A very interesting news item popped up on my radar this week. A consortium of major investment banks have banded together to develop “The Carbon Principles.”

According to a press release from Citigroup, the carbon principles are “…climate change guidelines for advisors and lenders to power companies in the United States. These Principles are the result of a nine-month intensive effort to create an approach to evaluating and addressing carbon risks in the financing of electric power projects.”

The principles were created in consultation with major players in the banking (Morgan Stanley and JP Morgan), energy (AEP, NRG, PSEG and others) and advocacy (Environmental Defense and Natural Resources Defense Council) industries.

These investment banks are signaling the beginning of a new era in energy project finance. The Carbon Principles are an acknowledgment that the future holds considerably higher costs for coal projects. As lenders, these institutions are taking a pro-active stance in defining the financial risks related to coal projects at a time when carbon taxes may be just around the corner.

The issue of financial risks related to coal projects has been addressed before. Last September, New York Attorney General Andrew Cuomo subpoenaed five energy companies to determine the level of disclosure that those companies have made to their investors with respect to the future financial risks of operating coal-fired power plants.

The subpoenaed companies are different from those involved in the carbon principles effort. And I have yet to hear of any action resulting from the subpoenas.