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US Treasury Secretary defends climate policies at Senate hearing

10 May 2022 Amena Saiyid

US Secretary of the Treasury Janet Yellen pushed back 10 May against Republican arguments that the Biden administration's move away from fossil fuels is responsible for the level of gasoline prices that American consumers are facing at the pump.

The average price of regular grade gasoline 10 May in the US was $4.374/gallon, the highest ever, and up 47.4% from $2.967/gal a year ago, according to automotive group AAA.

The front-month NYMEX West Texas Intermediate (WTI) crude oil price closed 10 May at $99.43/barrel, compared with highs in early March exceeding $110/barrel.

At a US Senate Banking Committee hearing on the annual report of the US Financial Stability Oversight Council, Republican senators tried to get Yellen to acknowledge that the Biden administration's push for a decarbonized economy by 2050, and not Russia's war on Ukraine, was responsible for high gasoline prices.

"I feel what the real moral of the situation we face is that as long as we are as dependent as we are on fossil fuels [for] our energy supply, we will always face vulnerabilities from the decisions of Russia, or other countries," Yellen said.

Moreover, she said, US oil producers posted losses due to the diminished demand during the COVID-19-induced economic slump and were "gun shy" about ramping up production. They found themselves in a bind at the end of 2021 because they did not anticipate the rapid recovery in demand, and the war with Ukraine caught them unawares, she added.

"Many domestic oil producers expected the recovery to be weak and demand to be diminished and they didn't invest in drilling and producing. So, supply diminished, and now it will take a while for them to ramp up," Yellen said.

Yellen's responses did not satisfy the committee's Republicans especially Senator Kevin Cramer, Republican-North Dakota, whose state—according to US Energy Information Administration data —had the third highest crude oil production after New Mexico and Texas as of January 2022.

Cramer countered Yellen's response by noting that oil producers were not just responding to the market, but also to the Biden administration chilling plans to raise production with one message after another saying: "Do not produce more oil in the US."

"I am all for aspirations," and the 2050 aspiration is "great," Cramer said, but "there's a 2022 reality facing the American consumer, facing the globe, facing national security, international security."

Yellen acknowledged that the current world situation with the ongoing war with Ukraine "certainly emphasizes the need for energy production."

In the medium term, she said, "we need to move away from fossil fuels, but in the short term we need more production."

However, fossil fuel dependence should serve as a reminder "that our grandchildren won't have an inhabitable planet if we don't address climate risks."

US Senator Patrick Toomey of Pennsylvania, the committee's leading Republican, said the Biden administration's priorities are misplaced when it comes to the financial sector.

Cybersecurity more of a risk than climate

He said cybersecurity, rather than climate-related risks from severe weather, poses a "real time, continuous risk" to every single financial institution in America because of the constant bombardment of attacks.

"We have blizzards, we have hurricanes, we have wildfires and sometimes they're horrendous. And some of them have been recent, but we've never had a single financial institution fail, much less the entire financial system," Toomey said,

Both cybersecurity and climate change pose risks, Yellen said, acknowledging that the former does pose "an imminent risk."

But, Yellen added, "I think climate change is an existential threat to our globe and to our future" and it is getting noticeably more severe

Democratic senators Mark Warner from Virginia and Tina Smith of Minnesota came to Yellen's defense.

Countering Toomey, Warner pointed out that the people who are suffering from wildfires in New Mexico do see climate impacts as a "visceral, real human risk."

Smith reminded her colleagues that climate-related financial risks are real for families who have taken out a 30-year mortgage for a home that might experience flooding owing to sea-level rise by 2052 if global warming continues on its current trajectory.

Banks need to take a "long view"

Yellen agreed that financial institutions need to take a long view in accounting for climate-fueled financial risks, while banking supervisors and regulators need to evaluate those risks.

"And that's why it is an important part of the [Financial Stability Oversight Council] to amass the information that will enable evaluation of risks, both by supervisors and financial institutions," Yellen said.

The Federal Stability Oversight Council was created by Congress in 2010 after the subprime mortgage crisis to identify and monitor risks as well as respond to emerging threats to financial stability.

Yellen said the US Securities and Exchange Commission's (SEC) proposed climate disclosure rule is important for that reason because it will enable investors to understand and evaluate the risks in projects and companies in which they are allocating capital.

Released 21 March, the SEC for the first time set out to require publicly traded companies disclose their strategy, governance, and risk management with respect to climate-related risks.

The SEC on 9 May moved the deadline for commenting on the proposal from 20 May to 17 June, citing what Chairman Gary Gensler called "a significant interest from a wide breadth of investors, issuers, market participants, and other stakeholders."

Posted 10 May 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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