Mark Trahant
Indian Country Today
There is a climate change pipeline problem. No, it’s not just the 2 million miles of pipes that transport fossil fuels. This pipeline problem is about the money, risk and tough choices that lay ahead in order to significantly reduce fossil fuel emissions.
At a Senate hearing Thursday, the Biden administration’s nominees for the Federal Reserve were questioned about using climate change as a framework for economic decisions. Much of the focus was on Sarah Bloom Raskin, the president’s pick for vice chairman for supervision at the Federal Reserve, a role that by design is tasked with overseeing how major banks monitor emerging threats to the economy.
So is climate change a major risk? And how should the Federal Reserve bank respond?
An op-ed inThe Wall Street Journal reflects one side of the debate. “A hallmark of Ms. Raskin’s career has been her vendetta against U.S. energy producers — a vendetta she likely plans to take with her to the Fed,” wrote Tim Stewart and Kathleen Sgamma. Stewart is president of the U.S. Oil and Gas Association and Sgamma is the president of Western Energy Alliance, which represents oil and natural-gas producers in the Rocky Mountain West.
“She has also urged the Fed to use its risk-based capital standards to drive capital away from oil and natural-gas firms toward ‘sustainable investments,’” they wrote. “She has even gone so far as to suggest that the Fed should de-bank energy companies by establishing portfolio or concentration limits for banks on ‘high-emission assets.’ Why so much disdain for oil and natural gas? Because, in Ms. Raskin’s opinion, it’s a “dying” industry that poses climate-change-related risks to the economy.”
Related stories:
—What the heck is Indigenous economics?
—The economics of climate accountability
—Climate change, Indigenous communities and ESG
Sen. Pat Toomey, R-Pennsylvania, dismisses both the risk and the shift from a fossil fuel business-as-usual approach.
“If we limit domestic oil and gas production, energy prices will rise. Americans will pay more at the pump to accomplish the stated goal of decreasing emissions. How much more is appropriate?” Toomey said at the hearing.
“Let me be clear: this isn’t about whether one believes that addressing global warming is important, or how you would answer these questions,” Toomey said. “The point is these are difficult choices, which must be made by accountable representatives through a transparent and deliberative legislative process … that’s how a Democratic process works.”
However Sen. Elizabeth Warren, a Massachusetts Democrat, said the issue should not even be controversial because the notion of risk is already a global standard.
She cited testimony from Federal Reserve Chairman Jerome Powell, who described the Federal Reserve’s role as “important” but “limited” because it requires banking institutions to understand the risks and manage them, including risks to the very business model of the bank. Powell was first nominated by President Donald Trump and then renominated by President Joe Biden.
So what are these climate risks and why would the banking sector pay attention?
That’s where the pipeline comes into the picture. How many projects can be in the financing pipeline and still meet climate goals? And what are the pitfalls?
A study by Carbon Tracker, a London-based economics team, measures fossil fuel risks and the impacts on the climate. It says recent increases in gas and oil prices are a risk because significant new investment is “a narrative at odds with the immediate global production reductions required within most ‘well below 2°C’ scenarios.”
And the challenge for bankers is what happens when there is a “stranded asset” – an investment that is no longer paying off because the markets have shifted. The Carbon Tracker research says the “key is to avoid locking in high-cost, long-cycle projects.”
This is where banking regulators could have an impact, because when companies make long-term, over-investments in fossil fuels, Carbon Tracker, said it could “seriously impact shareholder value. It wouldn’t be the first time that the industry has fallen into this trap.”
Indigenous climate defenders have been making a similar case for years.
A November 2014 report by First People’s Worldwide identified the financial risk associated with development on Indigenous lands. It said the potential for a disruption could “cost somewhere between $20 million to $30 million a week for operational disruptions” and that the cost of projects because of that had more than doubled over the previous decade.
“These numbers come from studies of community opposition in general,” the report stated. “However, Indigenous community opposition is an especially perilous investment risk because Indigenous Peoples have the international legal framework for Free, Prior, and Informed Consent.”
That adds a process for development that includes the principle that a community has a right to give permission or withhold consent from development on lands that are owned, occupied, or otherwise used by Indigenous peoples.
Last November, at the Glasgow climate summit, a more direct case against the financing of fossil fuels was made by the Indigenous Environmental Network. It focused on J.P. Morgan Chase.
“Since the signing of the Paris Accords in 2015, the world’s largest 60 banks have provided $3.8 trillion globally for fossil fuel extraction and related infrastructure, like pipelines. Of these financers, JP Morgan Chase is the worst with $316 billion in fossil fuel funding over the same time period,” the network said in a news release.
“The time to divest from fossil fuels is long overdue.” says Eriel Deranger, executive director with Indigenous Climate Action. “This extractive economy is killing our communities and killing the planet.”
Mark Trahant, Shoshone-Bannock, is editor-at-large for Indian Country Today. On Twitter: @TrahantReports Trahant is based in Phoenix. The Indigenous Economics Project is funded with a major grant from the Bay and Paul Foundations.
Indian Country Today is a nonprofit news organization. Will you support our work? All of our content is free. There are no subscriptions or costs. And we have hired more Native journalists in the past year than any news organization ─ and with your help we will continue to grow and create career paths for our people. Support Indian Country Today for as little as $10.