Institutional Investors To Urge Tough US Climate Policy

Companies such as Merrill Lynch, the $230-billion California Public Employees Retirement System, and Allianz, Europe's largest insurance firm, will demand immediate action by the government, said Adam McDaniel, spokesman for CERES, a national network of investors, environmental organizations and public interest groups.

"They want to be able to act on opportunities and avoid risks associated with climate change," McDaniel said. CERES is one of the leaders of the project to spur government action.

McDaniel said that although the group won't call for any specific type of climate change policy such as a carbon tax or a cap-and-trade market for emissions, it will urge Congress to give clear regulatory signals with tangible greenhouse gas reduction goals.

The call comes at a time when majority leaders in the U.S. House of Representatives is pushing back its deadline to pass climate change legislation from spring to fall, and political observers say Congress is unlikely to pass a comprehensive global warming bill before the 2008 Presidential elections. Although House Speaker Nancy Pelosi, D-Calif., has appointed the outspoken Ed Markey, D-Mass., to chair a newly created select committee on climate change, legislative authority rests with John Dingell, D-Mich., Chairman of the Energy and Commerce Committee. He has said he was concerned that effective and comprehensive climate change policies couldn't be crafted by the end of June.

In a recent interview with Dow Jones Newswires, Dingell pointed out it took him more than a year and a half to write other significant energy and conservation laws, including the 1990 Clean Air Act.

The calls by the group of about 50 institutional investors and fund managers led by CERES also follow a surprising repositioning by many U.S. utilities and automakers that now say they support climate change legislation, though they differ on the stringency of any measures.

In the U.K., a similar consortium of the world's largest institutional investors - representing 225 investors with $31 trillion in assets - helped to add momentum to the development of the European Union Emission Trading Scheme, a cap-and-trade policy that U.S. lawmakers are considering as a model for their own legislation. The ETS caps emission levels, distributes emission allocations to polluting sectors, and allows emitters to buy and sell the right to pollute based on whether they are above or below their set pollution levels.

Climate change and subsequent policies to curb greenhouse gases thought to cause global warming offer a world of opportunities and risks.

Insurance companies want clarity so that they can offer informed policies for property destruction and project delays caused by global-warming, weather- related events. Banks want legal clarity so they can invest with more confidence in clean energy and low-carbon technology. Brokerages want clarity so emission credit trading can develop, providing liquidity to markets designed to encourage clean energy deals and offset polluting projects. And for long-term, capital- intense projects such as power generation, utilities want clarity so they can move ahead with billion-dollar deals without worrying their plants won't be able to meet profit-margins under new government policies.

As an indication of the growing investment appetite for green deals in the U.S., a consortium led by Kohlberg Kravis Roberts & Co., Texas Pacific Group and Goldman Sachs Group Inc. (GS) offered TXU Corp. (TXU) shareholders $32 billion in cash, plus the assumption of $12 billion in debt, and pledged to withdraw controversial plans to build eight coal-burning power plants in Texas. It has been recognized as one of the largest merger deals in U.S. history. Though the deal has yet to be finalized and is is sure to undergo scrutiny by regulators, the consortium has since offered to build two cleaner-burning coal gasification plants that would be able to later capture the greenhouse gas from the gasification process and store it underground.

Such projects are expensive, and most industry experts say the government must create policy that would put a cost on emitting greenhouse gases like CO2.

Environmentalists and proponents of reducing greenhouse gas emissions say policies such as the U.S. Energy Department's Futuregen project - a pilot plant that will gasify coal, allowing separation of carbon dioxide, hydrogen and oxygen, with CO2 injection into underground storage - will be insufficient to develop the clean-coal markets necessary to cut greenhouse gases.

Earlier this week, the Massachusetts Institute for Technology released an influential report that said governments would have to create policies that set an emission price of $30 per ton of carbon dioxide to commercialize Futuregen- type technologies by 2050. Even then, carbon dioxide levels would only stabilize by mid-century, the report said, and would be well above levels targeted by many scientists.

-By Ian Talley, Dow Jones Newswires; (202) 862 9285; ian.talley@dowjones.com;