California, USA - Bank of America will phase out loans to companies that use mountaintop extraction as their primary means of coal production, the financial giant said Wednesday.

The company will also give $1 million to the Harvard Center for the Environment to study the financial, legal and environmental implications of capturing the greenhouse gas emissions generated by burning coal and burying it deep in the earth.

The announcements, part of the bank’s new coal policy (PDF), signal a dramatic shift in the role the bank expects coal will play in its portfolio. Meanwhile, the Bush administration this week approved a rule that makes it easier for coal companies to dispose of associated rock and dirt waste into nearby valleys and streams.

Federal legislation aimed at reducing greenhouse gas emissions, however, is widely anticipated in an impending Barack Obama administration.

"Everyone is expecting there to be a cost associated with emissions," Bank of America Spokeswoman Colleen Haggerty told GreenBiz.com Thursday. "We are going to our clients and customers who we believe will be significantly impacted by any cost to carbon and expect them to factor those costs into their budgets before we are expected to finance them."

Aside from the technology and extraction aspects, Bank of America’s coal policy involves a third plank: financial services. Earlier this year, the bank adopted the Carbon Principles, a set of best practices to help banks manage the lending risks associated with coal projects.

Bank of America and other institutions have come under fire from environmental groups critical of the the financing of mountaintop removal coal mining.

"Bank of America’s decision is a giant leap forward in the fight against mountaintop removal coal mining, which has devastated Appalachian communities and the mountains and streams they depend on," Rebecca Tarbotton, director of Rainforest Action Network’s Global Finance Campaign, said in a statement. "We hope that Citi, JP Morgan Chase and other banks follow Bank of America’s lead."

Separately, HSBC told Reuters this week it would scale back lending to Indonesian and Malaysian forestry customers involved in palm oil, soy and timber production because of environmental concerns. It also will review its dealings with Canadian oil sands interests since tough regulations may destroy the commercial viability of the energy-intensive practice.

HSBC is a founding member of the Climate Principles, a separate global framework unveiled this week to aid banks and insurers in managing climate change-related risks in their products and services.

By GreenBiz Staff