On July 17, 1997, a day when thermometers in the nation’s capital broke 100 degrees Fahrenheit, the chair of the White House Council of Economic Advisers delivered a speech to the Senate about an issue of mounting concern.
“Although a great many scientists believe that global climate change is already underway, the more serious potential damages associated with increasing concentrations of greenhouse gases are not predicted to occur for decades,” said Janet Yellen, then a 51-year-old economist who’d previously served on the Federal Reserve’s board of governors. “This means that the benefits of climate protection are very difficult to quantify.”
Nearly a quarter-century later, fires are scorching the American West, dozens of powerful storms have threatened coastal cities, and flooding regularly inundates once-dry neighborhoods in cities from Miami to Boston even on days when the sun is shining. And Yellen, now President-elect Joe Biden’s pick to lead the Treasury, will likely soon find herself tasked with quantifying and addressing just how dire that crisis has become.
Biden made climate a cornerstone of his campaign this year, and it was the issue on which voters perceived him to contrast most sharply with President Donald Trump. His campaign promised a “whole of government approach” to slashing planet-heating emissions and adapting to a hotter world, one where climate policy is not siloed off at the Environmental Protection Agency or the National Oceanic and Atmospheric Administration.
The Treasury post could prove one of the most active in that new approach. If the Senate confirms her nomination, Yellen, 74, would become the nation’s chief financial regulator amid a period of new upheaval from the coronavirus pandemic. And if Congress approves new stimulus funding, she would be in charge of distributing it.
Trump’s Treasury Secretary Steven Mnuchin, who last January clashed with European Central Bank head Christine Lagarde over whether it was worth it to even try to predict the risks climate change posed to the financial sector, directed billions to struggling fossil fuel companies as the pandemic sent oil prices tumbling this year. Yellen could target that funding at industries and programs the U.S. needs to prop up to hit its climate goals, including clean energy sectors and grants to weatherize low-income homes.
“There’s been tremendous job loss for energy efficiency and renewable energy, and they need targeted relief,” said Bracken Hendricks, a climate policy expert and former senior adviser to Washington Gov. Jay Inslee’s climate-focused bid for the Democratic nomination last year. “We’ve seen in the Trump administration Mnuchin playing a central role in structuring a strategy for economic relief and recovery. We’d expect a similar role for a Secretary Yellen.”
Yellen’s climate work could go far beyond green stimulus. She’s a founding member of the Climate Leadership Council, a coalition of economists, bipartisan politicians and corporations pushing for a carbon tax to gradually incentivize the shift away from fossil fuels. Last year, she publicly called for a carbon tax, and said in October that Biden could implement one with support from Republicans.
“There really is a new kind of recognition that you’ve got a society where capitalism is beginning to run amok and needs to be readjusted in order to make sure that what we’re doing is sustainable and the benefits of growth are widely shared in ways they haven’t been,” Yellen told Reuters. “What I see is a growing recognition on both sides of the aisle that climate change is a very serious concern and that action needs to occur.”
Carbon pricing is widely favored by economists and businesspeople as the most straightforward and predictable way to reduce emissions in a market economy. But scientists say a market tweak alone cannot cut greenhouse gas output at the rate required to keep warming in a safe range. Increasing prices can also be a political quagmire. The French government sparked fiery protests in late 2018 against a slight increase in gas prices, meant to help fund climate efforts. In Canada, right-wing populist Doug Ford won the premiership of Ontario, the country’s largest province, by vowing to repeal the federal government’s carbon tax.
But a carbon price works best as part of a suite of climate policies such as clean-energy standards and direct investments, said Noah Kaufman, an economist and research scholar at Columbia University’s Center on Global Energy Policy.
“A lot of times, the carbon pricing conversation turns into this debate over other policy tools versus a carbon price by itself,” Kaufman said. “My sense is that someone like Janet Yellen isn’t suggesting anything like that. Like most economists, she probably sees pricing as a really important policy tool to reduce emissions cost effectively.”
