President-elect Biden’s Treasury Department must lead a recovery effort to move us away from the fossil fuel-based economy of the past and toward a prosperous clean energy future. In nominating Janet Yellen to lead the Treasury Department, President-elect Biden has chosen a leader who understands the urgent need to address the climate crisis and to mobilize the full power of the federal government to rescue our economy and climate.
Good policy starts with the people in charge. Earlier this year, Evergreen released a paper–‘Preventing a Climate Crash’–calling for the Treasury Secretary to act quickly to address climate risk in the financial system and stand up to powerful interests. Janet Yellen’s leadership and experience meet this need and the demands of this moment.
Currently, America’s financial system is stubbornly funding fossil fuel companies, at great cost to Americans’ health, and to clean energy jobs. Every dollar we continue to spend supporting fossil fuels is one that brings us closer to the brink of a climate driven recession and more natural disasters. The Treasury Department has the power to disentangle our financial system from fossil fuel investments which put us all at risk, make substantive green investments, and stabilize our financial system. To engage in a national mobilization to defeat the climate crisis, and to build a just and thriving clean energy economy, every agency in the federal government must do its part. The Treasury Department under Janet Yellen will play a crucial role in this effort.
As President-elect Biden begins an all-out government mobilization to defeat the climate crisis, today, Evergreen Action is releasing 5 concrete actions for how the next Treasury Department must help:
1. Actively Mitigate the Economic Risk Posed by the Fossil Fuel Industry: The next Secretary should direct the Financial Stability Oversight Council (FSOC), under the Dodd-Frank Act, to designate insurance companies and asset managers as non-bank systemically important financial institutions (SIFIs). That designation would give regulators more power to police loans, investments, and other financial relationships with fossil fuel companies, which are so large and unstable that they pose catastrophic risk to the global economy. With that new authority, FSOC could then pursue Federal Reserve oversight to impose climate risk stress testing across the financial sector, portfolio limits capping CO2 emissions in loan and investment portfolios, higher capital ratios that reflect climate risk, and more. The SIFI designation would also open the door to broadly limiting financial support for fossil fuels on the basis of their prospective risks to financial security, even to the point of forcing fossil fuel divestment by larger institutions.
2. Lead an All-of-Government Mobilization on Clean Energy Finance: The next Secretary should lead a whole-of-government initiative on green project finance, to engage each federal agency in mobilizing every available financing authority and credit enhancements to deploy low-cost capital into clean energy deployment. This includes tapping into new opportunities at the Departments of Energy (DOE), Housing & Urban Development (HUD), Agriculture (USDA), Small Business Administration (SBA), and numerous other agency partners. The secretary should lead the push to establish a national green bank or clean energy accelerator to further jumpstart private capital investment into infrastructure modernization.
3. Champion Investments in a Clean Energy Economic Recovery: There is no such thing as carbon neutral stimulus. If we do not center clean energy investments in both short term relief and longer term recovery efforts, then climate risk will ensure that we are only making a downpayment on the next recession. The Treasury Secretary must use her role in stimulus negotiations to champion a COVID relief bill that heads off a looming crisis of utility shut offs and arrearages on utility bills; boosts investments in clean energy deployment through refundable extensions of existing production and investment tax incentives for renewable energy; accelerates deployment of disaster resilient, low carbon, and environmentally sound infrastructure; and moves federal capital through community development block grants to assist states and cities in rebuilding for greater consumer savings, energy efficiency and resource conservation while creating good-paying union jobs. Evergreen Action’s Clean Jumpstart Plan calls for a $1.5 trillion investment in state-run relief and 21 federal programs that can help to stimulate and rebuild the economy right now. The next Secretary should fight for that scope and scale of green investment, with a focus on channeling resources into the communities hit hardest by COVID and cumulative impacts, in the Biden administration’s first stimulus bill.
4. Catalyze Global Investment in Climate Solutions: The American government holds great influence in the global economy, and the Biden administration should apply that influence to motivate climate action. The next Treasury Secretary should issue guidance for the United States to use its voice and vote in multilateral banks to object to the financing of oil, gas, and coal projects around the world. As its largest shareholder, the Treasury Department can pressure the World Bank to divest from the fossil fuel industry, in which it has invested $12 billion since the 2015 Paris climate agreement was signed. The next Secretary should also help make good on the U.S. financial commitment to the global Green Climate Fund and follow other nations in dedicating additional increased investment. And it should mobilize a whole-of-government investment agenda–including the Development Finance Corporation, Export-Import Bank, U.S. Trade & Development Agency, and others–to invest in climate solutions and green infrastructure projects in developing nations around the world. The Treasury Department should also pressure the Federal Reserve to bring the U.S. into the Network on Greening the Financial System, a global coalition of central banks with 69 members across five continents, and support other financial regulatory coordinating bodies to incorporate climate risk into their recommendations.
5. Build Standing Capacity to Address Systemic Climate Risk: The next Secretary should immediately reconstitute a dedicated office focused on energy and climate action both domestically and internationally. And they should establish a senior standing climate committee, chaired by the Treasury Chief of Staff and engaging undersecretaries and assistant secretaries, to meet regularly to coordinate a domestic and international climate action plan; identify opportunities and challenges in promoting economy-wide climate ambition; develop regional strategies; and assess progress toward formalized climate objectives. Further, the next Secretary should marshal economic and statistical data on the impact of environmental change on economic performance by directing the Office of Financial Research (OFR) to collect data on climate-related practices and policies at U.S. financial institutions and other market participants. Based on that research, OFR and FSOC should develop standardized reporting mechanisms and issue a public report on the systemic risk climate change poses to the U.S. financial system. Regulators can then develop actionable plans to address climate risks in their respective jurisdictions.