Keeping It Private, Going Public: Assessing, Monitoring, And Disclosing The Global Warming Performance Of Project Finance
| Author | Julia Philpott |
| Position | Researches and consults on the policy and economic connections between climate, energy, and the capital markets |
| Pages | 10 |
Page 45
Many investment banks are beginning to pay attention to the environmental and social impacts of their project finance. On June 4, 2003, ten of the world's largest banking institutions entered into a watershed agreement to adopt a code of conduct for addressing environmental and social issues related to their financial activities. The voluntary code of conduct commits participating investment banks to finance only those infrastructure projects in emerging market and transition economies (hereinafter, "developing countries") in which developers can demonstrate, to the satisfaction of the bank, compliance with local environmental laws and social procedures.1The banks named this commitment the "Equator Principles."
The Equator Principles, however, do not provide guidance to bank analysts and project developers on how to address what is arguably the most profound environmental and social risk facing the world today: global warming. Unfortunately, adequate public policy and market incentives presently do not exist to compel the banking industry to assess, monitor, and report the greenhouse gas ("GHG") emissions associated with its flows of project finance in developing countries.2Even when bank analysts and project developers take leadership positions and consider the risk of global warming, their focus typically is on the risk that global warming poses to a single project or portfolio of projects, rather than the risk that project financing poses to the global environment.
Several questions emerge. Is it possible to assess quantitatively the global environmental quality of project finance? If such quantification is possible, then is it possible to monitor and report, in terms of absolute and relative GHG performance, on who in the banking industry is helping and who is hurting the global environment? If so, is it reasonable for the Equator Principles to implement a measurable standard for the global warming performance of its members' project finance? The answer to these questions is yes.
Among the Equator Banks, and within the banking industry more broadly, there are also questions about disclosing at the project versus corporate level, attributing carbon dioxide ("CO2") emissions to debt versus equity capital, estimating emissions for the life of a project versus year-by-year, and disclosing expansions, upgrades, and re-financing versus only new electricity generation capacity (i.e., "greenfield" projects). To date, there is no generally accepted framework providing guidance in response to these questions.3This gap is important. Before the Equator Banks can implement and comply with a standard for global warming performance, the banking industry needs a standardized, valid, and reliable approach for assessing, monitoring, and disclosing project finance-related GHG emissions.
This article develops an analytical framework called the Project Finance CO2 Discovery Framework in an attempt to advance dialogue about the need for greater transparency and accountability for the global warming performance of project finance. The article begins by outlining some of the reasons why a standardized framework is a good idea, the current situation in regards to the Equator Principles and global warming performance standards, and some of the challenges of developing and using a standardized framework. The next section provides a detailed example of how to apply the framework at the project level, using the electric power sector as an example. Following is a detailed example of how to apply the framework at the corporate level, describing what the information outputs look like and how they might be useful to analysts and policymakers. The article discusses some of the framework's limitations and political sensitivities and suggests some important areas in a future research agenda. The article concludes with the observation that the framework, because it helps reveal potential risks and opportunities concerning global environmental health, can help create and deliver value for those financial institutions demonstrating leadership in global environmental protection through their investment choices and project finance decisions.
Investment banks, asset managers, and project developers invest in, finance, and design large infrastructure projects-the factories, roads, and power plants that support economic activity. Once built, infrastructure can operate for many decades. Power plants, for instance, have rated lifetimes of 30 to 40 years; often, they have actual life spans lasting 60 to 70 years or more.4Because infrastructure lasts so long once built, one could argue that it is literally the physical foundation locking in long-Page 46term energy consumption patterns. A bank's investment and finance decisions, such as financing investment in either a new coal-fired power plant or a new natural gas-fired power plant, has local air quality and global warming implications that may persist downstream for generations. Yet, investment banks- such as the Equator Banks-asset managers, and project developers make their technology choices and financial decisions without sufficient assessment, transparency, and disclosure of- and ultimately public accountability for-global environmental health.
Today's investment banks, asset managers, and project developers will continue having influence over the world's GHG trajectory for generations to come. The Equator Banks' influence is a reflection of the sheer volume of investment and finance over which they have at least some, and often a significant, amount of control. In their research on the role of financial institutions in a globalizing world economy, Hildyard and Mansley note that "the combined assets of the world's 50 largest banks and financial companies account for 60 percent of the world's global capital."5London-based Dealogic, which produces statistics and analysis of the project finance market, estimates that 23 of the 25 banks that have signed on to the Equator Principles arranged in 2003 a total of $55.1 billion of project loans, that is, 75 percent of the $73.5 billion project loan market volume in 2003.6But while the Equator Banks and other financial actors exert influence over global environmental outcomes, the Equator Principles do not include a code of conduct toward the global environment.
Fortunately, the situation is not entirely bleak. Several banks are beginning to consider the global warming implications of their operational, and perhaps even more importantly, their financial activities (e.g., project finance). For instance, HSBC Holdings, headquartered in London, unveiled its carbon management plan on December 7, 2004 at the United Nations Framework Convention on Climate Change's ("UNFCCC") 10th Conference of the Parties. HSBC Group's carbon management plan commits the bank to "carbon neutrality" from its operations globally.7 Citigroup took an even more progressive step in beginning to consider the global environmental implications of its financial activities in addition to its operational activities. Citigroup announced at a press conference in early 2003 that the bank would move forward and report GHGs associated with its project finance portfolio for power plants in developing countries "despite that there is no standardized approach and that, to date, no other major bank reports [GHGs associated with project finance]."8In 2003, Citigroup reported that it did not finance investment in any new power plants. Citigroup, therefore, reported zero implied carbon for the year.
In its 2004 Corporate Citizenship Report, Citigroup reported the financing of one power plant, and estimated total implied carbon ranging from 2.7 million MtCO2 to 5.5 million MtCO2, depending on a 30-year or 60-year life of project. Citigroup allocated to itself a percentage of total implied carbon equivalent to the percentage of the debt debt it financed.9The report, however, provided no information on the project's location, size, technology type, and did not identify Citigroup's project financing percentage, the other financiers, or any of the operational assumptions necessary for such an assessment, as discussed below in Table 2. While a step in the right direction, Citigroup's reporting on the GHGs associated with it project finance portfolio lacks transparency and, ultimately, corporate accountability.
There are several reasons compelling the banking industry to begin taking environmental and social issues more seriously than before. Avoiding negative environmental and social impacts can be an effective means of reducing costs from controversial projects. Similarly, avoiding negative impacts reduces risk, the fear of litigation, and the global reach of liability concerns for themselves and their clients (e.g., project companies, private developers, and local governments). Some banks also hope to enhance their reputations as good corporate citizens. In an interview with the Financial Times about the changing corporate behaviors of the Equator Banks, Rachel Kyte, Director of Environmental and Social Development at the International Finance Corporation ("IFC"), the private lending arm of the World Bank Group, shared her own observations about this shift in corporate behavior:
- [T]hose banks (the Equator Banks) started seeing a competitive advantage. They could attract good risk businesses by managing these issues better and now some of the leading Equator Banks are using environmental and social corporate governance factors to assess their clients . . . and asking themselves if, based on the assessment results, they want to be a particular client's banker.10
Recent debates in developed countries about corporate governance have also influenced the banks, and have spawned a bevy of regulatory and voluntary codes of conduct in several countries. The most recent new corporate governance code of conduct in the United States is the 2002 Sarbanes-Oxley Act.11
The Act requires directors of U.S.-listed companies to maintain a system of controls that allows them to report accurately on material business and financial risks. While Sarbanes-Oxley does not define risk or materiality, it does open the door for analysts to consider to what extent disclosure provisions incorpo-Page 47rate the environmental and social impacts of a publicly traded company's financial activities.12Because investment banks can fall under the category of "publicly traded company," and their financial activities have implications for global environmental health, to assess, monitor, manage, and report the GHGs associated with project finance is a relevant activity for analysts.
