Biden’s new playbook for greening the financial system

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Each week, our senior climate reporter brings you the big ideas, expert analysis and vital advice that will help you thrive on a changing planet. Sign up to get JWeekly Planet, our guide to living with climate change, to your inbox.


One of the central ideas of this newsletter is that we cannot fight climate change without modifying the Things of the world. The vehicles people use to get around, the chemical processes by which steel and cement are made, the serpentine machines that turn fossil gas into electrons – all of these must be quickly reworked or replaced if we are to maintain global temperatures. within a margin of survival.

It will be expensive, which means it will involve the financial system every step of the way. Think of the humblest unit of the fossil fuel economy, the gasoline-powered car. Most cars on the road (at least in the United States) are financed, i.e. people have taken out loans to buy them. Go see a car – in all likelihood a bank literally created money so someone can buy it.

The owner repays this loan to the bank. The banks then consolidate many of these loans in financial instruments which can be bought and sold on the financial markets. The car loan payments from each car owner are then paid out to whoever owns that financial instrument.

This is how someone defaulting on their SUV loan in San Diego can affect a pension fund in St. Louis. And this, remember, is one of the simplest chains in the global fossil fuel financing network. A new coal-fired power plant or a frack pit generates much more knotted networks of money.

That is why one of the goals of the Biden administration — to “green” the financial system — is so important. By changing the way money enchants the world of things, policy makers could change the things that are built in the first place. Today we have an exclusive look at how the Biden administration thinks about it.

Nonprofits Public Citizen and Americans for Financial Reform have released an early copy of their new “roadmap” for climate finance reform at The Weekly Planet. It’s a guide to what the new executive branch could do to shift capital flows to greener investments.

But it’s also a guide for the plans that are already in motion. The report was written last year, and there is some overlap between the report’s authors and Joe Biden’s finance team. (An author of the report, Andy Green, had been named as a civil servant in the Ministry of Agriculture.)

I recently spoke with David Arkush, one of the report’s lead authors. He gave me a three-part checklist – the most important things government can do to fight climate change through financial regulation. They are:

1. Appoint climate-sensitive officials to head financial agencies and empower them to engage with regulators.

“Financial regulators need strong climate ‘units’ at the highest level,” Arkush told me. “These units need to be both inward looking and have stature within the agency for this to be taken seriously…They also need to be outward focused and coordinate with other agencies .”

They go need coordinate because, well, “the way we regulate financial markets in this country is kind of crazy,” he said. An alphabetical soup of agencies governs the financial markets in the United States: “We spread it over 10 or 12 agencies instead of having one or two.”

Arkush pointed out that these units are already meeting. In January, the Federal Reserve hiring respected regulator Kevin Stiroh to lead his climate unit; the Commodities Futures Trading Commission established a Climate Risk Unit this month. Treasury Secretary Janet Yellen also noted that she will open a climatic unit at the highest level of her department.

2. Integrate climate risk into government “supervisory and macroprudential” regulation – the set of rules that ensures the proper functioning of the financial system as a whole.

The government is constantly working to ensure that individual banks don’t do something that could bring down the entire financial system. The Fed, for example, runs a “stress test” in which it rates the nation’s largest banks on how well they can survive a simulated recession.

The Biden administration should incorporate climate risk into such tests, Arkush said. He should first make sure banks don’t face too many “physical risks”, the name for damage caused directly by floods, wildfires and droughts from climate change. (This kind of risk took on California’s largest utility, PG&E, bankrupt in 2019.)

But it should also rate banks on “transition risk,” the possibility that rapid climate change Politics could leave their investments worthless. “If it really looks like the world is going to halve carbon emissions by 2030, you could see fire sales of fossil fuel assets overnight,” Arkush told me. Then, in addition to dealing with climate change, he said, we could also face a financial crisis.

Under Dodd-Frank, the financial reform bill that was passed after the global financial crisis, the government can also perform stress tests on financial institutions that are not banks. Ambitious regulators could use this law to determine whether BlackRock, the world’s largest asset manager, or Berkshire Hathaway, one of the nation’s largest holding companies, are adequately prepared for climate change.

3. Change market rules so investors have more information about how climate change affects their investments.

Currently, the government requires companies to disclose various information about them in order to help people invest. It should require similar disclosures about how companies are contributing to and could be affected by climate change, Arkush said, so investors can both choose the least risky stocks and invest in line with their values.

Large investors should also be encouraged to ask their clients about How? ‘Or’ What investing, he said: If their clients don’t want to harm the climate with their investments, asset managers need to act accordingly. In general, the government should also ensure that investments labeled “green” really are.

The regulation of climate finance is a hot topic right now. For several months now, the European Union has been committed in a bizarrely meticulous effort to define exactly what types of investments are green. This regulatory system, called the “green taxonomy,” has gotten as politically messy as you can imagine. Is a natural gas power plant green? And a nuclear power plant? Every decision foreshadows who will win and who will lose.

It’s almost as if continental bureaucrats are fabricating a climate version of the Napoleonic Code, specifying every possible violation and how it should be punished. The American legal system does not work like that. Here, legislators articulate abstract principles, then regulators and judges apply them.

This is the ultimate goal of the roadmap. The Biden administration will probably never say This investment is good, this investment is bad, but it will integrate climate transition into our existing systems of market governance.

Not that it will be easy. Yesterday, Senator Pat Toomey, a Republican from Pennsylvania, wrote a letter to the San Francisco Fed suggesting that it should stop researching “climate economics”, labeling the topic “bitterly partisan”. He’s not wrong – climate change is bitterly partisan. But all of the country’s largest banks have published climate policies nonetheless. And if he is partisan, it’s because partisans have fought for so long against greenhouse gas regulation that climate change has become a costly, society-wide issue. The financial system is where these costs roost. Any big problem, ignored long enough, becomes a financial problem.

Someone else’s weather

nico mira

Our Reader Nico Mira shared this photo of cherry blossoms in bloom in Tokyo Friday, March 26.

Just over 200 miles to the west, cherry blossoms peaked in Kyoto on the same day—the first day since records began to be kept over 1200 years ago.

Here in Washington, DC, our cherry trees are also in bloom—about one week ahead of the 100-year average.

Each week, I present a weather photo of a reader or a professional in this part of the newsletter, because the climate is someone else’s weather. If you would like to submit one, please email weeklyplanet@theatlantic.com.

3 other things

1. Volkswagen seems to be renamed Voltswagen in the United States to present its new electric vehicles. The company insists this isn’t an April Fool’s Day joke. Reminds me of when IHOP briefly changed his name at IHOB to showcase its burgers, but I guess it was the company that brought us Fahrvergnügen. (Update: After writing this, but before sending out the newsletter, Volkswagen clarified that it has been an april fools joke after all-a demonstration, if nothing else, of VW’s commitment to Vaterhümor.)

2. The Biden Administration advancing wind farm development projects off New York and New Jersey, and it has set a goal of building 30 gigawatts of offshore wind power by 2030. That would more than double current offshore wind capacity worldwide.

That’s a big deal for New Yorkers, who could (a decade from now) be bragging about clean, cheap carbon-free energy. It’s also our first look at how Biden will try to use the federal government to support domestic climate-friendly industries. This particular thrust implied billions of dollars and the Departments of Commerce, Energy, Transportation and the Interior.

3. The pandemic is fading and US greenhouse gas emissions are rising again. Flying for recreation is to gather. And as oil and gas production has resumed in Texas, drillers are once again venting massive amounts of super-heating pollutant methane in the air. Drillers too burned methane during the Texas freeze last month, because they couldn’t sell it and had no way to store it.


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Don F. Davis