In October, Yellen and former Bank of England Governor Mark Carney backed a plan to set up central bank-like councils to manage decarbonization efforts without political interference from governments.
“What I see is a growing recognition on both sides of the aisle that climate change is a very serious concern and that action needs to occur.”
A technocratic body insulated from politics may sound appealing after decades of meddling by the fossil fuel industry. But such an entity would also skirt communities who have borne the brunt of pollution.
“As the former Chair of the Federal Reserve, Yellen was not responsive to grassroots organizers who know the needs of the people,” Vasudha Desikan, political director of the activist group Action Center on Race and the Economy, said in a statement. “We are expecting Yellen as the Treasury Secretary to partner with us to center communities of color in fiscal policymaking, and continue keeping Wall Street’s money out of politics.”
Unlike in the past, the climate movement has ramped up its campaign over the past year to target financiers of fossil fuels, and score some early victories. In January, BlackRock, the world’s largest asset manager, wrote in its annual letter to CEOs that it would be “increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures.” In July, Citigroup promised to start measuring firms by their compatibility with the warming scenario outlined in the Paris climate accords. JPMorgan Chase made a similar commitment in October.
It’s not hard to see why. Fossil fuel investments often take decades to yield profits. To avert climate catastrophe, most of those fuels will need to stay in the ground, meaning the money still flowing to companies promising to turn a profit on oil and coal in the middle of the century is inflating a multi-trillion-dollar bubble. When the so-called carbon bubble bursts, the effects could be more calamitous to the financial system than the mortgage-backed securities collapse of 2007.
Yellen has defended the 2011 Dodd-Frank law that reformed financial markets in the Great Recession’s wake. She could soon use it to stave off a carbon contagion in the market. She could now use the Financial Stability Oversight Council the law established to coordinate other financial regulations and synchronize rule changes to protect against the domino-effect of a market crash. She could also pressure the World Bank, of which the Treasury is the largest shareholder, to halt new investments in fossil fuels, a sector to which it contributed $12 billion since the 2015 Paris Agreement was struck, the German environmental group Urgewald estimated last month.
Yellen wasn’t the Treasury secretary climate advocates initially wanted. Sen. Elizabeth Warren (D-Mass.), who ran against Biden in the presidential primary on a sweeping Green New Deal plan that included new Wall Street regulations, was one top choice. The other was Sarah Bloom Raskin, an Obama-era deputy Treasury secretary who vowed to make climate a top priority as the nation’s chief financial regulator.
“One of the reasons climate activists haven’t been singing Yellen’s praises is she’s said very little about climate change thus far, and the things she has said haven’t been nearly as ambitious as we know is needed for the scale of the crisis,” said Moira Birss, the climate and finance director at the nonprofit Amazon Watch. “But there’s also a lot to be optimistic and hopeful about from a Yellen in the Treasury Department.”
Conservatives see her the same way. John Hart, the co-founder of the Republican climate group C3 Solutions, said Yellen’s past statements of concern over federal debt make him “hopeful” she will “challenge President Biden and members of Congress to set smart priorities in what will be a perilous post-COVID recovery period.”
“The federal budget contains vast amounts of waste in every area that can be recycled to invest in things like R&D while reducing spending overall,” he said. “If the Biden administration really believes climate change is an existential crisis they can prove it by making hard fiscal choices.”
Wall Street had been vying for Lael Brainard, a governor on the Federal Reserve board, to get the nomination. In Yellen, climate progressives see “a candidate who has shown pretty consistently that she is willing to stand up to Wall Street, that she believes in full employment, and that she ... understands there are clear links between the financial sector and the climate crisis,” said Evan Weber, the political director of the Green New Deal campaign group Sunrise Movement.
“We didn’t get one of our dream candidates, necessarily,” he said. “But she’s shown she responds to pressure and she’s willing to move on climate issues. So we can consider this a win.”