Unfortunately, several challenges remain for those in the banking industry that might take leadership positions assessing, monitoring, disclosing, and, even more importantly, managing the global environmental quality of their financial activities:
The IFC is the private sector lending arm of the World Bank. It provides equity investment, loans, and guarantees for large infrastructure projects. The banking industry, export credit agencies, and other international financial institutions in the private sector traditionally have viewed the IFC's Safeguard Policies as the standard-bearer for doing business in developing countries. The IFC derives its global influence from being the world's largest source of debt and equity for investment banks doing business in developing countries.13The IFC does not have a specific global warming performance standard, it is vague in its use of the term "significant" when GHG accounting is required, and IFC policy does not address indirect emissions.14Ironically, some of the Equator Banks, such as Citibank and HSBC, appear to have stronger environmental and social performance standards than the IFC.
Exacerbating the IFC's lack of a performance standard for the private sector is the Intergovernmental Panel on Climate Change ("IPCC") stance on the private sector's role in global environmental policy. The IPCC is the primary source of scientific and technical expertise for parties to the UNFCCC and its Kyoto Protocol.15The IPCC's near exclusive focus on the activities of states, however, precludes it from giving sufficient attention to the power of private sector financiers and institutions to shape environmental outcomes.16While the IPCC has the potential to help private sector financiers understand the challenges global warming poses to financial markets, "the IPCC's framing of climate issues is geared for the information needs of international diplomacy rather than the needs of financiers and investors."17
Underlying insufficient IFC and IPCC leadership is the absence of a generally accepted assessment platform and a common set of reporting metrics for the banking industry. In April 2003, Citigroup consulted with non-governmental organization experts in the GHG accounting and reporting field to gain insight into "best practice" methodologies for assessing, monitoring, and disclosing GHG emissions. Citigroup affirmed that there is not, at present, a standard approach within the international banking industry for transparency and accountability for the global warming performance of project finance.18
Additional research supports Citigroup's findings. Researchers in business and government so far conclude there is no known classification of project finance flows that distinguishes between those that are environmentally sound and those that are environmentally damaging.19
The Project Finance CO2 Discovery Framework is a four- step process comprising standard methods in public policy and financial analysis. The model builds on the IPCC's GHG methodology, the World Bank Greenhouse Gas Assessment Handbook, and the methodology the Overseas Private Investment Corporation ("OPIC"), a branch of the U.S. government, uses to account for and report project level GHG emissions.21
The remainder of this article explores the application of the Project Finance CO2 Discovery Framework to financial deals for the construction of new power plant projects in the electric power sector. The electric power sector is a worthy example of how to apply the Project Finance CO2 Discovery Framework for several reasons. One reason is that the sector accounts for a significant percentage of the world's GHG emissions. In 2000, electricity generation accounted for 39 percent of global CO2 Page 48 emissions.22Another reason is that most energy analysts anticipate that world electricity demand will double between now and 2030, with most of the growth occurring in developing countries.23
BOX 1
The mainstream scientific community agrees, based on overwhelming evidence, that human-induced atmospheric changes to date already have made discernable impacts on the Earth's climate. Accordingly, 160+ of the world's nations have committed themselves in the UNFCCC to the long- term stabilization of atmospheric concentrations of GHG emissions at environmentally and economically safe levels.
When governments adopted the UNFCCC in 1992, they expected it to be a launching pad for stronger action in the future. By establishing an ongoing process of review, discussion, and information exchange, the Convention makes it possible to adopt additional commitments in response to changes in scientific understanding and in political will.
In 1997, some 10,000 delegates met in Kyoto, Japan and adopted a Protocol under which developed countries agreed to reduce their combined greenhouse gas emissions by at least five percent for the reporting period 2008-2012, compared to 1990 levels. Developing countries do not have obligatory commitments to limit emissions under the Kyoto Protocol. This reflects the UNFCCC principle of "common but differentiated responsibilities" and its acknowledgment that developed countries must take the lead in reducing GHG emissions.
The United Nations opened the Kyoto Protocol for signature on March 16, 1998. Although the United States signed the Protocol on November 12, 1998, the Clinton Administration did not send the treaty to the Senate for its advice and consent prior to ratification. President George W. Bush subsequently renounced it in March 2001. In October 2004, Russia ratified the Protocol, finally enabling it to enter into force in January 2005. The global market for CO2 emissions offsets is now officially established.
Projections suggest that over the next 30 years, developing countries will require about $2.4 trillion of investment and financing for the construction of new power plants.24Current trends holding forth, the majority of the investment and finance flows in developing countries likely will come from investors and financiers in developed countries. On that basis, it is important that the Equator Banks and other financial actors begin to not only publicly report on the global warming performance of their project finance portfolios, but also insert GHG criteria into their project design, due diligence and financial decisionmaking processes. For discussion purposes only, the framework's analysis focuses only on CO2 emissions, the primary GHG implicated in global warming. The framework's output is a set of four CO2 emissions measures (i.e., "implied carbon" indicators) at the project, corporate, and sector levels:
- - CO2 emissions per kilowatt- hour ("kWh") produced, expressed in gram units ("gCO2/kWh");
- Annual emissions, absolute and relative, expressed in metric ton units ("MtCO2/year");
- Life-of-project emissions, absolute and relative, expressed in metric ton units ("MtCO2/30 years");
- Potential project offsets from investment in less CO2-intensive technology, expressed in metric ton units ("MtCO2"); and
- Estimated monetary value of project offsets, expressed in U.S. dollars ("$").
In 1985, the Government of Pakistan, with the help of the World Bank Group, developed a long-term energy strategy that envisaged the involvement of private investors in the country's electricity generation.25The objective was to meet the increasing demand for power in Pakistan "in the most efficient and effective way to achieve the levels of growth" the Pakistani government had set for its economy.26One year later, the development of the Hub Power Project began.
In 1991, the Hub Power Company, LLC ("Hubco") incorporated in Pakistan as a limited liability company responsible for implementing the project. The deal reached financial closure (i.e., a signed financial agreement) in 1995 and was to construct a 1,292 megawatt ("MW"), diesel-fired electricity generation facility located near the Hub River in Balochistan, about 40 kilometers north-west of Karachi. According to Hubco, the Hub Page 49 power plant is "one of the largest private power projects in the newly industrialized world."27Hubco designed the plant to meet the World Bank's environmental requirements. The company characterizes the project as one that "sets the standards for the formulation of a private power framework in Pakistan; [it] has elicited numerous responses from international investors."28
BOX 2
Dealogic's projectwareTM database29
Dealogic's commercial database, ProjectWare,- secures finance and investment data directly from commercial banks, investment houses, and regional and multilateral development banks. These institutions voluntarily report to Dealogic, based in London, on financial transactions in which they play a banking role. ProjectWare- houses data on over 9,000 project finance deals from around the world.
