“Climate change,” Federal Reserve Chairman Jerome Powell told the Joint Economic Committee last November, “is an important issue but not principally for the Fed. We’re not going to be the ones to decide society’s response. That is for elected officials, not us.” As of yesterday, however, it’s clearer than ever that the Federal Reserve is very much in the business of deciding how society navigates a warming world.
On Thursday, the Fed announced several expansions of its $600 billion Main Street Lending Program intended to help the country respond to the economic fallout of the coronavirus and ensuing shutdowns. The new changes will come as welcome news to fossil fuel companies previously unable to take advantage of stimulus funds allocated by the Coronavirus Aid, Relief, and Economic Security, or CARES, Act as a result of several now-nixed restrictions.
As Bharat Ramamurti—a member of the Congressional Oversight Committee for the CARES Act—tweeted Thursday, several of these new changes closely mirror requests the oil and gas industry made over the last several weeks. Companies applying for stimulus support will now be able to refinance their existing debts, a change the Independent Petroleum Association of America explicitly requested of Powell in an April 15 letter. Companies can also now receive loans of up to $200 million, an expansion over the previous $150 million limit urged by energy secretary and fossil fuel industry ally Dan Brouillette. Firms with heavier debt loads—American shale oil companies are notoriously debt-heavy—are also now eligible for Fed support, as Texas Senator Ted Cruz requested in an April 24 letter to Powell and Treasury Secretary Steve Mnuchin, whose approval is required for the Fed’s new lending programs. “The Administration should not be picking winners and losers among different energy sources,” Cruz wrote, “but President Trump has rightly committed not to allow financial institutions to discriminate against the oil and gas industry and use this crisis to make politically-driven equity calls that force the bankruptcy of American producers.” Per industry and Republican requests, companies newly able to take advantage of stimulus funds also won’t be under any obligation to keep workers on their payrolls or hire back workers they’ve let go. Cruz’s letter also stated that it would be “too restrictive” for oil and gas companies to have to keep them around.
The Treasury and Fed “should be transparent about why they made these changes today—and rejected others that were focused on trying to keep workers employed or get them back on payroll,” Ramamurti tweeted in the same thread on Thursday. In a follow-up email to me, Ramamurti noted that stimulus funds weren’t supposed to be used to bail out companies that were struggling before Covid-19 and called it “discouraging” that the money was being furnished without protections for workers.
Cruz’s letter conveniently doesn’t mention that the oil and gas industry would be facing a rash of bankruptcies even without a pandemic: Most U.S.-based shale drillers have never produced a positive cash flow. The Fed’s response to the last economic crisis, in fact, helped create this situation, with low interest rates allowing massive amounts of capital to flow into drilling techniques that, until then, had been too costly to finance. As Covid-19 started spreading, the largesse drillers had enjoyed from Wall Street banks was already running out.
“The path to an oil and gas bailout runs through the Fed, and they want an entirely separate set of rules,” Lukas Ross of the environmental nongovernmental organization Friends of the Earth told me. “What happened this morning is really just one tiny piece in this overarching effort from the oil industry to get a hold of as much of the stimulus money as possible. Even though it would be unprecedented and dangerous for an oil and gas program to divert needed money from communities, there is really nothing from stopping that right now.”
That the fossil fuel industry has deep and lucrative ties to the GOP isn’t exactly breaking news: For the last decade at least, the Republican Party has functionally operated as the political arm of coal, oil, and gas companies. The Fed is officially an independent central bank, although yesterday’s announcements show that it’s hardly immune to political and industry pressures. Its decision earlier in April to purchase high-yield junk bonds—many of them issued by oil and gas companies—was another, slightly more subtle lifeline to the industry, which has consistently asked that the government relax the terms of lending facilities so as to expand its access to stimulus funds. So far, it’s getting its wish.
While indulging the fossil fuel industry with handouts, the Fed can’t meaningfully claim to be a neutral actor when it comes to climate policy. Led largely by Mark Carney at the Bank of England, there was an ongoing conversation among central banks around the world about their role in a climate-changed world, first convened as the Network for Greening the Financial System, in 2017. While the U.S. Federal Reserve System hasn’t joined up, the San Francisco Fed did host a conference on climate change last November.
Powell has conceded that central banks have a role in maintaining the stability of the financial system as the climate changes. As of yet, he doesn’t seem to acknowledge the fact that monetary policy isn’t a carbon-neutral enterprise in a warming world built around fossil fuels. In keeping polluters afloat, the Fed isn’t stabilizing a warming world. It’s heating it.