Wall Street tightens investment in coal polluters…
An article in the Wall Street Journal reports that three major Wall Street banks (Citigroup, JP Morgan, and Morgan Stanley) are now requiring energy companies seeking financing to prove that their projects would still be profitable under a cap-and-trade system that is predicted by the banks to be imposed within the next few years.
This news is important for a number of reasons. First, because Wall Street banks have so much at-stake in the financing of energy projects, they pay extremely close attention to the winds of policy change in Washington. If they believe CO2 regulations are on the way, they are most likely correct. Second, if the cap-and-trade system is put in place, it will, as we have discussed in a series of earlier posts, take into account (in whole, hopefully, but at least in part) of the externality of air pollution that exists in the burning of fossil fuels. By charging utilities a financial penalty for excess CO2 emissions, the cost borne by society for those emissions will be internalized into the cost of that energy’s production. In theory this should make renewable forms of energy more competitive in the market.
A common theme that should be evident in our postings here is the importance of renewable energy becoming a financially viable alternative to fossil fuels. Critics contend that this is only possible by subsidizing the renewable sources so that they are then artificially competitive with fossil fuels. However, we would argue that a better way to frame the situation is to say that by imposing financial penalties on CO2 polluters we are instead reducing the current subsidy that society pays the traditional energy companies with our breathing of unclean air and the acceleration of global climate change which allows them to sell their product at an artificially depressed price.
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