What Biden should have talked about last week with Fed Chair Powell
This blog is reposted and originally appeared on 350.org.
by Jason Kirkpatrick
With inflation and gas prices topping the agenda in the USA recently, one could be surprised by what topics were left out of the recent meeting between President Biden, Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell. With both Yellen and Powell admitting that they were wrong about inflation being temporary, it’s time that these two and Biden start taking seriously the two biggest long-term threats to the economy: energy and climate.
The Problems are as clear as the solutions
The 1974 oil crisis was just one fossil fuel caused economic shock among many, which led to a national economic crisis. Now it’s Russia’s new war causing the latest energy shock in a decades long series of problems stemming from the eternally volatile fossil fuel market. In fact, according to the Federal Reserve itself, nearly all post-World War II recessions were preceded by higher oil prices.
In large part caused by problematic fossil fuels, the growing climate crisis is the planet’s biggest long-term threat, according to the World Economic Forum. Last week the Wall Street Journal ran a shocking headline, “Climate Inaction Could Cost $178 Trillion By 2070“. Even the Pentagon says climate change is a main global driver of insecurity and instability, and now incorporates climate into its risk assessment and war gaming.
Yet neither getting off fossil fuels nor having the Federal Reserve tackle the problem of climate disruption were discussed during multiple reports of Biden’s meeting last week with Fed Chair Powell or Secretary Yellen. This is odd given that more and more financial experts are showing concern about climate risks and costs of extreme weather events.
The Federal Reserve Bank of Dallas accurately predicted last year that volatile and high oil prices would drive inflation higher. The problem has gotten worse since the Russian war began, with U.S. energy prices jumping 32% in one year as of March 2022. Yet the solution is tried and true; clean job-creating renewable and cheaper energy sources like solar and wind, recently renamed in Germany as “freedom energies“.
An obvious advantage of wind and solar energy is that these resources are free, and they will always be free, unlike the volatile price of oil which has fluctuated between $20-120/barrel in the last two years. Such volatility drives away long-term investment, making a stable oil-based energy economy impossible. On the other hand, although costs for new solar PV and wind installations have slightly increased after a decade-long cost reduction trend, natural gas, oil and coal prices have risen much faster, therefore actually further improving the competitiveness of renewable electricity.
The Fed must take on energy and climate now
Federal Reserve Board Governor Lael Brainard has already laid out arguments for needed moves in a 2021 speech, stating, “natural disasters have resulted in more than $5.2 trillion in losses.” She further explains the need for central banks to properly look at climate “scenario analysis”, “…an exploratory exercise that allows banks and supervisors to assess business model resilience to a range of long-run scenarios.” If such analysis takes into consideration long-term economic disadvantages of fossil fuels, the path towards elimination of them will be clear.
Evergreen Action has published a paper detailing positive actions the Fed could do, including:
1. Creating mandatory climate-risk disclosure rules
2. Conducting regular climate stress tests
3. Setting “capital requirements” to ensure banks internalize some climate-related risks
4. Limiting investments that are not in line with the Paris agreement
5. Updating the Community Reinvestment Act regulations to drive equitable green finance
The Fed has repeatedly shown it can take bold action on energy, for example by giving billions of dollars to fossil fuel companies in both the financial crisis of 2008 and the 2020 coronavirus linked crisis. But now is the time to turn things around and take similar bold action to solve long-term inflation by backing a just transition to a fossil free energy system.
Chair Powell, speaking at the annual Jackson Hole Economic Policy Symposium last August, proclaimed that the rapid post-covid recovery of the economy was in large part due to actions of Fed. Now we have to keep the pressure on to ensure that the Fed fixes inflation and the economy by pushing for clean energy solutions that create a healthy climate for everyone.
Jason Kirkpatrick is the 350.org US Communication Specialist,
and is also a former Vice Mayor of Arcata, California