Days after Joe Biden’s contentious presidential win, the U.S. Federal Reserve – known as one of America’s most conservative institutions – acknowledged for the first time the financial risks of climate change in its biannual financial stability report. In comments attached to the publication, Fed Governor Lael Brainard said the following:
“Acute hazards, such as storms, floods, or wildfires, may cause investors to update their perceptions of the value of real or financial assets suddenly…slow increases in mean temperatures or sea levels, or a gradual change in investor sentiment about those risks, introduce the possibility of abrupt tipping points or significant swings in sentiment.”
It’s clear that the Joe Biden White House will be taking climate changes and its economic impacts more seriously than his predecessor, who repeatedly downplayed those risks. But the personality of the spokesperson is key here.
Monday’s report spearheaded by Dr. Lael Brainard, a Fed Governor, might be interpreted as a signal of forthcoming cooperation between the U.S. Central Bank and the incoming administration — or it could be her own policy entrepreneurship. But it does appears from media reports that Dr. Brainard is a leading contender to be Secretary of Treasury in the Biden cabinet. She was a Clinton and Obama Administration senior official, and may or may not reflect the whole of Fed’s orthodoxy when it comes to climate change.
“It is vitally important to move from the recognition that climate change poses significant financial stability risks to the stage where the quantitative implications of those risks are appropriately assessed and addressed”, Governor Brainard commented.
The Biden team has promised to address climate change with an ambitious $1.7 trillion climate policy plan that incorporates parts of the Democratic Socialists’ Green New Deal – promising more federal support for green energy sources and a reversal of permits for upstream oil and gas activities on federal land. There is also talk about the cessation of drilling and hydraulic fracturing on government acreage, which would cost America some 3 million barrels of oil per day, billions of cubic feet of gas, and billions of dollars a year in revenue. Tens of thousands of well-paying jobs will be lost if drilling and fracking on federal land are ended by a fiat.
Biden’s agenda also involves re-joining the Paris Climate Agreement, which President Trump officially exited on November 4th of this year. Part and parcel to this, president-elect Biden is planning to remove carbon from the electricity sector entirely by 2035 and make the United States carbon-neutral by 2050.
With the Federal Reserve now bolstering the economic argument for tackling climate change, Biden may be able to recruit support from across the aisle, thereby fulfilling his campaign promises of unity and bi-partisan compromise. The historic Fed announcement, coupled with Biden’s Green Growth platform, portends a shift in energy sector financing more averse to hydrocarbons and friendlier towards renewable energy sources.
Or it may be just be a flash in the pan on Ms. Brainard’s way to Treasury.
With Assistance from Alexandra Perouansky