President Joe Biden touted an ambitious climate change agenda at the United Nation’s Climate Change Conference in Glasgow, replete with new mandates and requirements. But the President’s climate agenda has so far failed to make its way through Congress. Unable to achieve legislative success, the President is poised to use his authority to make financial regulators the primary conduit for achieving the Administration’s climate goals. This might impress the financial regulators of the European Union and England, but should be worrying to the United States.
The Treasury Department, Securities and Exchange Commission and other financial regulators exist to promote a strong economy and ensure transparent, fair and trustworthy markets. Not only is it far beyond their congressional mandate to use their power to influence private businesses’ environmental activities, but it is also far beyond their capabilities.
During Treasury Secretary Janet Yellen’s first appearance before the House Financial Services Committee, I expressed concern that the financial regulators might move toward regulation with environmental policy objectives and seek to discourage the banking industry from doing business with entire sectors of the economy. Although Yellen assuredus at the time that she had “no plan to regulate what lending or investments can be done,” it has become clear that the Administration is seeking to influence where the private market deploys capital.
The Secretary spoke to the Institute of International Finance in late August, saying that the Administration is “committed to directing public investment to areas that can facilitate our transition to net-zero and strengthen the functioning of our financial system so that workers, investors, and businesses can seize the opportunity that tackling climate change presents.” It is apparent that the Biden Administration plans to use U.S. financial regulators — and the international respect they wield — to drive investment away from the oil and gas sector.
A major advocate for this strategy has been John Kerry, the Special Presidential Envoy for Climate. Kerry spoke earlier this year in London on the Biden Administration’s climate agenda, telling the crowd, “We do not actually need a new investment in oil, coal, or gas production — because they’re simply not necessary to meet our energy needs given other technologies that are online and coming online.” This speech came on the heels of newsthat Kerry had reportedly been pressuring U.S. banks and financial institutions to refuse to lend to or invest in coal, oil and natural gas companies. And it comes in light of an energy crisis across Europe, where renewables are unable to meet their energy needs after a dramatic decrease in investments in fossil fuels.
Access to affordable, reliable energy is foundational to modern life, bringing about economic prosperity, global connectivity and basic human comforts. For more than a century, fossil fuels have been the dominant source of energy for transportation, manufacturing, construction, agriculture and all essential electric and thermal output for households and businesses. Fossil fuels have become the engine of economic growth for the United States and, driven by innovation in the oil and gas sector, the United States became a net total energy exporter in 2019 for the first time since 1952. According to a 2020 report by the Energy Information Administration, fossil fuels account for 80 percent of U.S. energy consumption.
The good news is that fossil fuel use isn’t incompatible with emissions reductions. We don’t have to repeat Europe’s mistake and choose between reliable, affordable energy and clean energy. My Republican colleagues and I acknowledge that climate change is real, but the way we succeed isn’t by weaponizing financial regulators and shunning the energy companies that are essential to meet our energy needs. If we do that, we are cutting off the industry that is making essential investments in the new technologies necessary to mitigate greenhouse gas emissions and climate-related risks.
Instead, our goal should be to reduce emissions through government-industry research and development partnerships, industry-led solutions and to invest in the advancement of technologies such as carbon capture, biofuels and energy-efficient systems.
Using government regulation to influence banking and investment practices would dramatically distort capital allocation, raise energy costs for consumers and further slow economic growth. Faced with this artificial rise in marginal costs, energy companies would have two choices: raise prices or cut expenses. Some may need to do both. It would be detrimental to push capital away from industry leaders on the forefront of technologies that are making energy production cleaner and more efficient.
As the President and his Administration continue to analyze the potential implications of climate change, I urge financial regulators to remember that their role isn’t to advance environmental policy. We should be investing instead in our research agencies, which are doing incredible work to make fossil fuels cleaner and renewables more reliable. If the Biden Administration is serious about “building back better,” it will stop taking executive actions that raise energy prices for families and businesses and start prioritizing a diverse and competitive American energy industry.
Rep. Frank Lucas represents the 3rd Congressional District of Oklahoma and serves as the ranking member of the House Science, Space, and Technology Committee; he is also the longest-serving Republican on the House Financial Services Committee.
This commentary appeared exclusively in the Morning Consult.