ProjectWare- provides details investment and project finance deals. It identifies the financing roles played by the institutions involved in the deal. It includes information on debt and equity capital, and bank loans, foreign direct investment, corporate finance, and portfolio capital/institutional investment. ProjectWare- also includes information on whether there is involvement by regional development banks, multilateral development banks, and local investors.
ProjectWare- does not correct monetary values for inflation or adjust them to reflect any base-year currency values. Consequently, the figures presented in this article are unadjusted for inflation or currency values. Dealogic calculates investment and project finance amounts using the U.S. dollar value of the investment at the time they enter it into the database. In the case of foreign currency-denominated projects, Dealogic converts these to U.S. dollar equivalents based on exchange rates published in the Financial Times.
Due to variations in project scale between different energy resources, ProjectWare- is best suited to covering larger power plants based on fossil fuels, hydropower, and geothermal resources; it is less suited to covering smaller-scale renewable energy-based power plants. Based on World Bank estimates of project financing for new power plants, ProjectWare- likely captures approximately 25 percent of all project financing for new power plants in developing countries.
Of the principal bankers, two had signed on to the Equator Principles as of early April 2005: Citibank and Standard Chartered Bank.
The first step in the Project Finance CO2 Discovery Framework is to assess emissions. The required technical data for CO2 assessment for the Hub Electric Power Project resides in the public domain on Hubco's website.30According to the Greenhouse Gas Assessment Handbook,31an analyst can define the boundaries of project analysis "to include on-site activities only, while in other cases, boundaries may be drawn to include upstream or downstream activities as well"32and "locally derived carbon emissions factors . . . should be used if available."33On that basis, and consistent with IPCC methodology, the boundaries for this assessment are drawn to assess and make explicit the Hub Electric Power project's direct and indirect CO2 emissions, expressed as CO2/kWh. The first factor includes only those direct CO2 emissions associated with the generation of electricity using diesel as the fuel. The second factor is the life cycle (i.e., "cradle-to-grave") CO2 emissions factor. 34A life cycle assessment's goal is to "give a comprehensive picture of the environmental impacts of products, by taking into accounting all the significant 'upstream' and 'downstream' impacts."35
The product of multiplying the average heat rate for Pakistan (1988 data) by the carbon content of diesel is the factor for direct CO2 emissions. 36Heat rate is a measure of a power plant's thermal efficiency; that is, how efficient the power plant is at converting fuel to electricity. British thermal units ("Btu") per kilowatt-hour ("kWh") express the heat rate.37The second factor is the life cycle (i.e., "cradle-to-grave") CO2 emissions factor, expressed in grams as gCO2/kWh. 38This article uses average life-cycle emissions factors for Western Europe, expressed as gCO2/kWh produced: coal is 1,340; diesel is 855; natural gas is 605; and wind power is 36.39
According to the World Bank's methodology, the average power plant operates at 85 percent of its installed capacity and the annual operating capacity of 8,760 hours per year. Hubco reports on its website that the Hub Power Project operates at 85.9 percent of its installed capacity.40Consistent with the World Bank's guidance that locally generated data is preferable to averages, the author used Hubco's data. To be consistent with CO2 offset prices in metric ton units, this article converts grams to metric tons ("MtCO2") by dividing grams by 1,000,000. For each power plant project, the formula is the same:
Where:
A is installed capacity in megawatts ("MWs") x 1,000 for conversion to kilowatts ("kWs");
B is annual operating capacity, i.e., a constant at 8,760 hours per year;
C is the capacity factor, assumes 85 percent base-load capacity actually used;
D is the maximum feasible electricity produced in one year ("kWh/year");
E is country-specific heat rate, expressed as ("Btu/kWh"), by fuel type;
F is the standard carbon co-efficient by fuel, i.e., the carbon content of fuel ("gCO2/btu");
G is the CO2 emissions factor ("gCO2/kWh"), by fuel type;
H is feasible CO2 emissions annually, divided by 1,000,000 for conversion to Mt; and
I is feasible CO2 emissions cumulatively for life-of- project, defined as 30 years.
The result of running these equations is a profile of the Hub Power Project's CO2 emissions (See Table 2). According to the framework's data output, the Hub Power Project has the potential to release into the atmosphere 6,644,744 MtCO2 each year based on an emissions factor of 683 gCO2/kWh. Assuming the power plant continues operating for 30-years, it has the potential to release into the atmosphere 199,342,306 MtCO2 over its Page 50 operating life. Based on life cycle factor of 855 gCO2/kWh, the author estimates that the Hub Power Project has the potential to release into the atmosphere 8,312,390 MtCO2 each year. Assuming the power plant continues operating for 30 years, it has the potential to release into the atmosphere 249,371,693 MtCO2 over its operating life. Step 2: Compare Environmental Benefits
The second step in the Project Finance CO2 Discovery Framework is to evaluate the increase, reduction, or avoidance of CO2 emissions from alternative technology (e.g., coal, natural gas, and wind power) compared against the reference case (i.e., diesel). The global warming literature refers to this aspect of the analysis as a "twinning" approach; analysts use it to estimate potential "project-based offsets" (CO2 emissions permits) under the UNFCCC and Kyoto Protocol. According to the World Bank,43this approach is similar to its "with or without" project analysis approach.44The approach is a standard comparative project analysis comprising a reference project (e.g., a diesel-fired power plant) and its emissions against an alternative project (e.g., a natural gas-fired power plant) and its emissions.
The results in Table 3 reflect that displacing diesel with coal as the fuel source for electricity generation does not yield any CO2 offsets; in fact, emissions increase by 7,099,574 MtCO2 annually and 212,987,225 MtCO2 over the project's 30-year operating life. By contrast, a switch from diesel to natural gas yields 2,545,257 MtCO2 offsets each year, and 76,357,710 MtCO2 offsets over 30 years. Similarly, displacing diesel with wind power yields 6,294,748 MtCO2 offsets per year and 188,842,445MtCO2 over the power plant's 30-year operating life.
