John Heasley

John Heasley
TBA General Counsel

Biden tasks regulators with taking on climate change

... it is delusional to think that ... financial services industry players have any idea how to predict the future when it involves the climate.

In addition to dealing with the pandemic, President Biden has two other policy goals he campaigned on and has started to implement through his appointments. One is the need for greater diversity, equity and inclusion in all aspects of American life. The other is his desire to use all of the federal regulatory agencies in the fight against climate change.

In March, the Senate confirmed Michael S. Regan for the top job at the Environmental Protection Agency. He was an environmental and renewable energy advocate in the Obama EPA and subsequently became the Secretary of Environmental Quality in North Carolina.

He will work with White House climate czar, Gina McCarthy. They will start by reinstating and strengthening the clean air and water regulations unwound during the Trump years.

Don’t forget about the international ambassador for climate, John Kerry. Biden has pledged to eliminate fossil fuels from the electric power sector by 2035 and to work toward no net carbon pollution by the middle of the century.

Not to be outdone, Treasury Secretary Janet Yellen has announced that she will create a climate hub with its own climate czar within Treasury. Similarly, Federal Reserve Board governor, Lael Brainard, gave a speech on the role of financial institutions in tackling climate change and stated that risk management and forward planning “can help ensure that financial institutions are resilient to climate-related risks and well-positioned to support the transition to a more sustainable economy.”

The private sector is on the bandwagon as well. Michael Bloomberg has a Task Force on Climate Related Financial Disclosures. Ten national financial trade associations have a U.S. Climate Finance Working Group, which has among its principles to “price carbon” and “minimize costs and support jobs in transition.”

More than a little skepticism is in order here. An editorial by Gregory Zerzan in a recent Wall Street Journal makes a number of good points: Dodd-Frank spent hundreds of millions of dollars to establish a Financial Services Oversight Council that did not predict the pandemic and the need for the Fed to pump billions in liquidity not only to banks but to big business and governments as well.

Financial regulators don’t have a policy toolkit to evaluate unpredictable events such as what may or may not happen regarding the climate. They don’t employ climate scientists. They have no expertise in areas where even the scientists have disagreements about the severity of the threat. Similarly, it is delusional to think that Wall Street or other financial services industry players have any idea how to predict the future when it involves the climate.

What Texas bankers should be watchful of is an administration that is hostile to hydrocarbon production. John Kerry has said that natural gas needs to be curtailed, a reversal of the Obama era policy of encouraging the use of much cleaner natural gas rather than coal in power plants. (Kerry would have more credibility if he wasn’t flying around the world on his private jet spewing tons of carbon dioxide and spending his weekends on a 76-foot yacht.)

Be concerned about what the EPA may do regarding drilling, pipelines, petrochemical plants and export facilities for LNG.

Banking regulators have two methods to influence bank lending. They can use capital requirements to discourage loans they consider “risky.” They can also discourage banks from lending to borrowers that are “disfavored.”

Operation Choke Point was an effort in 2013 to limit lending to disfavored businesses such as firearms dealers and manufacturers, payday lenders and other borrowers. It is not too much of a stretch to imagine restrictions on loans to the energy industry.