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Investment banks lobby the U.S. government for carbon emissions trading
SNL Financial
September 28, 2007

By Rosy Lum

Big names in banking are joining forces in an effort to lobby the U.S. government to engage in lightly regulated emissions trading. It is a system that, if adopted, will drastically change the landscape both for bank business and policymakers.


Under the umbrella of International Carbon Investors and Services, an association primarily comprising international investment banks such as Credit Suisse Group, Citigroup Inc., Morgan Stanley, Deutsche Bank AG and Lehman Brothers Holdings Inc., financial institutions are banding together in what amounts to a show that bespeaks a desire for the U.S. government to acknowledge a trading market it has largely marginalized.


“From the banks’ standpoint, they see they need a clear regulatory framework to help them drive investments in cleaner technologies,” Lisa Jacobson, executive director for the Business Council for Sustainable Energy, told SNL Energy. The Business Council for Sustainable Energy is an energy and environmental policy advocacy group that has collaborated with INCIS.


“It just shows growing segments of the business community that are paying attention and are looking at what they need to be able to respond to — the call by their customers, by their investors, and by their governments to reduce emissions,” she said.

The banks’ concerted, collective effort may prove to be the impetus that pushes the U.S. into carbon trading, a practice that could single-handedly open up a huge new commodities market.  “An entire new asset class is being created in carbon,” Kate Hampton, president of the board of INCIS, told SNL Energy. “This is creating new areas of business in the financial sector. There’s the major investment banks that are growing this business. Integrating carbon signals into existing banking practices — whether it’s corporate finance or project finance — carbon is now an important element in those decisions.”

Hampton spent the last week of September on Capitol Hill outlining the association’s experience. International Carbon Investors and Services grew out of European Carbon Investors and Services, a group originally formed to lobby the European Commission to enforce Kyoto targets, an effort banks deemed necessary considering
what was at stake for them financially.

“All of the companies in that group are putting a huge amount of capital at risk in delivering emissions reductions,” said Hampton. “So because we’re putting capital into emissions reductions we want to make sure that governments honor their commitments. These are policy-driven markets; these markets wouldn’t exist unless there was government regulation.”

The inextricable link between emissions trading and policy — compounded by the fact that the federal government has shown little enthusiasm for participation in carbon trading — has distorted power markets in the country. Failure to implement cap-and-trade regulations allows companies to invest in conventional, fossil fuel-intensive energies, which are costly to revamp and retrofit to meet new environmental standards.

“What we want to encourage legislators to do is to provide longterm visibility on carbon as soon as possible, so that all the new nvestments that are happening in new power plants in the next 10 or 15 years will consider carbon in those decisions and will lock in much cleaner generation going forward,” Hampton said. “[It’s] a key
issue for banks — we’re advising clients on a daily basis about future investments, and given policy uncertainty in the United States, it makes that decision-making very difficult.”

But with the banks converging on Washington in the form of the INCIS, all that may be on the verge of changing.

“I think that will be a very powerful segment of industries to hear from in this context and having them have a more active and proactive approach on the international as well as the U.S. domestic development of climate change policy is very, very important and valuable,” Jacobson said. “We wholeheartedly welcome it.”


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