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Progressive House Democrats on Wednesday introduced legislation to curb big-bank lending to the fossil fuel industry.
The measure, the Fossil Free Finance Act, would direct the Federal Reserve to use its financial regulatory tools to ensure that the largest banks reduce their lending to the oil, gas and coal sectors.
“In just the last five years after the Paris Climate Agreement was signed, big banks have invested nearly $4 trillion in emissions financing, This flow of money exposes our financial system, our economy, our communities and our planet to astronomically high levels of climate risk,” said Rep. Mondaire Jones, a freshman Democrat from New York, at a press event introducing the legislation.
The measure would prohibit big banks from investing in new or expanded fossil fuel projects after 2022. Financing of coal projects would stop after 2024 and financing of all fossil fuel projects would follow by 2030.
Environmental groups welcomed the proposed legislation.
“Wall Street banks have made it clear that, without strong federal oversight and regulation, they plan to continue pouring money into the fossil fuels that are driving the climate crisis,” said Ben Cushing, who is working on the project for the Sierra Club, in a statement accompanying the measure.
Supporters of the legislation see a threat to the economy and compared banks pouring billions of dollars into a declining fossil fuels sector with the overinvestment in the housing sector that sparked the global financial crisis of 2008.
In a blog post released Wednesday, Bill Nelson, chief economist at the Bank Policy Institute, which lobbies Congress on behalf of banks, said in a blog post released Wednesday that “the exposure of banks to losses due to the steady decline of old firms and rise of new ones is not novel. Economists that are seriously concerned that banks will incur a high level of loan losses because of such climate-related changes should be investigating past instances of similar change to gauge the risks.”
The Fed is in the political hot-seat over climate change. The Fed has started to develop risk management tools to understand climate change risks to the resilience of the financial system. This might mean mandatory disclosure by the banking industry.
Progressive Democrats say the Fed has done too little, while some Senate Republicans have said the steps the Fed has taken already go too far.
Experts predict climate change will continue to be front-and-center for the Fed because it is a priority of the Biden administration. The White House could appoint four governors to the central bank’s seven-member board of governors by next spring.
Dallas Fed President Rob Kaplan, whose district includes much of the country’s oil drilling operations, has tried to walk a middle ground.
Earlier this month, Kaplan said that “whether we like it or not,” even with dramatic adoption of wind, solar, electric cars and other transformative businesses like battery storage, the U.S. economy is going to be reliant on the fossil fuel industry “for many, many years to come.”
“We’re going to have figure out a way, as we’re aggressively moving to alternatives, to still have a healthy fossil fuel industry to provide the needs of our population and to avoid price spikes,” Kaplan said, during a town hall event at his regional bank.
At a press conference on the Democratic legislation, David Arkush, managing director of Public Citizen’s Climate Program disagreed.
“We don’t need any new investment in fossil fuels, that’s for sure. What we need to do is wean them off of them as quickly as possible. And that’s why we need the involvement of financial regulators to help set Wall Street and make it happen,” Arkush said.
Asked whether shadow banks would simply step in and finance projects for the oil and gas industry, Arkush said no firms could match the cheap loans that big banks give to the fossil fuel industry.
“It is still effective to be regulating the largest banks and phasing it down,” he said.
