BofA Joins Wall Street Banks Pricing CO2--et tu World Bank?

February 13, 2008

What a difference a week makes!On February 4, Reuters reported that Citigroup, JPMorgan Chase and Morgan Stanley had agreed to evaluate the “risks posed by carbon emissions when lending to power companies that seek to build coal-fired power plants.” Yesterday, in his keynote address at the 2008 Emerging Issues Forum, Bank of America CEO Ken Lewis announced that his company will price CO2 emissions when evaluating lending to the utility sector.Since the larger mainstream media hasn’t yet picked this up, I transcribed the key portion of his remarks from the recording on the Forum’s website. Lewis said:

Consider the following facts:• The utility sector is one of the largest contributors to greenhouse gas emissions.• The carbon impacts of new plant construction will be with us for many years• Regulation of greenhouse gas emissions is coming, but until it does, we need to make assumptions about what the cost of carbon will be.• There is a growing volume of research showing the needed actions and associated costs to slow, stop and reverse the growth of greenhouse gas emissions.With these facts in mind, we have decided ... to start assessing the cost of carbon in our risk and underwriting processes, as we evaluate the business models of utility companies. In the absence of federal legislation, we estimate the cost will fall between 20 to 40 dollars per ton of carbon dioxide.
If four of the biggest US banks can figure out how to price CO2 emissions, why won’t the World Bank?According to CGD senior fellow David Wheeler in The World Bank Can Lead the Way to Zero-Emissions Power, by making reasonable assumptions about the cost of CO2 in project-finance calculations, the World Bank would find that clean energy is cost-competitive with coal energy and thus "jumpstart the commercialization of clean technologies at a scale sufficient to challenge the dominance of fossil energy systems." He estimates that “the most environmentally benign option, a solar thermal technology, has cost parity with an efficient coal-fired design at a carbon dioxide charge of just $35.50/ton.”Don’t look now, renewable energy technology just got affordable.But, instead of taking the lead on this, the World Bank is falling behind. Wheeler pointed out in Red Light for The World Bank Group on Coal-Fired Power that the bank is still financing huge polluters, such as the Mundra coal-fired plant in India, and even exploiting the Clean Development Mechanism to get “green” financing for it.The World Bank’s approach is looking increasingly ridiculous in light of these recent announcements. Those of us working on CGD’s Confronting Climate Change Initiative applaud the Wall Street banks and hope that the World Bank will soon catch up.Update: A full transcript of Mr. Lewis' speech is now available on BofA's website.


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