The third step in the Project Finance CO2 Discovery Framework is to estimate the potential monetary value of CO2 offsets under different emissions market scenarios. The goal is to translate environmental benefits, in the form of CO2 offsets, into financial terms. From this information, analysts can determine if a project merits a more detailed, robust analysis. The following example relied on an Excel spreadsheet and a standard present value ("P.V.") method. Investment banks would want to consider the market value of CO2 emissions that could fall below a coal baseline, for instance, because that potential value could be included in the project's revenue stream. The following calculations use an emissions market scenario that includes a starting CO2 permit price, quoted by the European Climate Exchange, is currently $22.63 for one MtCO2. 46The example in
Table 4 focuses on the monetary value of CO2 offsets from displacing diesel with natural gas and wind power under different emissions market scenarios. Starting in 2005 through 2035, the scenario reflects a starting CO2 permit price of $22.63 for one MtCO2 in 2005, assumes a 30-year life-of-project, and uses growth rates (i.e., discount factor) of two percent for 2005 and five percent for 2035. The assumption on ceiling price at a two percent discount factor is $33.63 per MtCO2, occurring in year 2024. The assumption on ceiling price at a five percent discount factor is $60.04 per MtCO2, occurring in year 2024. 47
The result is a set of indicators for the present value of the potential CO2 offsets from displacing diesel with natural gas or wind power for a 30-year project. Consider the monetary value of displacing diesel with natural gas (See Appendix B). A two percent discount factor could transform 76,357,710 MtCO2 of
| TABLE 2 | EXCEL SPREADSHEET STRUCTURE: ADESKTOP ASSESSMENT OF "IMPLIED CARBON"41 | ||||||||
| Operational Characteristis | Calculation 1. Electricity Produced in One Year | Calculation 2. CO2 Emissions Factors | Calculation 3. Feasible CO2 Emissions | ||||||
| A | B | C | D | E | F | G | H | I | |
| Installed Capacity MW*1,000(kWs) | Feasible Operating Hours (per year) | Baseload Capacity (%) | Max.Feasible Electricity Produced (kWh/Year) | Heat Rate by Fuel (Btu/kWh) | Carbon Co-Efficient by Fuel (gCO2/btu) | CO2 Emissions Factor (gCO2/kWh) | Max.Annual Emissions (MtCO2/Year) | Max. Life-of-Project Emissions (MtCO2) | |
| 1,292 | 8,760 | 85.9% | D=A*B*C | G=E*F | H=D*G/1million | I=H*30 Years | |||
| Deisel | 1,292,000 | 8,760 | 85.9% | 9,722,093,280 | 9,337 | 0.0732 | *683 | **6,644,744 | ***199,342,306 |
*The life-cycle emissions factor for diesel is 855 gCO2/kWh.xlii **Using a life cycle emissions factor, maximum annual emissions is 8,312,390 MtCO2.
***Using a life cycle emissions factor, maximum emissions is 249,371,693 MtCO2 over 30 years. Page 51
| TABLE 3 | REFERENCE VS. ALTERNATIVES: COMPARING OFFSETS FROM FUEL SWITCHING45 What would happen to total CO2 emissions were a 1,292 MW diesel-fired power plant switched to coal, natural gas, or wind power to generate electricity? | |||||
| From | To | *CO2-Intensity of Electricity Production (gCO2/kWh) | Annual Emissions (MtCO2/Year) | Annual Offsets (MtCO2/Year) | Life-of-Project Emissions (MtCO2/30 Years) | Life-of-Project Offsets (MtCO2/30 Years) |
| Diesel | 683 | 6,644,744 | N/A | 199,342,306 | N/A | |
| Coal | 1,414 | 13,744,318 | -7,099,574 | 412,329,531 | -212,987,225 | |
| Natural Gas | 422 | 4,099,487 | 2,545,257 | 122,984,606 | 76,357,710 | |
| Wind | 36 | 349,995 | 6,294,748 | 10,499,861 | 188,842,445 | |
| TABLE 4 | COMPARATIVE GLOBAL ENVIRONMENTAL BENEFITS: Estimated Monetary Value of CO2 Offsets from Fuel Switching at Hub Power Project48 | |||||
| From | To | *CO2 Intensity (gCO2/kWh) | Life-of-Project Emissions (MtCO2/30 Years) | Fuel Switching Offsets (MtCO2/30 Years) | Offsets Present Value @ 2% ($/30 Years) | Offsets Present Value @ 5% ($/30 Years) |
| Diesel | 683 | 199,342,306 | N/A | N/AN/A | N/A | |
| Natural Gas | 422 | 122,984,606 | 76,357,710 | $2,283,391,705 | $3,528,077,292 | |
| Wind | 36 | 10,499,861 | 188,842,445 | $5,647,121,437 | $8,725,389,020 | |
| *Source Electric Power Research Institute, 1997 | ||||||
offsets over thirty years into a total of $2.2 billion in project revenue. Likewise, a five percent discount factor could transform the same 76,357,710 MtCO2 of offsets into $3.5 billion in project revenue over the same 30-year period. For wind power, the monetary values of offsets totaling 188,842,440 MtCO2 over a 30-year period, estimated at two and five percent, are $5.6 billion and $8.7 billion, respectively (See Appendix C). Step 4: Transform Data into Information
The fourth step in the Project Finance CO2 Discovery Framework is to transform data into information. As business scholar and management pragmatist Peter Drucker asserts in Forbes, "information is the interpreted meaning and significance of data."49 In keeping with Drucker's assertion, the goal is to explore CO2 offset data and give project companies, financiers, policymakers, and other stakeholders the chance to understand and communicate jointly the potential environmental and financial risks and opportunities in the face of uncertainties. The Project Finance CO2 Discovery Framework makes the following contributions to the practice of assessing, monitoring, and disclosing the GHG implications of investment and project finance in the electric power sector:
- - Quantifies absolute GHG performance;
- Compares relative GHG performance;
- Analyzes GHG performance of reference vs. alternative projects;
- Translates global environmental benefits, in the form of CO2 offsets, into financial terms; and
- Provides reporting metrics and structure.
With project level data gleaned from the Dealogic- database, the following section explores the framework's application at the corporate /portfolio level, relying on seven financiers as examples for discussion purposes only. The seven financiers were involved in investment fund financing the construction of 40 new plants in developing countries that reached financial closure between the years 1994 and 2001. The forty projects in this example spanned seven countries, totaling $23.4 billion in project finance, representing 27,650 MWs of new electricity generation capacity using coal, diesel, and natural gas.50These seven financiers are, in descending order from largest to smallest amount of investment financed within this group of forty projects, Sumitomo, WestLB, Mizuho, BOT-Mitsubishi, BNP Paribas, Citigroup, and Isveimer. Step 1: Assess Emissions
Using the same method described in Table 2, and aggregating project level data to developer financier portfolios, the 40 power plant projects collectively have the potential to release into the atmosphere 408.2 million MtCO2 each year; total implied carbon over 30 years is 12.2 billion MtCO2. Important Page 52
| TABLE 5 | GLOBALWARMING CHARACTERISTICS OF $2.4 BILLION OF FINANCIAL PRODUCTS AND SERVICES (1994-2001)32 | |||
| *Financiers | Portfolio Average CO2 Intensity (gCO2/kWh) | Total Annual Portfolio Emissions (MtCO2) | Adj. Annual Portfolio Emissions (MtCO2) | Adj.30-Year Portfolio Emissions (MtCO2) |
| 1. Sumitomo Bank (Japan) | 840 | 62,845,780 | 9,034,941 | 271,048,217 |
| 2. West LB (Germany) | 426 | 1,425,868 | 1,425,868 | 42,776,048 |
| 3. Mizuho (Japan) | 804 | 112,089,669 | 10,701,260 | 321,037,786 |
| 4. BOT-Mitsubishi (Japan) | 772 | 120,458,177 | 8,359,485 | 250,784,559 |
| 5. BNP-Paribas (France) | 741 | 69,845,766 | 5,911,301 | 177,339,022 |
| 6. Citigroup (United States) | 637 | 36,988,420 | 2,686,984 | 80,609,527 |
| 7. Isveimer (Italy) | 1.018 | 4,549,175 | 4,549,175 | 136,475,244 |
| Totals | 408,202,855 | 42,669,014 | 1,280,070,403 | |
Source: Underlying data on file with author and deried from the Dealogic- database. *Financiers listed in descending order from largest to small volume of investment and financing provided.
to note is that each project finance deal had multiple financiers, whose financing is not necessarily captured in this example estimate. For instance, while project financing totals $23.4 billion, the seven financiers provided approximately ten percent, or $2.4 billion in project finance. Adjusting for this, estimates of implied carbon reflect each bank's actual proportional (i.e., pro rata) contribution of project financing. Annually, the forty power plants have the potential to release 42.6 million MtCO2 (See Table 5). Over a thirty-year operating life, the power plants have the collective potential to release into the atmosphere 1.2 billion MtCO2. Page 52
Analysts can apply the framework to not only a single financier, but also to multiple partners and competitors. The information required to develop this chart is the same information used to put together the original project-specific assessment. By properly analyzing the chart for each financier's relative position, one gains invaluable intelligence quickly and easily about strategies and priorities.
