Citi: Efficiency, Renewable Energy and Mitigation

HEADNOTE

The solutions to climate change will only be found through partnership between all sectors of the global community, governments and businesses.

Despite the market turmoil of 2007, it remains true that we have in recent years experienced the longest-lasting

and farthestreaching period of economic growth in the history of the world. The result of this demandbased growth is a dramatic increase in financial stability, reduced inflation, reduced interest rates and increases in the value of all assets. Moreover, nearly half a billion people worldwide have emerged from the depths of poverty and virtually all of us, directly or indirectly, have benefited from this remarkable period of economic stability and growth.

However, with those economic successes have come other enormous changes: more people, more cities, more cars, more industry and as a result, an ever-growing global appetite for energy.

While we must address the issue of climate change, we are forced to run faster only to stay even, as the very carbon emissions we currently worry about are, in many ways, rapidly increasing byproducts of the record-setting global economic growth.

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Consider these statistics from Citi Research: worldwide emissions in 2004 were 26.1 billion tons of CO2. Power generation represented 41% of these emissions; transportation 20%; and other industrial activities 18%. Put differently, 80% of emissions are generated by the building blocks of growing economies. The demand that creates carbon will not abate in any of our lifetimes.

In a study for the UK government, World Bank economist Sir Nicholas Stern detailed the human and economic cost of global warming. He estimated that as much as one-third of the world's population would be impacted by climate changes caused by greenhouse gas emissions; nearly five percent of the world's population could become geographic refugees; and the global economy could face as much as a $7 trillion annual cost, more than 15% of today's global GDP, if corrective actions were not taken quickly. He warned that we have 10 to 15 years to act.

The challenge of balancing between today's issues of growth, prosperity and energy security on the one hand, with issues like global warming on the other, cannot be overstated. These are the challenges facing governments in developing and developed countries alike. Citi is present in more than 100 of them, and increasingly we see this challenge rising to the ranks of strategic, board-level importance. Our clients impact 90% of the world's GDP and over 80% of the world's market value. We therefore realize that climate change represents a real risk if we don't act-but we also see significant opportunity if we do.

Climate change will impact every decision taken by CEOs, government policy makers, and investors for their all-important investments in energy, infrastructure and transport-forces that drive our global economy. These decisions are especially challenging because they are usually long-term in nature and entail substantial capital commitments, often measured in decades and billions of dollars. In order to preserve the stability and growth of the world's economy, and all of the opportunities afforded communities and businesses around the world, we must protect the global environment.

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Citi's new 15-story building, located in Long Island City, NY, is designed to be environmentally friendly and is targeted to achieve a Gold LEED (Leadership in Energy and Environmental Design) rating from the U.S. Green Building Council, the first for a Citi structure anywhere in the world. The $290 million, 528,000-square-foot building includes a stormwater recycling system, high-efficiency fixtures, workstations designed so that 90% of employees will enjoy outside views, use of recycled construction materials, and workstations, carpeting and furniture that meet LEED criteria. The building will open later this month.

Opportunities Through Partnership

We recognize that now is the time to develop new energy solutions that positively affect climate change. The solutions to climate change will only be found through partnership between all sectors of the global community, governments and businesses.

It is clear that we must find cleaner, more-efficient and yet cost-effective ways to meet the energy needs of the world. We also know that the climate consequences of a business-asusual attitude could be catastrophic. One of the key components to addressing the climate change crisis is what governments do. The stark truth of the matter is that none of the initiatives that the private and public sectors have under way will gain the traction they need to without the willingness of governments to step in and set the tone. The US needs a public policy and needs it quickly, to address this issue, remove uncertainty and level the playing field. We at Citi welcome the opportunity to work closely with governments to help them affect the necessary solutions that our global community requires.

Alternative Energy Sources

Climate change may very well be the driving force behind a new industrial revolution; one built on alternative energy sources and clean technology. Such a revolution will require vast sums of capital, political will and changes in individual habits and behavior...but it can be accomplished.

Companies, like Citi, need to play a major role in helping clients find more efficient ways to meet their energy needs. Citi believes that greenhouse gas-intensive industries should promote energy efficiency first, renewable energy second, and only then should we make further investments in fossil fuels-in each case with appropriate mitigation when available.

We must continue to take advantage of the opportunity to reorient our nation's priorities for new energy development. The true win-win for the United States, our climate and our workforce is to invest more resources to maximize the efficient use of energy. Numerous studies by the Electric Power Research Institute, Rocky Mountain Institute, and many others show that the US can meet our energy needs more quickly, more cheaply, and more cleanly through efficiency, than through any other source.

Citi, and our power-generation clients, work on how to mitigate carbon emissions utilizing best available control technologies. Technological viability becomes commercial viability with more use and investment. We believe a price on carbon in the US is critical to its success.

We nonetheless recognize the considerable tension faced by energy providers to meet current and growing demand in the absence of affordable control technologies that mitigate carbon. It is clear that we must find a cleaner, more-efficient and yet cost-effective way to meet the energy needs of the world. But we also know that the climate consequences of business as usual could be catastrophic.

Green Projects

At Citi have followed our words with actions. We announced in June of this year our target of $50 billion over the next 10 years to address global climate change through investments in, and financing of, alternative energy and clean technology within our businesses, along with industry-leading sustainable business practices and other related activities across the company.

This $50 billion-an ongoing effort that builds on an existing $10 billion of activities-will be focused on market-based activities and transactions with clients as well as energy saving, "green" projects, including a ten-fold increase, to $10 billion, in our commitment to reduce our own environmental footprint as part of our pledge to reduce greenhouse gas emissions by 10% by 2011.

* This commitment will include $30 billion of "green" market activity in such areas as lease equity, project finance, underwritings, loans and carbon trading;

* $2 billion to be invested by our Citi Alternative Investments' standalone investment center, Sustainable Development Investments, in entities developing wind, solar and carbon reduction projects;

* Securities and economic research on climate and the environment issued by our research division;

* We have committed $1 billion to working with the Clinton Climate Initiative as it begins to develop financial models for the world's large cities as they participate in its energy efficiency retrofit program.

Client Advisory

Citi works with its clients in greenhouse gasintensive industries to evaluate emerging risks from climate change, and where appropriate identify ways to mitigate those risks. Our initial focus has been on North America power generation, although we anticipate expanding this service to other greenhouse gas intensive industries and geographies.

When Citi provides financial solutions to its clients, we will be working to analyze emissions profiles and inquiring about existing disclosure and mitigation plans and intentions to develop such plans.

Our commitment is that when we are financing specific power projects, Citi incorporates the potential costs and risks of carbon in its analysis and discusses the results with clients.

We at Citi have always seen ourselves as a uniquely global institution. We think in global terms, we act in global terms, and we believe in the common interests of all our global stakeholders in our constant efforts to create value. We have found-and validated time and again-that innovation, when combined with a commitment to sustainability, creates limitless opportunities for everybody.

SIDEBAR

"INNOVATION, WHEN COMBINED WITH A COMMITMENT TO SUSTAINABILITY, CREATES LIMITLESS OPPORTUNITIES FOR EVERYBODY."

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Michael Klein, chairman and co-CEO, Markets & Banking, Citi