Treasury Secretary Janet Yellen plans to expand the powers of the department she chairs with the addition of Sarah Bloom Raskin to her team to oversee potential risks to the financial system posed by climate change, and push for tax incentives to reduce carbon emissions.
“I think we need to seriously assess the risk to the financial system from climate change,” Yellen said during her Senate confirmation hearing, calling it an “existential threat” to the U.S. economy.
Janet Yellen has said the new climate “hub” at the Treasury Department would review the risks to financial stability from climate change and will also look at future tax incentives to reduce the carbon footprint.
Raskin is another veteran of the Barack Obama administration, where she was nominated to serve on the Federal Reserve Board of Governors (Fed), a position she held until 2014 when she was nominated by President Obama for the position of U.S. Treasury undersecretary; she has been vocal in having U.S. regulators determine the risks to the financial system that climate change may pose.
Raskin’s nomination to be part of Yellen’s team comes after a difficult time for her and her family, as her youngest son, Thomas Raskin, committed suicide on New Year’s Eve, as announced by Raskin’s husband, Rep. Jamie Raskin.
Raskin is part of the Biden’s administration climate change policy
Raskin’s appointment comes in conjunction with the Biden administration’s other policies that began by blocking construction of the last leg of the Keystone XL pipeline network, banning new oil and gas fracking on federal lands, and returning the U.S. to the Paris climate accords.
Despite the curb on future fracking done by the Biden administration, cheap natural gas has been crucial in reducing Co2 emissions in the U.S., even surpassing European reductions. Should the Biden administration impose a tax or regulatory penalty on fracking and oil projects within the United States, the extra cost of the tax will be reflected in the electricity and gasoline bills paid by millions of Americans.
A non-partisan technical team at the Treasury Department will have to push for clean energy development without penalizing Americans’ pocketbooks. A balanced market will have to seek a transition to cleaner energy through market incentives and productivity improvements, not the hand of a bureaucrat. Raskin’s work if he is to accomplish this purpose should be limited to a project of risk mitigation, not restrictions on productive activities.
What are the financial risks of climate change according to Janet Yellen?
The financial risks that Yellen and her team foresee include the risk of floods and fires that could devastate real estate, which would make it difficult for homeowners to repay their bank loans, and for insurers to pay out large amounts of money to replace the damage.
For example, mortgages in coastal or hurricane-vulnerable areas tend to be more expensive. In fact the value of new mortgages on U.S. coastal homes has exceeded $60 billion according to economists Amine Ouazad and Matthew E. Kahn.
Banks’ investment portfolios could change as countries begin to transition from fossil to renewable energy, affecting the value of assets based on fossil fuel extraction.
“Both the impact of climate change itself and the policies to address it could have large impacts, creating stranded assets, creating large changes in asset prices, credit risks, etc., that could affect the financial system,” Yellen said in her Senate hearing. “These are very real risks,” the Treasury secretary emphasized.
While the Treasury Department does not directly supervise or regulate banks, it can set an agenda that allows regulators to monitor the risk to the financial system from climate change. As Treasury secretary, Yellen, chairs the Financial Stability Oversight Council, a panel of regulators that also consists of the Fed, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.
Yellen’s move comes at a time when the stock market is optimistic about companies betting on energy conversion, such as Tesla, while several oil companies announced that they will initiate ambitious investment plans in renewable energy, such as BP and Shell.