Using the framework to estimate the average portfolio CO2 intensity, expressed as CO2/kWh, values range from 426 to 1,018. Indexing in the example above represents the distribution of global warming corporate/portfolio performance indicators of different financiers, revealing their positions on a common scale. For global warming performance, zero represents the least "CO2 intensity" of electricity production and 100 represents the most CO2-intensive electricity production. The result is a series of Index Values.53
The example in Table 6 suggests that WestLB?s project finance portfolio, for instance, is the least CO2-intensive within this group, while Isveimer?s project finance portfolio is the most CO2-intensive.54
In order to estimate the potential monetary value of less CO2-intensive portfolios, the framework adjusts the carbon coefficient for each project in a corporate portfolio to be the next least CO2-intensive technology. The goal is to quantify potential CO2 offsets from less CO2-intensive technology for each project and estimate potential monetary value for each portfolio. For instance, a coal-fired power plant project becomes a diesel-fired power plant project while a diesel-fired plant becomes a natural gasfired plant. Natural gas-fired power plants become wind power projects. Wind power projects remain the same. Average project finance CO2-intensity for each portfolio, expressed as gCO2/kWh, adjusts accordingly.55
The result of applying the Project Finance CO2 Discovery Framework is a baseline of absolute and relative global warm-
| TABLE 6 | COMPARATIVE GLOBALWARMING PERFORMANCE OF SELECTED CORPORATE FINANCIERS: $2.4 BILLION IN FINANCIAL PRODUCTS AND SERVICES | |
| Financier | *Actual Value | **Index Value |
| 1.Sumitomo (Japan) | 840 | 70 |
| 2. WestLB (Germany) | 426 | 0 |
| 3. Mizuho (Japan) | 804 | 64 |
| 4. BOT-Mitsubishi (Japan) | 772 | 58 |
| 5. BNP Paribas (France) | 741 | 53 |
| 6. Citigroup (United States) | 637 | 36 |
| 7. Isveimer (Italy) | 1.018 | 100 |
| *Actual Value = CO2/kWh in Table 5 **Index Value = Actual Value minus Minimum Value/Maximum Value minus Minimum Value multiplied by 100. Using Sumitomo as an example, the equation is: Sumitomo?s Index Value = [840? (426/1,018) ? (426 * 100)] | ||
Page 54
TABLE 7
| TABLE 7 | EXAMPLES OF MONETARY VALUE OF GLOBAL ENVIRONMENTAL BENEFITS IN A GLOBAL EMISSIONS MARKET: FUEL SWITCHING, OFFSETS, AND PRESENT VALUE56 | ||||
| *Financiers | **Average Portfolio CO2 Intensity: Nex Least CO2-Intensive Technology (gCO2/kWh) | Adj.Annual Portfolio Emissions (MtCO2) | Potential Annual CO2 Offsets Created by Fuel Switching (MtCO2) | Potential Monetary Value @ 2% ($/30 Years) | Potential Monetary Value @ 5% ($/30 Years) |
| 1.Sumitomo Bank (Japan) | 553 | 9,034,941 | 2,852,045 | $2,558,616,240 | $3,953,327,778 |
| 2.West LB (Germany) | 36 | 1,425,868 | 1,275,087 | $1,143,901,413 | $1,767,446,466 |
| 3. Mizuho (Japan) | 498 | 10,701,260 | 2,884,130 | $2,587,400,218 | $3,997,802,014 |
| 4. BOT-Mitsubishi (Japan) | 441 | 8,359,485 | 3,222,585 | $2,891,033,737 | $4,466,947,330 |
| 5. BNP-Paribas (France) | 415 | 5,911,301 | 3,094,092 | $2,775,760,564 | $4,288,838,308 |
| 6. Citigroup (United States) | 247 | 2,686,984 | 1,876,642 | $1,683,566,247 | $2,601,284,674 |
| 7. Isveimer (Italy) | 783 | 4,549,175 | 1,051,280 | $943,120,49 | $1,457,219,093 |
| Totals | $14,583,398,911 | $22,532,865,665 | |||
| Source:Underlying data on file with author and deried from the Dealogic? database. *Financiers listed in descending order from largest to small volume of investment and financing provided. | |||||
ing performance among financiers. For instance, the information above in Table 7 suggests that global warming performance and monetary performance vary significantly from bank to bank, despite operating in the same countries with the same opportunities, needs, and resource constraints. Analysts can update this information, essentially a snapshot of the existing situation, at regular intervals thereby assessing, monitoring, and disclosing performance changes and investment bank leadership that advances global climate health and protection.
One could argue that the Project Finance CO2 Discovery Framework provides only a static snapshot of a financial institution's global warming performance and ignores the historical trends of those institutions. This article now will address this concern.
An analytical tool that Hax and Majluf discuss in their 1983 research on methods for strategic planning is the "Share- Momentum Graph."57 The Share-Momentum Graph is a tool in business that, if adapted for a GHG assessment, could help an analyst better understand implicit and/or explicit strategies for dealing with GHG emissions. Adapting the graph to GHG assessment is to assess a financial institution's performance along two dimensions for a given time period, such as every five years. To adapt the graph, analysts plot the position of each financial institution in terms of two dimensions: 1) absolute portfolio emissions; and 2) relative project portfolio emissions.
Those financial institutions whose absolute emissions have grown at the same rate, say over a five-year period, as group emissions, fall on a diagonal line. Falling below the diagonal line are those institutions that increased absolute emissions over the same five-year period at a rate higher than the group, that is, they increased their share of group emissions over the same five-year period. Falling above the diagonal line are those financial institutions that decreased their share of group emissions over five years. The results of such a graphical representation can serve as a diagnostic tool for detecting trends in the CO2 growth-share positioning of financial institutions and their project finance portfolios. A growth-share graph can also help verify whether a historical trend is consistent with a financier's or group's intended strategic positioning.
Finally, this article underscores an important cautionary note for analysts when using the Project Finance CO2 Discovery Framework or a similar framework. Analysts should not use the framework without a simultaneous assessment of a project's local air pollution implications. Analysts easily can adapt the framework, by inserting the appropriate emissions factors for local air pollutants, in order to complete a simultaneous, comprehensive assessment of a project's overall air quality implications. The Project Finance CO2 Discovery Framework could skew the results away from a community's environmental and social goals. For instance, from a CO2 perspective, diesel may appear favorable to coal as a fuel source for generating electricity. From the perspective of local air pollution, diesel will likely increase particulates that can be carcinogenic and harmful to human health.
