Federal regulators man the ramparts to fight climate change
Community banks will be next in line to produce this type of data for their federal regulators.
Congress is scrambling to pass the green provisions in the multi-trillion dollar spending bill to give President Biden a climate victory when he went to the multinational climate summit in Glasgow in early November.
The voluntary pledges have not panned out for some of the largest countries that are also the largest polluters. China, India, Russia and Australia have yet to make pledges on their goals to cut emissions. China is the largest CO2 culprit and China and India have been building new coal-fired power plants at a rate of one per week. Australia profits as China’s biggest supplier of coal. Russia is increasing natural gas production for export to Germany and most of Eastern Europe.
Many countries have made vague promises to reduce emissions by mid-century but green advocates adamantly insist that immediate action is needed to sharply curtail the use of fossil fuels, switch to renewables and electrify transportation in order to decarbonize the world.
The truculent Swedish teenager, Greta Thunberg, is not the only voice demanding change. The European Union has issued climate change regulations for all sectors of their economy. For example, Royal Dutch Shell recently sold their Permian Basin assets to an American company because a European court held them responsible for environmental damage due to hydrocarbon production.
Joe Biden ran for president as a candidate who would act on climate change. As president, he immediately signed executive orders banning drilling on federal lands and shutting down pipelines. In October, the White House issued a plan to protect the economy from climate risks. The Roadmap to Build a Climate Resilient Economy described climate risks as two-fold:
- physical risks from extreme weather, and
- transition risk as the nation lessens its dependence on carbon fuels.
All federal agencies must produce climate plans. The SEC has already issued climate disclosure requirements for publicly traded companies.
On October 24, the Financial Stability Oversight Council (FSOC) issued a 133-page report directing federal financial regulators to develop rules for stricter climate risk oversight of regulated entities and provided a roadmap for integrating climate risk management into the regulatory system.
FSOC is a 15-member board — created by the Dodd-Frank Act and chaired by the Treasury Secretary — that looks for systemic risks in the financial services economy. At the time of FSOC’s creation, it was probably not contemplated that the Council would evaluate issues like climate change but the Biden administration has used its broad mandate to bring climate issues into bank regulation. They will assess climate-related financial risks and collect data related to climate risk “exposure.” The FSOC proposals will probably be channeled through FFIEC and will initially apply to the largest institutions. Community banks will be next in line to produce this type of data for their federal regulators.
This will not be merely a data collection process. This is a trojan horse for the federal government to eventually have a say in the allocation of credit to the energy, agriculture, manufacturing and transportation sectors. With narrow legislative majorities in the House and Senate, the left-leaning progressives cannot accomplish their climate goals through legislation. They are attempting to accomplish radical changes through the regulatory process. In 2013, there were similar efforts made in Operation Choke-Point to try to limit credit to legal but disfavored industries such as firearm manufacturers.
This fight is not over. The 2022 federal elections may change the control of Congress. If so, there will be more scrutiny of the potential harms of this regulatory free-for-all. Even without changes in the legislative branch, this overreach will be facing challenges in the courts.