Why are the Fed and Dems avoiding a climate conversation?
This week, two of America’s most important political and financial institutions will gather: US Federal Reserve Chairman Jerome Powell will host global central bank leaders in the cool mountain air of Jackson Hole. At the same time, the Democratic Party will convene in Chicago to coronate Vice President Kamala Harris as their choice for November’s US presidential election.
They have very different topics to discuss, but both share a distinct aversion to addressing climate change.
For Democratic political strategists, phrases like climate change or global warming are now as politically toxic as ESG or DEI. Even though Harris cast the deciding vote in Congress for President Biden’s landmark climate legislation, the Inflation Reduction Act, she has not uttered the phrase “climate change” in her stump speeches across America.
Why? Politics. Independent “swing” voters in tightly contested states, not party loyalists, have been deciding presidential general elections since 2000. This year, the most important “swing” state is Pennsylvania, where coincidentally, the fracking, or drilling, of natural gas has boomed over the past two decades. Here, fracking has split voters like shale, and Democrats want to avoid the entire topic.
Blinding ignorance
Reasonable observers can accept the political expediency of the Democrats’ urge to avoid a climate battle this fall. After all, Democratic action on climate change, not words, more than speaks for itself.
Powell’s stubborn refusal to engage in climate change is not a political tactic. It is a real threat to society.
The Federal Reserve is an entirely different matter. Powell’s stubborn refusal to engage in climate change is not a political tactic. It is a real threat to society. Repeatedly, senior Democratic legislators, including Senate Budget Committee Chair Sheldon Whitehouse, House Financial Services Committee ranking member Maxine Waters (D-Calif.), and Rep. Sean Casten (D-Ill.) have objected to Powell’s head-in-the-sand approach to climate risk, but with little success.
Mother Nature, however, is immune to American politics, and the exponential growth of property damage from climate-related extreme weather now means that in great swaths of California, Florida, and Louisiana, homeowners and businesses are finding it almost impossible to buy insurance for their properties. This matters because more than 40% of all US household wealth is tied up in real estate. And without insurance, the value of property plunges, as does the value of banks who hold these properties on their balance sheets. “It is not a question of if, but when, and how bad,” warns Whitehouse.
Fed to planet: Drop dead
Powell is not listening. Last week, at his semi-annual appearance before the Committee on Financial Services of the US Congress, he again made it very clear that “dealing” with climate risk was not his job or that of the world’s largest reserve bank.
The Fed, he argued, cannot push American banks to address climate risk if it is to preserve its much-vaunted “independence.” Instead, it must stick to its time-tested mandate to focus on inflation, financial stability, and economic growth. “The idea that we [the Fed] should discover climate change and say we will lead the fight on climate, well then, we should just be part of the Treasury Department,” Powell said in a testy exchange last week with Casten.
Anyway, Powell argued, the banks are managing climate risk just fine without Fed supervision. Banks, he said, “know their risks pretty well” and are “adequately addressing them.” As Elyse Schupak and Anne Perrault of Public Interest write in Climate & Capital this week, Powell said any Fed effort to require American banks to regulate climate risk is “not going to happen.”
Memories of the Great Financial Crisis
Powell is simply parroting the views of America’s largest banks, which vehemently oppose any form of disclosure or regulation on climate risk. These are the same banks that demanded deregulation in the early 2000s while recklessly marketing breathtakingly risky mortgages, which caused the real estate crisis in 2008 and triggered the biggest financial crisis since the Great Depression.
But much to the delight of JPMorgan, Bank of America, and Citibank, Powell’s lesson from 2008 is to pursue a “you can have it all” policy of bountiful cheap capital and minimal bank regulation. No one should be surprised. After all, he spent much of his career as a lawyer for the private equity firm Carlyle.
Powell also refuses to acknowledge the need for the Fed to better prepare banks for massive external shocks like COVID 19, the Russian invasion of Ukraine, or the climate crisis with new regulations and capital buffers. Yet, when the COVID pandemic caused markets to melt down in 2020, threatening the stability of the banks, his Fed rushed to offer endless capital (liquidity) and took the unprecedented step to buy bonds, thus saving the banks and the economy from financial disaster.
Protecting American bank interests
These same banks are now pushing Powell and the Fed to oppose any effort to act on climate risk. This puts them directly at odds with other key global central banks, notably the European Central Bank (ECB) and the Bank of France. Unlike the Fed, they see managing climate risk as core to their mission to preserve the stability of Europe’s financial system. In April, Powell blocked efforts by the ECB to make climate risk a focus of global financial rules,according to Bloomberg. JP Morgan CEO Jamie Dimon has called these international efforts to tighten risk regulation “flawed and poorly calibrated.”
So, it should be no surprise that climate risk is not on Powell’s Jackson Hole conclave agenda this week.
From the rust belt to the battery belt
The irony is that the most significant way to reduce property risk from climate violence is to reduce the amount of carbon spewing into the air from fossil fuels. This raises the temperature of the earth’s atmosphere, heightening extreme weather.
And this is precisely what the Biden Administration has done for the last four years through its historic climate legislation. Since their passage two years ago, Biden’s $347 billion IRA and the Chips and Science Act have led to more than 300,000 and more than $1 trillion in clean economy investments. Today, mayors and governors across the Midwest of America proudly talk of the once economically hobbled “Rust Belt” being transformed into the “Battery Belt.” Transportation Secretary Peter Buttigieg calls it an “American Renaissance.”
The people have spoken
The Democrats’ reluctance to embrace climate change as their issue also flies in the face of voter sentiment. Poll after poll says Americans are enthusiastic about the green energy transition: Pew Research reports that 78% of voters want more solar and wind power; another 73% want more proactive government action. More notably, 53% would pay more taxes to make it happen.
As the climate crisis worsens, the political expediency of short-term political and financial wins over a proper national climate discussion only exacerbates America’s anxious climate apathy.
The climate vacuum among Democrats in this election cycle has also allowed Trump to fill the airwaves with nonsensical rants about how Harris is a Communist because she opposes fossil fuels. This is particularly rich because, under Biden-Harris, record amounts of fossil fuels have been pumped and exported: the US is now the world’s biggest exporter of liquefied natural gas or LNG.
And here lies the problem for Harris as she prepares for the November election. While the Biden Administration’s hybrid energy approach is sensible and realistic, it is also politically toxic to progressives and conservatives alike. Politically, the climate debate does put Harris in a dicey position. Her base hates that the administration has further fueled the fracking boom. However, if she talks too much about clean energy she risks alienating key swing state voters.
Have you ever wondered why Biden’s signature climate legislation was called the Inflation Reduction Act? Joe Manchin, a former Democrat turned independent, insisted on a name for the bill that would not offend his coal-loving constituents.
But delinking climate change and America’s green re-industrialization is penny-wise, pound foolish, politically and financially. Biden’s new industrial policies were created to address the climate crisis, not some squishy idea to “Make America Great Again.”
Yet as the climate crisis worsens, the political expediency of short-term political and financial wins over a proper national climate discussion only exacerbates America’s anxious climate apathy. More importantly, it sends a very mixed message to the tens of millions of Americans under 30 for whom climate change is a core concern. They wonder why Democrats are too scared to trumpet Biden’s landmark climate efforts. Meanwhile, the Chairman of the Federal Reserve publically thumbs his nose at the same crisis.
Profiles in courage, they are not.