There are several issues that, while beyond the scope of this article to address, are worthy of dialogue in the proper international arenas, including the UNFCCC and Kyoto Protocol discussions and negotiations. For instance, by not addressing the Page 54 global warming implications of its private entities' investment and financial flows, does a developed country undermine its ability to meet UNFCCC commitments? What might such indicators imply for definitions of "additionality" under the Kyoto Protocol's Clean Development Mechanism?
The threshold concern is whether developed countries might use investment and finance conditions as a "back door" through the Kyoto Protocol to impose unofficial or extra-legal carbon caps on developing countries. Additional questions include: How might the negotiations of developing country commitments under future Kyoto Protocol budget periods account for the CO2 emissions associated with capital flows, particularly from private banks based in developed countries? What might a process look like to allocate fairly the responsibility for the environmental impacts of capital flows?
Finally, a significant challenge for Civil Society is finding and accessing sufficient, accurate, and reliable data. International financial institutions such as the IFC and governmental institutions such as the IPCC can and should play a pivotal role establishing a pipeline of data and information between those who have project level financial and operating data, and those in the public domain wishing to aggregate, analyze, and report such data. For the banking industry, greater transparency could create value. If databases were accurate, consistent, timely, and readily available, information on global warming performance could help an investment bank celebrate milestones on the path towards sustainability and could provide a useful means of sharing best practices with the wider community. External recognition is a way to publicize the results of a successful global environmental health initiative, potentially creating greater value.
The adoption of the Equator Principles, while a progressive milestone, may be insufficient to guarantee implementation of, and compliance with, a voluntary banking industry code of conduct for the global environment. Notwithstanding this lack of guarantee, the adoption of an industry-wide code of conduct on social and environmental issues, even if it does not yet include global warming, is still an important indication of progress.
Investment banks, asset managers, and project developers and financial actors present untapped potential to determine downstream environmental outcomes through upstream, climate-conscious due diligence protocols and financial decision- making. These global actors make choices about technology and infrastructure design in the pre-investment and business plan stages of the typical project development cycle. By virtue of being the farthest upstream in the project development process, decisions made in the first two stages influence energy consumption patterns and GHG emissions.
The research findings in this article contribute to a growing body of environmental and social sustainability knowledge in relation to the role of the banking industry, specifically, and the capital markets, more generally. The strength of this research is that it contributes a reasonable approach for assessing, monitoring, and disclosing the global warming performance of project finance and the financiers involved. The Project Finance CO2
Discovery Framework offers practitioners an approach for translating global warming performance data into financial terms that analysts, project developers, investors and financiers, and policymakers can include in upstream project design, due diligence, and financial decision-making processes.
| APPENDIX A | CARBON CO-EFFICIENT OF FUEL |
| Fuel | gCO2/Btu |
| Coal | 0.0952 |
| Diesel | 0.0732 |
| Natural gas | 0.0531 |
| Renewable | 0 |
| Source: International Energy Agency, 2002 | |
Page 55
| APPENDIX B | CALCULATING THE MONETARY VALUE OF ENVIRONMENTAL BENEFITS OF DISPLACING DIESEL FOR NATURAL GAS IN ELECTRICITY GENERATION | ||||||
| Present Value @ 2% Discount Starting price = $22.63 per MtCO2 Ceiling price = $33.63 per MtCO2 | Present Value @ 5% Discount Starting price = $22.63 per MtCO2 Ceiling price = $60.04 per MtCO2 | ||||||
| Year | PV @ 2% | *Annual Offsets | = Value/Year | Year | PV @ 5% | *Annual Offsets | = Value/Year |
| 2005 | $23.08 | 2,545,257 | $58,751,149 | 2005 | $23.76 | 2,545,257 | $60,479,124 |
| 2006 | $23.54 | 2,545,257 | $59,926,172 | 2006 | $24.95 | 2,545,257 | $63,503,080 |
| 2007 | $24.02 | 2,545,257 | $61,124,696 | 2007 | $26.20 | 2,545,257 | $66,678,234 |
| 2008 | $24.50 | 2,545,257 | $62,347,190 | 2008 | $27.51 | 2,545,257 | $70,012,146 |
| 2009 | $24.99 | 2,545,257 | $63,594,133 | 2009 | $28.88 | 2,545,257 | $73,512,753 |
| 2010 | $25.49 | 2,545,257 | $64,866,016 | 2010 | $30.33 | 2,545,257 | $77,188,391 |
| 2011 | $25.99 | 2,545,257 | $66,163,336 | 2011 | $31.84 | 2,545,257 | $81,047,811 |
| 2012 | $26.51 | 2,545,257 | $67,486,603 | 2012 | $33.43 | 2,545,257 | $85,100,201 |
| 2013 | $27.04 | 2,545,257 | $68,836,335 | 2013 | $35.11 | 2,545,257 | $89,355,211 |
| 2014 | $27.59 | 2,545,257 | $70,213,062 | 2014 | $36.86 | 2,545,257 | $93,822,972 |
| 2015 | $28.14 | 2,545,257 | $71,617,323 | 2015 | $38.70 | 2,545,257 | $98,514,120 |
| 2016 | $28.70 | 2,545,257 | $73,049,670 | 2016 | $40.64 | 2,545,257 | $103,439,826 |
| 2017 | $29.27 | 2,545,257 | $74,510,663 | 2017 | $42.67 | 2,545,257 | $108,611,818 |
| 2018 | $29.86 | 2,545,257 | $76,000,876 | 2018 | $44.81 | 2,545,257 | $114,042,409 |
| 2019 | $30.46 | 2,545,257 | $77,520,894 | 2019 | $47.05 | 2,545,257 | $119,744,529 |
