One definition of an emergency is that it’s the moment when you do everything that you can to face a crisis.
Not to put too fine a point on it: We are in an emergency. The smoke from giant blazes out West continues to darken eastern skies. We’re experiencing historic hurricanes, record rainstorms and a record drought. Climate change is no longer a threat — it is a promise.
At the moment, the Biden administration is quite rightly fixating on the passage of its $3.5 trillion budget reconciliation bill. If the climate provisions are not watered down — which seems more and more likely — the bill would represent the first time we’ve ever pulled the big red lever marked “political power” to deal with this existential dilemma. But there’s one other lever big enough to make a difference, and it’s marked “financial power.” We’ve got to pull it too, and just as hard.
In May, the White House issued an executive order on climate-related financial risk, directing the Financial Stability Oversight Council (FSOC), chaired by Treasury Secretary Janet Yellen, to produce a report laying out all the policies the administration could undertake to mitigate climate risks to the financial system. These financial risks are…large. By some measures, unchecked global warming could cost the world $551 trillion by century’s end — more money than currently exists on our planet.
After months of waiting, we now know that the FSOC report is expected to come out early, on Oct. 18. Early signals suggest the report is not going to meet the level of urgency that this moment requires — or even the urgency the Biden administration called for in its executive order. Just a couple weeks ago, Treasury officials even took to the media to manage expectations of any meaningful regulation.
What’s ironic is that Yellen is meeting with other central bankers and finance ministers of the G20 this very week, with Yellen set to present a roadmap on climate financial regulation across G20 markets. A weak report from FSOC will only reinforce the creeping suspicion that the U.S. intends to remain a laggard compared to our European counterparts in regulating the chronically reckless financial institutions endangering the planet. It’s déjà vu all over again.
Just as with bad mortgages in 2008, banks and other financial institutions are making potentially catastrophic bets, this time to artificially prop up the fossil fuel industry well beyond its expiration date. And they seem to be doing it with all the gusto of rich kids who expect daddy to bail them out once more.
Earlier this year, Greg Determan the managing director of Chase Bank, the country’s largest, insisted that they’d keep lending to the oil and gas industry “for a long time.” He added that CEO Jamie Dimon is “quite focused on the industry. It’s a huge business for us, and that’s going to be the case for decades to come.”
Obviously, the banks won’t rein themselves in. So, if the Biden administration wants to prevent a financial collapse, it could begin by using the tools already at its disposal. Most importantly, it could figure out how to rein in the banking industry’s insane appetite to keep lending money to the fossil fuel industry.
That’s where the FSOC report comes in. At a minimum, the report should identify climate change as a major driver of systemic risk and highlight specific policies so each of the regulating bodies can address fossil fuel finance head on. That means going beyond the baseline of assessment and disclosure of climate risk and recommending policies that begin to mitigate that risk, including limiting the ability of financial institutions to pour money into projects that expand the extraction of fossil fuels. It seems simple enough, but there is concern that the report’s recommendations will be watered down, eschew concrete timelines and policies and attempt to appease three of FSOC’s members appointed by former President Trump.
With or without a strong report, there’s plenty federal regulators could do. The Dodd-Frank Act, passed in the wake of 2008’s financial meltdown, empowers the government to eliminate threats to financial stability, not just wait to respond after systemic collapse. As the energy analyst Justin Guay pointed out recently, “the law could give the administration authority to increase capital requirements for banks loaning money to fossil fuel projects, or even to institute ‘credit guidance’ policies such as those imposed during World War II to direct industrial policy.”
Graham Steele, Biden’s nominee for assistant treasury secretary for financial institutions, has argued in the past that regulators have “broad power to use macroprudential regulation to address climate-related risks, including through the Financial Stability Oversight Council and the Federal Reserve. For example, the Fed could use its authority to limit fossil-fuel investments based on their prospective risks to financial stability.”
A lot rests on Yellen, Steele’s potential future boss. As the Biden administration’s proxy, her willingness to publish a strong report would be a demonstration of how seriously it takes climate action. For people steeped in regulatory orthodoxies, telling banks who they should and shouldn’t lend to may feel like a break-the-glass step. But that’s what you’re supposed to do in case of fire.
Bill McKibben is a writer and the founder of the global climate campaign 350.org and Third Act, a new progressive organizing campaign for people over 60. He’s the Schumann Distinguished Scholar in Environmental Studies at Middlebury College. Follow him on Twitter: @billmckibben.