Investment Banks Begin Counting Carbon in New Power Plant Costs

Leading investment banks have begun to incorporate estimates for the cost of reducing carbon dioxide emissions into the cost of building new power plant projects, a move that would increase the competitiveness of new nuclear plants.

According to this approach, banks would impose additional costs on plants that produce carbon dioxide, such as those powered by fossil fuels. The federal government does not impose a tax or other measure to account for the cost of emitting carbon dioxide, but the banks clearly believe measures to regulate greenhouse gases are imminent.

"We have decided, as have other banks, to start assessing the cost of carbon in our risk and underwriting processes as we evaluate the business models of utility sector companies. In the absence of federal legislation, we estimate the cost will fall between $20 to $40 per ton of carbon dioxide," Ken Lewis, Bank of America's chairman and CEO, told attendees at a Feb. 12 energy conference in North Carolina.

The imposition of these costs would increase the cost of coal-fired power plants, but Lewis said that he believed that coal plants would remain in use for years to come. Nuclear power plants would not be affected by such a charge because they do not produce carbon dioxide while generating electricity.

Earlier this month, investment banks Citigroup, JPMorgan Chase and Morgan Stanley announced they will begin factoring the cost of greenhouse gas emissions into new power plant proposals.

The announcement was part of a partnership with energy companies, including DTE Energy, NRG Energy, PSEG and Southern Co., to create an approach for evaluating and addressing carbon risk in financing power projects.

This partnership, which also included Environmental Defense and Natural Resources Defense Council, released guidelines for dealing with the uncertainties surrounding regional and national climate change policy.