Last week, Republican House members sent a letter to President Donald Trump in which they decried banks’ recent re-evaluations of the risks of fossil fuel investments. While the letter doesn’t call for any particular action, it repeatedly mentions the assistance offered to banks via the Coronavirus Aid, Relief, and Economic Security Act 9 (CARES Act), and it implies that the banks aren’t living up to their end of the deal. And, throughout the letter, its signatories seem to ignore the fact that the fossil fuel sector is not the only component of the US energy economy.
The letter was sent to Trump by a collection of 14 senators and 22 representatives, all Republican. In addition to Trump, the letter cc’ed a few senior administration officials, including the secretaries of the Department of Energy and the Department of the Treasury and the CEOs of six banks. The CEOs of three fossil fuel industry groups were also included.
The letter comes as the recent events have accelerated banks’ decisions to re-evaluate fossil fuel investments. In the long term, fossil fuel development faced two significant challenges. The first is that wind and solar generation have become cost-competitive with fossil fuels in most markets. The second is that the pledges made to limit future fossil fuel emissions will likely mean that some fossil fuel deposits will be left undeveloped. That means that some of the resources now held as assets by fossil fuel companies will end up “stranded”—meaning the assets will turn out to have no value.
The re-evaluation of risk came at a time when many banks were making environmental responsibility pledges that were incompatible with funding continued fossil fuel development. The most high-profile result came earlier this year, just as the pandemic was developing, when the investment firm BlackRock announced it was getting out of coal and re-evaluating the risk of all other fossil fuel investments and would be adding new fossil-free funds.
Subsequent events highlighted the extreme volatility of the fossil fuel business. They started with a price war between Russia and Saudi Arabia that caused the price of oil to plunge dramatically. And then the pandemic hit, causing demand for all forms of energy to drop precipitously. Demand for oil dropped, making the price war an irrelevancy. And in the US, the use of electricity fell enough that renewables have been able to surpass coal use for the first months of the year. Given the indefinite length of the pandemic and the structural adaptations that will be made as a result, a number of experts have raised doubts as to how much the demand for fossil fuels will rebound.
All of which made the bankers seem almost prophetic. But that has also made fossil fuel supporters in Congress rather upset.
Not that kind of energy
It’s estimated that more than twice as many people in the US are employed in building and maintaining wind power as there are in mining coal. For solar power, estimates place the number at over five times as many. But you wouldn’t know any of this from reading the letter sent to the president, in which its signatories say “we find it illogical and unacceptable that [the banks] openly discriminate against the American energy sector.”
In reality, the banks will happily fund energy investments that they consider lower risk. But this sort of selective portrayal of the energy sector pervades the piece, which includes the claim that “environmental extremists are using the pandemic to accelerate their goal of putting America’s energy jobs in the grave.”
After defining the energy sector as containing only fossil fuels, the representatives use that misleading definition to accuse the banks of being hostile to this entire segment of the economy, using phrases like “hostility towards the American energy sector” to refer to their re-evaluation of the risks of fossil fuel investments.
But the senators and representatives aren’t simply complaining; they want something done about it. They tell Trump, “We urge you and your Administration to use every administrative and regulatory tool at your disposal to prevent America’s financial institutions from discriminating against America’s energy sector while they simultaneously enjoy the benefits of federal government programs.” Specifically, the signatories make several mentions of the Coronavirus Aid, Relief, and Economic Security Act, which includes programs to ease the funding for investments. It’s clear they hope the administration will use those benefits.
They also clearly hope that the letter will prompt the Trump administration to find ways of compelling the banks to turn their backs on their own financial analysis of the energy markets. And, ironically, the legislators will do it while complaining that “major American financial institutions continue unfairly to pick energy winners and losers.” There’s no guarantee that the administration will find a legal means of using the Act’s programs as leverage or will choose to do so at the time. But should the administration do so, this letter will undoubtedly be cited as a reason for the decision.