The coronavirus pandemic has laid bare just how vulnerable the United States is to sudden, catastrophic shocks. Climate change poses the next big threat. Ignoring it, particularly to the benefit of fossil fuel interests, is a risk we can’t afford.
From my time as a Federal Reserve governor and then deputy Treasury secretary, I’ve learned that times like this not only can determine our ability to recover from a crisis but can also help inoculate us against the next one. That’s why it is imperative that we make investments now that will increase the resilience of our economy.
The Fed is singularly poised to seed strategic investments in future economic stability. Oil, gas and coal companies are set or are seeking to receive billions in federal aid — including at least $3.9 billion from the Paycheck Protection Program and at least $1.9 billion in tax credits tucked into the CARES Act passed by Congress. Their allies in Congress and the administration have lobbied for changes to several of the Fed’s lending programs, including relaxing the Main Street Lending Program. Among those eligible for government assistance are many fossil fuel companies that were in deep financial trouble long before the pandemic began.
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These concessions to the fossil fuel industry are a risky investment in the past. The Fed is ignoring clear warning signs about the economic repercussions of the impending climate crisis by taking action that will lead to increases in greenhouse gas emissions at a time when even in the short term, fossil fuels are a terrible investment.
Parts of the industry are awash in hundreds of billions in risky debt. Many fossil fuel companies spent the past decade recklessly expanding production even as they failed to turn a profit. Oil and gas companies now hold $744 billion in bonds and debt, much of it below investment grade or close to it. Almost 83 percent of the industry’s debt is now eligible for cheap refinancing by the Fed.
For taxpayers, shouldering these liabilities is a bad deal. Buying this bad debt is not likely to support the creation of jobs or even ensure that existing jobs survive. Moreover, the Fed-subsidized loans come with no strings attached regarding the retention of jobs, C.E.O. bonuses or stock buybacks.
The decision to bring oil and gas into the Fed’s investment portfolio not only misdirects limited recovery resources but also sends a false price signal to investors about where capital needs to be allocated. It increases the likelihood that investors will be stuck with stranded oil and gas assets that society no longer needs. It also forestalls the inevitable decline of an industry that can no longer sustain itself. And finally, it undermines urgent efforts to counter surging carbon dioxide and methane emissions, which are bringing us closer to the catastrophe of an unlivably hot planet.
Given the size and scope of government intervention, we should be maximizing the public’s return on our investment. The Fed’s unique independence affords it a powerful role, and its mandate includes ensuring both the stability of the financial system and full employment. Climate change threatens financial stability; addressing it can create economic opportunity and more jobs. The decisions the Fed makes on our behalf should build toward a stronger economy with more jobs in innovative industries — not prop up and enrich dying ones.
Last week, five economists released a survey of more than 200 finance ministers, central bankers and economists from Group of 20 countries. Their recommendations were unequivocal: The best long-term recovery plans will also be the plans that reduce greenhouse gas emissions.
In the United States, this dynamic has already become apparent. Renewable energy in the past few years has been shown to directly and indirectly generate roughly three times as many jobs as a comparable investment in fossil fuels. Jobs in clean energy, such as wind technicians and solar installers, are the fastest growing of any industry in the country, and over the past five years, employment in the clean energy industry has grown 70 percent faster than the economy overall.
This pandemic has illustrated the staggering costs of failing to prepare for known risks. And the magnitude of the crisis has been made so much worse by the flight from science and the elevation of narrow private interests over the national common good.
But it also provides an unexpected opportunity to build an economy that is stronger in the long term. The decisions that the Fed makes today will go a long way to determining whether tomorrow’s economy is one that remains susceptible to more chaos and vulnerability or builds economic security and resilience.
Sarah Bloom Raskin is a former member of the board of governors of the Federal Reserve System and a former deputy Treasury secretary.