| 2020 | $31.07 | 2,545,257 | $79,071,312 | 2020 | $49.40 | 2,545,257 | $125,731,756 |
| 2021 | $31.69 | 2,545,257 | $80,652,738 | 2021 | $51.87 | 2,545,257 | $132,018,343 |
| 2022 | $32.32 | 2,545,257 | $82,265,793 | 2022 | $54.46 | 2,545,257 | $138,619,261 |
| 2023 | $32.97 | 2,545,257 | $83,911,108 | 2023 | $57.18 | 2,545,257 | $145,550,224 |
| 2024 | $33.63 | 2,545,257 | $85,589,331 | 2024 | $60.04 | 2,545,257 | $152,827,735 |
| 2025 | $33.63 | 2,545,257 | $85,589,331 | 2025 | $60.04 | 2,545,257 | $152,827,735 |
| 2026 | $33.63 | 2,545,257 | $85,589,331 | 2026 | $60.04 | 2,545,257 | $152,827,735 |
| 2027 | $33.63 | 2,545,257 | $85,589,331 | 2027 | $60.04 | 2,545,257 | $152,827,735 |
| 2028 | $33.63 | 2,545,257 | $85,589,331 | 2028 | $60.04 | 2,545,257 | $152,827,735 |
| 2029 | $33.63 | 2,545,257 | $85,589,331 | 2029 | $60.04 | 2,545,257 | $152,827,735 |
| 2030 | $33.63 | 2,545,257 | $85,589,331 | 2030 | $60.04 | 2,545,257 | $152,827,735 |
| 2031 | $33.63 | 2,545,257 | $85,589,331 | 2031 | $60.04 | 2,545,257 | $152,827,735 |
| 2032 | $33.63 | 2,545,257 | $85,589,331 | 2032 | $60.04 | 2,545,257 | $152,827,735 |
| 2033 | $33.63 | 2,545,257 | $85,589,331 | 2033 | $60.04 | 2,545,257 | $152,827,735 |
| 2034 | $33.63 | 2,545,257 | $85,589,331 | 2034 | $60.04 | 2,545,257 | $152,827,735 |
| Totals | 76,357,710 | $2,283,391,705 | 76,357,710 | $3,528,077,2920 | |||
Page 56
| APPENDIX C | CALCULATING THE MONETARY VALUE OF ENVIRONMENTAL BENEFITS OF DISPLACING DIESEL FOR WIND POWER IN ELECTRICITY GENERATION | ||||||
| Present Value @ 2% Discount Starting price = $22.63 per MtCO2 Ceiling price = $33.63 per MtCO2 /td> | Present Value @ 5% Discount Starting price = $22.63 per MtCO2 Ceiling price = $60.04 per MtCO2 | ||||||
| Year | PV 2% | *Annual Offsets | = Value/Year | Year | PV @ 5% | *Annual Offsets | = Value/Year |
| 2005 | $23.08 | 6,294,748 | $145,299,150 | 2005 | $23.76 | 6,294,748 | $149,572,655 |
| 2006 | $23.54 | 6,294,748 | $148,205,133 | 2006 | $24.95 | 6,294,748 | $157,051,287 |
| 2007 | $24.02 | 6,294,748 | $151,169,236 | 2007 | $26.20 | 6,294,748 | $164,903,852 |
| 2008 | $24.50 | 6,294,748 | $154,192,621 | 2008 | $27.51 | 6,294,748 | $173,149,044 |
| 2009 | $24.99 | 6,294,748 | $157,276,473 | 2009 | $28.88 | 6,294,748 | $181,806,496 |
| 2010 | $25.49 | 6,294,748 | $160,422,002 | 2010 | $30.33 | 6,294,748 | $190,896,821 |
| 2011 | $25.99 | 6,294,748 | $163,630,442 | 2011 | $31.84 | 6,294,748 | $200,441,662 |
| 2012 | $26.51 | 6,294,748 | $166,903,051 | 2012 | $33.43 | 6,294,748 | $210,463,746 |
| 2013 | $26.51 | 6,294,748 | $170,241,112 | 2013 | $35.11 | 6,294,748 | $220,986,933 |
| 2014 | $27.59 | 6,294,748 | $173,645,935 | 2014 | $36.86 | 6,294,748 | $232,036,279 |
| 2015 | $28.14 | 6,294,748 | $177,118,853 | 2015 | $38.70 | 6,294,748 | $243,638,093 |
| 2016 | $28.70 | 6,294,748 | $180,661,230 | 2016 | $40.64 | 6,294,748 | $255,819,998 |
| 2017 | $29.27 | 6,294,748 | $184,274,455 | 2017 | $42.67 | 6,294,748 | $268,610,998 |
| 2018 | $29.86 | 6,294,748 | $187,959,944 | 2018 | $44.81 | 6,294,748 | $282,041,548 |
| 2019 | $30.46 | 6,294,748 | $191,719,143 | 2019 | $47.05 | 6,294,748 | $296,143,625 |
| 2020 | $31.07 | 6,294,748 | $195,553,526 | 2020 | $49.40 | 6,294,748 | $310,950,807 |
| 2021 | $31.69 | 6,294,748 | $199,464,596 | 2021 | $51.87 | 6,294,748 | $326,498,347 |
| 2022 | $32.32 | 6,294,748 | $203,453,888 | 2022 | $54.46 | 6,294,748 | $342,823,264 |
| 2023 | $32.97 | 6,294,748 | $207,522,966 | 2023 | $57.18 | 6,294,748 | $359,964,427 |
| 2024 | $33.63 | 6,294,748 | $211,673,425 | 2024 | $60.04 | 6,294,748 | $377,962,649 |
| 2025 | $33.63 | 6,294,748 | $211,673,425 | 2025 | $60.04 | 6,294,748 | $377,962,649 |
| 2026 | $33.63 | 6,294,748 | $211,673,425 | 2026 | $60.04 | 6,294,748 | $377,962,649 |
| 2027 | $33.63 | 6,294,748 | $211,673,425 | 2027 | $60.04 | 6,294,748 | $377,962,649 |
| 2028 | $33.63 | 6,294,748 | $211,673,425 | 2028 | $60.04 | 6,294,748 | $377,962,649 |
| 2029 | $33.63 | 6,294,748 | $211,673,425 | 2029 | $60.04 | 6,294,748 | $377,962,649 |
| 2030 | $33.63 | 6,294,748 | $211,673,425 | 2030 | $60.04 | 6,294,748 | $377,962,649 |
| 2031 | $33.63 | 6,294,748 | $211,673,425 | 2031 | $60.04 | 6,294,748 | $377,962,649 |
| 2032 | $33.63 | 6,294,748 | $211,673,425 | 2032 | $60.04 | 6,294,748 | $377,962,649 |
| 2033 | $33.63 | 6,294,748 | $211,673,425 | 2033 | $60.04 | 6,294,748 | $377,962,649 |
| 2034 | $33.63 | 6,294,748 | $211,673,425 | 2034 | $60.04 | 6,294,748 | $377,962,649 |
| Totals | 188,842,440 | $5,647,121,437 | 188,842,440 | $8,725,389,020 | |||
----------------------------------
ENDNOTES: Keeping it private, going public
[1] Equator Principles, Preamble, Principles Section, at http://www.equatorprinciples.com/principles.shtml (last visited Apr. 25, 2005).
[2] See Innovest Strategic Value Advisors, Carbon Finance and Global Equity Markets, CARBON DISCLOSURE PROJECT (New York 2003); F. Figge, Financial Institutions and Environmental Performance Assessment: A Background Paper, UNITED NATIONS ENVIRONMENT PROGRAMME, FINANCIAL INSTITUTIONS ("UNEP-FI"), DIVISION OF TECHNOLOGY, INDUSTRY, AND ECONOMICS (New York 2000); S. Schmidheiny CHANGING COURSE: A GLOBAL BUSINESS PERSPECTIVE ON DEVELOPMENT AND THE ENVIRONMENT (MIT Press 1992).
[3] Citigroup, 2004 Corporate Citizenship Report 39, available at http://www.citigroup.com/citigroup/citizen/community/data/citizen04_en. pdf (last visited Apr. 25, 2005).
[4] R. LEMPERT, S. POPPER, S RESETAR & S. HART, PEW CENTER ON GLOBAL CLIMATE CHANGE, CAPITAL CYCLES AND THE TIMING OF CLIMATE CHANGE POLICY 7 (Oct. 2002).
[5] CAMPAIGNER'S GUIDE TO FINANCIAL MARKETS: EFFECTIVE LOBBYING OF COMPANIES AND FINANCIAL INSTITUTIONS 13 (The Corner House, Dorset, United Kingdom, 2001), available at http://www.thecornerhouse.org.uk/summary.shtml?x=51997 (last visited Apr. 25, 2005).
