that, this fast-tracking is a push to bring these plants online before there is meaningful legislation to curb GHG emissions."

TXU may have the political clout to get the permits it needs from the state, but without support from global banks it can't fund its polluting project. So groups like Billionaires for Coal and RAN will take to the streets and demand that financial institutions be responsible for the destruction they fund.

And really, the rest of us should start getting vocal as well. After all, we'll be paying for it, too.

"Our global climate affects every single one of us. Whether it does today, it definitely will tomorrow. There is a growing movement around the world to stop global warming and the United States has been at the back of the gang and has been holding things up," said Cotter.

"We have been stalemating and making global regulations next to impossible and this is a chance for U.S. citizens to stand up and say we don't agree with the direction our country is heading in terms of dirty energy, and we are going to take action to stop climate change and the United States' contributions to it."

To learn more about TXU or to take action, visit RAN or Environmental Defense.

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