The Fossil Free Finance Act, sponsored by Democratic Sens. Ed Markey (Mass.) and Jeff Merkley (Ore.), would require the Federal Reserve to impose new restrictions on major banks and other systemically important financial institutions (SIFIs) to cut off funding for projects that produce planet-heating emissions.
“In order to reduce emissions and combat climate change, we need to stop throwing money at dirty fossil fuel projects,” said Markey, chair of the Senate Environment and Public Works Committee’s panel on climate change, clean air, and nuclear safety.
“It makes no sense for us to let big banks finance investments that will make the climate crisis worse as we work to provide financing for clean energy, adaptation, and loss and damage to the world,” he continued, adding that the bill “will ensure we hold our financial institutions accountable for contributing to our country’s fossil fuel addiction.”
If the bill passed, the Fed would have to require bank holding companies with over $50 billion in assets as well as SIFIs to cut financed emissions by 50% by 2030 and 100% by 2050, according to a statement from Markey’s office.
As the statement outlined, the legislation would also:
- Prohibit the financing of new or expanded fossil fuel projects by 2022;
- Prohibit the financing of all fossil fuel projects by 2030;
- Prohibit thermal coal financing by 2025;
- Incorporate financing of emission guidance into the SIFI designation process and add financed emission to the list of criteria for nonbank financial institutions;
- Require the Fed to report to Congress commitments made by banks and nonbank SIFIs to reduce financed emissions and progress on those targets; and
- Require the Fed to report to Congress recommendations to Congress and other federal agencies on how to facilitate a reduction in financed emissions and how to support an equitable transition.
“As climate chaos continues to threaten Americans-endangering livelihoods and putting our future at risk-the role of big financial institutions in accelerating this crisis must be addressed,” said Merkley. “Big banks can either be part of the problem or part of the solution, and it’s time to make sure their leverage is used to decrease rather than drive fossil fuel production.”
The bill was introduced in the House by Democratic Reps. Mondaire Jones (N.Y.), Ayanna Pressley (Mass.), and Rashida Tlaib (Mich.) in September and is supported by several other progressive lawmakers and advocacy groups, including 350.org, Action on Race and the Economy, Americans for Financial Reform, Evergreen Action, Future Coalition, Positive Money U.S., Public Citizen, Sierra Club, and Sunrise Movement.
“Regulators’ refusal to rein in Wall Street’s reckless risk-taking drove our economy off a cliff in 2008, and now, Wall Street’s climate-risky behavior could lead to an even bigger financial disaster if financial regulators don’t act,” warned Evergreen Action campaigns director Lena Moffitt, calling on the Fed to “protect the American economy from a climate-fueled crash.”
Referencing a campaign her group launched this summer, Brooke Harper of 350.org agreed that “it’s time for a Fossil Free Federal Reserve that steers our economy away from investment in high-risk fossil fuels, incorporates climate risk across policies and lending, and prioritizes racial justice, including through full employment.”
The White House came under fire last month for releasing a long-awaited U.S. climate-related financial risk report that campaigners condemned as a “pitiful” failure and President Joe Biden is still facing pressure to appoint a new Fed chair, with critics arguing that Jerome Powell’s record should disqualify him from another term when his current one expires in February.
“So far, Fed Chair Powell has been unwilling to take even the most basic initial steps on climate supervision for banks,” Alex Martin, senior policy analyst at Americans for Financial Reform, said Friday. “The result: the U.S. banking system is not taking the decarbonization transition steps needed for the nation to achieve its climate goals while ensuring financial stability.”
Sunrise Movement advocacy director Lauren Maunus highlighted the consequences of inaction, noting that “right now, a future free from the shackles of the fossil fuel industry is at stake because big banks continue to fund carbon polluters like Exxon, with no oversight or repercussions.”
“As banks make billions funding climate polluters, one in three Americans are facing a climate catastrophe right now,” Maunus said. “We must hold bad actors accountable by passing the Fossil Free Finance Act so we can finally put a stop to the endless funding of fossil fuel companies who pollute the air we breathe and the water we drink.”
The bill’s introduction comes after hundreds of banks and financial institutions holding assets more than $130 trillion announced voluntary commitments to hit emissions goals at COP26. It also comes after Biden pledged to end all new public financing for fossil fuel projects abroad, which Markey—who led a call for such action earlier this year—praised as a “historic and long-overdue step to reduce emissions and safeguard our planet for future generations.”