[6] ProjectWare,TM (1994-2001): Project details, PROJECT FINANCE (London: Dealogic Ltd) [hereinafter ProjectWare]. See also Dealogic Ltd. website, at http://www.dealogic.com (last visited Apr. 25, 2005).
[7] GreenBiz.com, HSBC Earns Credit for Being First 'Carbon Neutral' Bank (Dec. 7, 2004), available at http://www.greenbiz.com/news (last visited Apr. 25, 2005).
[8] Citigroup website, available at http://www.citigroup.com/citigroup/citizen/community/data/citizen04_en.pdf (last visited Apr. 25, 2005).
[9] Id.
[10] Project Finance Sparks Change, FINANCIAL TIMES, Mar. 21, 2005, at 1.
[11] See Sarbanes-Oxley Act, 18 USC 1514A et. seq. (2002).
[12] N. Schwartz, The Cost of Sarbanes-Oxley, 37 INFORMATION MANAGEMENT JOURNAL 5, 8 (2003).
[13] M. CHAN, FRIENDS OF THE EARTH, WASHINGTON, D.C., THE ANATOMY OF A DEAL: A HANDBOOK ON INTERNATIONAL PROJECT FINANCE 28 (April 1996).
[14] International Finance Corporation, International Finance Corporation's Policy on Social and Environmental Sustainability and Performance Standards (Consultation Draft), Aug. 12, 2004, available at http://www.ifc.org/policyreview (last visited Apr. 26, 2005).
[15] Infra Box 2.
[16] B. Kasemir, A. Suess & A. Zehnder, The Next Unseen Revolution, 43 ENVIRONMENT 9, 9-26 (2001) (last visited Oct. 30, 2004).
[17] Id. at 19.
[18] J. Philpott, Personal communication with Equator Bank members (April, 2003) (on file with author).
[19] K. Iversen, & G. Moran, Transforming the Role of Finance, 62 IVEY BUSINESS QUARTERLY, 3, 32-38 (1998); F. Figge, UNITED NATIONS ENVIRONMENT PROGRAMME, FINANCIAL INSTITUTIONS (UNEP-FI), DIVISION OF TECHNOLOGY, INDUSTRY, AND ECONOMICS FINANCIAL INSTITUTIONS AND ENVIRONMENTAL PERFORMANCE ASSESSMENT: A BACKGROUND PAPER 30 (New York 2000).
[20] The full texts of the UNFCCC and Kyoto Protocol are available on the UNFCCC Secretariat's website at http://www.unfccc.de/resource/conv/conv_006.html (last visited Apr. 25, 2005).
[21] Intergovernmental Panel on Climate Change, Climate change 2000: Third assessment report (Cambridge Univ. Press 2001); WORLD BANK, GREENHOUSE GAS ASSESSMENT HANDBOOK: A PRACTICAL GUIDANCE DOCUMENT FOR THE ASSESSMENT OF PROJECT-LEVEL GREENHOUSE GAS EMISSIONS (Sept. 1998) (Paper no. 064, Washington, DC) (on file with the author) [hereinafter WORLD BANK]; OVERSEAS PRIVATE INVESTMENT CORPORATION, CLIMATE CHANGE: ASSESSING OUR ACTIONS (2000) (on file with author).
[22] INTERNATIONAL ENERGY AGENCY, BEYOND KYOTO: ENERGY DYNAMICS AND CLIMATE STABILISATION, CHOICES IN THE ENERGY SECTOR 49 (2002).
[23] Id. at 49.
[24] International Energy Agency, World Energy Investment Outlook 2003 (Paris 2003).
[25] Hubco website, Introduction to Hubco, at http://www.hubpower.com/n/about.html (last visited Apr. 25, 2005).
[26] Id.
[27] Id.
[28] Id.
[29] ProjectWare, supra note 5.
[30] Hubco website, History of Hubco, at http://www.hubpower.com/n/history.html (last visited Apr. 26, 2005).
[31] WORLD BANK, supra note 20.
[32] WORLD BANK, supra note 20, at 14.
[33] WORLD BANK, supra note 20, at 26.
[34] A life-cycle assessment includes emissions estimates from fuel extraction, processing, and transport of fuels; power plants; electricity generation, transmission, and distribution; and waste disposal and decommissioning.
[35] P. Meier, Life-Cycle Assessment of Electricity Generation Systems and Applications for Climate Change Policy Analysis (2002) (doctoral dissertation, University of Wisconsin).
[36] Infra Appendix A.
[37] A lower heat rate means higher efficiency; thus, the plant requires less fuel and consequently produces less CO2 emissions. To compute heat rate, divide the total Btu content of fuel burned to generate electricity by the total amount of kWh generated from that fuel. For Pakistan, the data are: natural gas (7,941), diesel (9,337), and coal (14,850). Derived from IEA/OECD, ENERGY BALANCES OF OECD AND NON-OECD COUNTRIES 1998-1999 (2001 Ed.) (using data from 1999). 38 Meier, supra note 34.
[39] PAUL SCHERRER INSTITUT, GABE PROJECT: COMPREHENSIVE ASSESSMENT OF ENERGY SYSTEMS, LIFE CYCLE ASSESSMENT, SWISS CENTRE FOR LIFE CYCLE INVENTORIES, available at http://gabe.web.psi.ch/lca.html (last visited Apr. 26, 2005).
[40] Capacity factor retrieved from Hubco website, at http://www.hubpower.com/n/plant.html (last visited Apr. 18, 2005).
[41] WORLD BANK, supra note 20, at 1; Hubco website, Financing arrangements, at http://hubcopower.com/n/financing.html (last visited Apr. 3, 2005); CO2 Emissions from Fuel Combustion, INTERNATIONAL ENERGYAGENCY (Organization for Economic Cooperation and Development 2002).
[42] P. Meier, Life-Cycle Assessment of Electricity Generation Systems and Applications for Climate Change Policy Analysis (2002) (doctoral dissertation, University of Wisconsin).
[43] WORLD BANK, supra note 20, at 1.
[44] Id. at 4.
[45] See ELECTRIC POWER RESEARCH INSTITUTE OFFICE OF UTILITY TECHNOLOGIES, US DEPARTMENT OF ENERGY, RENEWABLE ENERGY TECHNOLOGY CHARACTERIZATIONS (Electric Power Research Institute 1997) (referencing the source of the wind power CO2 emissions factor).
[46] European Climate Exchange (a subsidiary of the Chicago Climate Exchange), EUA Price Assessment, at http://www.pointcarbon.com (last visited Apr. 25, 2005).
[47] Infra Appendix B.
[48] See supra note 44.
[49] Peter F. Drucker, The Next Information Revolution, 162 FORBES 4, 9 (Aug. 24, 1998).
[50] The seven countries are China, Colombia, Indonesia, Malaysia, Pakistan, the Philippines, and Saudi Arabia.
[51] Infra Table 4.2.
[52] ProjectWare, supra note 5.
[53] Infra Box X. 54 Infra Table 4.3. 55 Infra Table 4.4. 56 ProjectWare, supra note 5. 57 A. Hax & N. Majluf, The use of the growth-share matrix in strategic planning, Interfaces 13(1), at 46-60 (Feb. 1983), available at ABI/INFORM database (last visited Mar. 16, 2005).
