Senate Republicans are warning the Federal Reserve to stay out of regulating climate change financial risk, arguing assertions that fossil fuel investments are risky are “misguided.”
Efforts to regulate climate change through the financial system are a “self-fulfilling prophecy,” wrote all of the Republicans on the Senate Banking Committee, led by ranking member Sen. Pat Toomey of Pennsylvania, in a letter Thursday to Fed Chairman Jerome Powell.
Such regulations would allow the federal government to “claim there are financial risks with energy exploration and other disfavored investments then use the levers of government—via the unelected bureaucracy—to ban or limit those activities,” the senators added.
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The letter is the latest Republican pushback against efforts by the Fed and other financial agencies to incorporate climate change into regulation.
The Biden administration is moving quickly. Just this week, the Securities and Exchange Commission took initial steps toward requiring public companies to disclose the risks they face from climate change, both from its physical effects and from policies to curb emissions.
The Commodity Futures Trading Commission announced the creation of a Climate Risk Unit on Wednesday to help the agency better understand, price, and address climate-related risks. That follows the SEC, the Treasury Department, and the Fed all creating their own climate arms in recent months.
The Fed has also joined a global network of central banks focused on climate change and included the issue in its semiannual report on risks to financial stability for the first time.
In addition, Lael Brainard, a member of the Federal Reserve Board, suggested it could be helpful to institute scenario analyses to examine the risks climate change poses to financial firms.
Republicans in the Senate and House have balked at such suggestions, raising concerns that climate scenario analyses could prompt banks and other financial institutions to drop carbon-intensive clients.
In their letter, the Senate Republicans argued climate predictions, which stretch decades into the future, are “inherently and irreducibly uncertain,” raising questions about the value of scenario analyses based upon them.
Rather, banks are in the “best position” to consider climate-related risks to their portfolios, the senators said.
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Nonetheless, Republican lawmakers are also taking aim at big U.S. banks that decline to invest in fossil fuel projects, such as new oil and gas drilling in the Arctic, as they set goals to align their financing activities with the Paris climate agreement.
More than half of the Senate’s Republicans introduced a bill earlier this month that would codify a Trump administration effort to keep banks from restricting services to specific industries, including energy producers. Rep. Andy Barr, a Kentucky Republican, introduced the House companion bill.
