Democratic bill would force Fed to defund fossil fuels

Three progressive House Democrats introduced a bill Wednesday that would force the Federal Reserve to break up banks if they do not reduce the carbon emissions they finance in line with the Paris climate accord.

The bill, called the Fossil Free Finance Act, orders the Fed to take unprecedented steps meant to steer financial support away from oil, gas, coal and companies by unraveling banks who refuse to comply. The measure also covers financing the destruction of natural forests.

“For too long, the Federal Reserve has failed to acknowledge climate change as the threat that it is. As climate disasters grow in frequency and intensity, we can no longer afford to stand by while big banks and other financial institutions invest trillions in the companies fueling the climate crisis,” said Rep. Mondaire Jones (D-N.Y.), who introduced the bill with Democratic Reps. Ayanna Pressley (Mass.) and Rashida Tlaib (Mich.), in a statement.

The bill comes amid growing pressure on President Biden to replace Federal Reserve Chairman Jerome Powell, a Republican whose term expires in February, with a staunch liberal dedicated to using the central bank to fight climate change.

Under Powell, the Fed has created and joined several committees focused on climate-related financial risks, but has refused to incorporate those concerns into regulatory requirements. Powell has also rebuked calls to push the Fed into the fight over how to stop climate change, insisting it is not appropriate for the central bank to step outside of its mandate. 

Progressives, however, are pushing to circumvent Powell’s concerns by making climate change a core financial regulatory responsibility for the Fed.

“For too long, our federal government has looked the other way while our nation’s largest banks bankroll the dirtiest fossil fuel projects, exacerbating the climate crisis and setting us up for a massive, climate-induced economic collapse. That must change,” said Pressley, one of several House Democrats pushing Biden to ditch Powell.

Under the bill, banks with more than $50 billion in assets must develop plans to reduce 50 percent of the carbon emissions they finance by 2030 and 100 percent of their financed carbon emissions by 2050; end new and expanded fossil fuel-related projects after 2022; end the financing of all fossil fuel projects after 2030; and halt thermal coal financing after 2024.

Banks that fail to submit or adhere to Fed-approved emission reduction plans could face serious penalties, including being forced to divest assets and losing their deposit insurance from the Federal Deposit Insurance Corporation. Such penalties are rarely imposed, and only in serious cases of fraud, mismanagement or other dangerous or illegal conduct.

“Over the last five years, financial institutions under the Federal Reserve’s supervision provided trillions in direct fossil fuel financing—and each new project brings us closer to the brink. The Federal Reserve’s role is not to surrender our planet to corporate polluters and shepherd our financial system to its destruction. The Federal Reserve’s role is to act.” Tlaib said in a statement.

The bill does not specify how a bank should calculate how much of a client’s carbon emissions it is responsible for financing, but forces banks to account for emissions made possible through a wide range of activities and services. Banks would not only be responsible for reducing emissions created through fossil fuel production or distribution projects they finance, but also emissions generated by purchasing the debt of a company, underwriting stock offerings, and other investment services.

The bill would also expand the power of the Financial Stability Oversight Council, an interagency panel of financial regulators chaired by the Treasury secretary, to subject non-bank financial firms to climate-related rules.

While President Biden and Democrats have proposed sweeping measures to curtail carbon emissions, the Fossil Free Finance Act has little chance of becoming law. The bill would almost certainly be defeated by a Republican filibuster in the Senate, even if enough moderate Democrats vote in favor of the bill in the House.