Earth Day is upon us, and climate is the burning global topic of the month. Urgency for implementing relevant and efficient climate policies has never been greater. According to this month’s scientific report issued by the UN Intergovernmental Panel on Climate Change (IPCC), the time to solve the climate crisis is “Now or never“. The good news though is that the report hopefully proclaims, “We can halve emissions by 2030. We have the tools and know-how.” But we need to move fast and at scale. Fixing the core of the biggest global economy is a good start.
It’s high time that experts with the know-how for wielding vital financial tools to fix climate problems are put onto the Federal Reserve Board of Governors. In recent decades, however, the Federal Reserve has instead backed climate wrecking fossil fuel companies, and bailed them out with billions of public dollars in times of crisis. Millions of dollars worth of those public bail-out funds ended up going to corporate executive bonuses or investors who profit, while frontline communities are left to deal with the costs of floods, hurricanes, droughts or famines.
Such catastrophes have massive human costs, and mammoth financial costs. This leaves the financial system vulnerable to large risks. According to a study cited by Federal Reserve Governor Lael Brainard, climate related extreme weather events are estimated to have created $5.2 trillion in global losses over the past four decades.
During the COVID-19 pandemic, 46 fossil fuel companies received Fed-subsidized loans worth $828 million, over 13 times what was loaned to renewable energy under the Federal Reserve’s “Main Street” pandemic lending program. Such practices in the USA also lead by way of example for larger global problems. The International Monetary Fund stated that fossil fuels benefitted from subsidies of $5.9 trillion in 2020, or $11m every minute. Public monies should stop being used to promote policies and practices that damage the environment while costing additional billions to repair the destruction. Instead of contributing to this chaos, the Fed must start shaping the solutions.
Although for years the Fed has shown head-in-the-sand style avoidance of the climate topic, or outright climate denialism, it has recently started making proclamations that it takes climate issues seriously in relation to the health of the economy. The Fed website now proclaims that local governments could face climate disruption caused “increasing fiscal pressures”, and that climate related extreme weather could cause some “markets to break down“.
While the Fed has busied itself with such baby-step comments in word more than in deed, other Central Banks across the world have been leading in action, and with vigor. The European Central Bank has concrete roadmaps to include climate change considerations in its monetary policy strategy. This includes climate change considerations in areas of disclosure, risk assessment, and corporate sector asset purchases. Such simple changes are turning billions of dollars from being spent damaging the climate, into billions being used to fund and invest in profitable solutions benefiting everyone, especially frontline communities that suffer the most from climate catastrophes.
New Federal Reserve Board governors could fulfill their mandated duty to serve the public interest by picking low hanging fruit to benefit the economy while saving the climate. These include ending fossil fuel finance by using existing regulatory and supervisory tools to phase down financing of climate pollutants, and aligning Fed spending and bank investment with the Paris Climate Agreement’s goal of limiting global temperature rise to 1.5° Celsius. A particular emphasis must be placed on lending to low-income communities and communities of color.
In both the 2008 financial crisis and the 2020 covid crisis, the Fed bailed out large fossil fuel companies, and Wall St., while leaving behind the most disadvantaged Americans. The Federal Reserve should be funding Main St. and not Wall St. by allocating funds to rebuild our economy, and provide millions of good paying jobs.
The Fed buys large amounts of treasury bills from dozens of Wall Street firms in the name of stimulating the economy, yet these investments only help the super-rich get richer – and don’t trickle down to the rest of the country. The Fed should instead buy municipal bonds at low interest rates to fund construction of housing in expensive urban areas, roads, bridges or to fund the construction of solar panels on the roofs of millions of homes.
Further solutions include providing funding to overhaul energy and transportation systems, which is even more urgently needed due to exorbitant oil price rises and market volatility because of Russia’s war of aggression against Ukraine. Funding insulation and infrastructure improvement for buildings is another win-win solution creating jobs, reducing energy costs and climate impacts. This improves the quality of life for all, especially marginalized communities.
The current slate is the most-qualified and diverse Federal Reserve Board of Governors nominees in our nation’s history. At a time when inflation is rampant, and the climate crisis is being fueled by financial flows to fossil fuels – we need a fully functional Federal Reserve that is able to tackle the crises of our time by implementing the working solutions that already exist. Legislators must approve President Biden’s nominees to the Federal Reserve, so they can get to work to benefit the Earth, and create a just transition to an economy that benefits all.
by May Boeve and Jason Kirkpatrick