Two of America’s most important political and financial institutions were set to gather during the week of August 19: U.S. Federal Reserve Chairman Jerome Powell was to host global central bank leaders in the cool mountain air of Jackson Hole, Wyoming. At the same time, the Democratic Party convened in Chicago to coronate Vice President Kamala Harris as their choice for November’s U.S. presidential election.
The two institutions had very different topics to discuss, but both shared a distinct aversion to addressing climate change, writes Peter McKillop, publisher of New York-based Climate & Capital Media.
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 Joe Biden’s landmark climate legislation, the Inflation Reduction Act, she has not yet uttered the phrase “climate change” in her stump speeches across America. In Chicago, not one speaker discussed climate change in the convention’s first two days. [Update: The convention program filled that gap on Day 4, with material that largely positioned climate action as an economic and job opportunity—Ed.]
The Biden Energy Paradox
There is also the sticky fact that natural gas exports have boomed since Biden and Harris took office. While the Biden Administration’s hybrid energy approach is widely considered realistic, it pleases no one. Harris’ base hates that the administration has further fuelled the natural gas fracking boom. However, if she talks too much about clean energy, she risks alienating key swing state voters.
This is a particularly sensitive issue in the critical swing state of Pennsylvania, where fracking has boomed over the past two decades. Here, fracking splits voters like shale. So it’s best to say nothing and bury the topic at this week’s convention. Expect a lot of discussion among delegates, but not in prime time.
The Fed Thumbs Its Nose at Climate Risk
Reasonable observers might accept the political expediency of the Democrats’ urge to avoid a climate battle this fall. After all, Democratic action on climate change, for the most part, more than speaks for itself.
The Federal Reserve is an entirely different matter. Powell’s stubborn refusal to engage on climate change risk is not a political tactic. It is deliberate and a real threat to society. Repeatedly, senior progressive Democratic legislators, including Senate Budget Committee Chair Sheldon Whitehouse (D-RI), House Financial Services Committee ranking member Maxine Waters (D-CA), and Rep. Sean Casten (D-IL) have objected to Powell’s head-in-the-sand approach to climate risk, but with little success.
The climate emergency, however, is immune to American politics, and the surging increase in 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 U.S. household wealth is tied up in real estate. And without insurance, the value of property plunges, as does the asset value of banks who hold property mortgages on their balance sheets.
Whitehouse warns a new financial crisis is brewing. “It is not a question of if, but when and how bad,” he said.
Powell is not listening. Last week, at his semi-annual appearance before the Committee on Financial Services of the U.S. Congress, he again made it clear that “dealing” with climate risk is 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 Citizen write for 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
Critics argue that Powell is simply parroting the views of America’s largest banks, which vehemently oppose any new regulation to set aside more capital to cushion against future losses or other climate risk-related initiatives. These are the same banks that demanded deregulation in the early 2000s while recklessly marketing breathtakingly risky mortgages, leading to the real estate crisis of 2008 and the biggest U.S. financial crisis since the Great Depression of the 1930s.
But much to the delight of JPMorgan, Bank of America, and Citibank, Powell’s lesson from 2008 appears to be 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.
Protecting American Banking Interests
These same banks are now pushing Powell and the Fed to oppose any effort to increase the so-called “capital buffers” at the centre of fractious negotiations on the so-called Basel III endgame, which seek to strengthen systematically important global financial institutions banks to withstand a future financial crisis.
This puts American banks at odds with other key global central banks, notably the European Central Bank (ECB) and the Bank of France. Unlike the Fed, those institutions see managing climate risk as core to their mission to preserve the stability of Europe’s financial system.
According to Bloomberg, Powell blocked the ECB’s efforts in April to focus global financial rules on climate risk. JP Morgan CEO Jamie Dimon has called international efforts to tighten risk regulation “flawed and poorly calibrated.”
So it should be no surprise that climate risk is not on the agenda for Powell’s Jackson Hole conclave this week.
The People Have Spoken
The Democrats’ reluctance to embrace climate change also flies in the face of voter sentiment. Poll after poll say Americans are enthusiastic about the green energy transition: Pew Research reports that 78% of U.S. voters want more solar and wind power, 73% want more proactive government action, and 53% would pay higher taxes to make it happen.
The climate vacuum among Democrats in this election cycle has also allowed Donald Trump to fill the airwaves with nonsensical rants about Harris’ hostility to fossil fuels. This is particularly rich because, under Biden-Harris, record volumes of fossil fuels have been pumped and exported, making the U.S. is now the world’s biggest exporter of liquefied natural gas (LNG).
Delinking climate change and America’s green re-industrialization is a short-term, penny-wise, pound-foolish fix. Biden’s new green industrial policies were created to address the climate crisis, not some squishy pitch to “Make America Great Again.”
As the climate crisis worsens, this kind of short-term political expediency 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. Gen Z and Millennials should not be faulted for wondering why Democrats are running away from robust climate discourse, despite Biden’s landmark climate efforts.
And what are they to make of Fed Chair Powell publicly thumbing his nose at the risk associated with an accelerating climate crisis?
Profiles in courage, they are not.
