Citigroup and General Electric have won applause for their environmental initiatives. But both are smack in the midst of the Texas coal plant controversy—and not on the earth-friendly side.

Meanwhile, an environmental group – financed by a natural gas company – launched a misleading ad campaign against the coal plants proposed by TXU, the Texas energy company at the center of this storm.

Confused? I can’t blame you. The lesson is that, amidst the eco-mania of the moment, all things “green” deserve a skeptical look.

Let’s begin with Citigroup, now known as Citi. In 2004, Citi adopted lending guidelines that went well beyond the Equator Principles. (That’s a voluntary accord under which investment banks promise to take the environment into account when financing big projects in the global south.) Citi promised, among other things, to monitor the impact of its investments on climate change and to finance renewable energy. Environmentalists cheered.

But, and this is a big but—the bank won’t let climate issues stop it from doing polluting deals in the U.S. Citi is a one of three banks backing TXU’s $11 billion plan for 11 coal-fired power plants that will dump millions of tons of greenhouse gases into the air. Merrill Lynch and Morgan Stanley are the others. I’ve written about TXU in Fortune and about its lenders here.

This week, Mike Brune, the executive director of the Rainforest Action Network (RAN), which has been attacking Merrill Lynch for backing TXU, wangled a meeting with Chuck Prince, the CEO of Citi. Give Prince credit for his willingness to sit down with Brune, whose group employs tactics that get under the skin of corporate folk.
Citi and RAN agreed not to talk about the specifics of their discussion, but Brune sounded pleased with the way things went when we spoke afterwards. “We thought it was a good meeting,” he said later, by email. “We believe that Citi will accept its responsibility and become a leader in the fight against climate change.” Interesting, albeit cryptic.

RAN’s planning another protest at Merrill’s San Francisco headquarters next week. “They are the worst of the three,” a RAN spokeswoman says.

As for GE, the company deserves praise for its wide range of Ecomagination products – energy-efficient locomotives and aircraft engines, photovoltaics, CFL bulbs, even “smart” dishwashers. They’ve made a big deal about promoting “clean coal” products—technology known as IGCC, or integrated gasification combined cycle, which converts coal into a cleaner burning gases and dramatically curbs pollutants.

The thing is, GE is selling conventional generators, and not IGCC, to TXU for its coal plants. IGCC is a big issues in the regulatory proceeding around the plants, and TXU says IGCC simply isn’t ready for prime time. Jeff Immelt, GE’s CEO, disagrees, but told me that he can’t force his customers to buy IGCC. He’s right, of course, but the point is that GE will sell coal generators, whether they are green, black, blue or white.

Speaking of black, check out the image (above) which appears in a series of newspaper ads in Texas and on a website, www.cleanskycoalition.com, that depicts dirty, sad-looking faces declaring “Coal is Filthy.”

This is unfair in a bunch of ways. It attempts to link TXU’s plants to images of dirty, dangerous underground coal mines. Except that none of TXU’s coal will come from underground mines. The ads ask:

“Would you bathe your child in coal? Sprinkle arsenic, mercury and lead on your husband’s cereal? Treat your friends to a big dose of radiation?”

But there’s no arsenic or lead in coal. The ads also refer people to the Sierra Club and Environmental Defense, groups which had nothing to do with them.

And who’s behind the smear campaign? Thanks to the reporting of Asher Price of the Austin American Statesman, we know the campaign was sponsored in part by Chesapeake Energy Corp., an Oklahoma-based natural gas company.

Why? Because, as TXU says, coal is a cheaper fuel than cleaner-burning natural gas. If TXU gets the go ahead to build the plants, they will displace some more expensive gas plants. TXU says this will mean lower-cost electricity to consumers.

So who’s “green” in this controversy? TXU, Citi, GE, the natural gas company? Or none of the above?