How Green Is the Fed?

Supplement to the Green Central Banking Scorecard

 
The recently published Green Central Banking Scorecard ranks the central banks and financial supervisors of the G20 nations according to their climate action or inaction. The United States received a score of D− and came 13th in this ranking, well behind the scores of the European Union, Brazil and the United Kingdom. China, increasingly seen as a strategic competitor to the US, ranks first.

In response to the US’s poor performance in adapting its operations to the accelerating climate emergency, this supplement briefing from Public Citizen reviews the Federal Reserve’s role in US monetary and financial systems. It then outlines the opportunities the US has to align its operations with its own climate commitments.

The briefing calls on the FED to exercise its monetary policies with the United States’ climate commitments and outlines required action for each of the specific monetary tools.

Monetary policy tools the Fed can use to support national efforts at decarbonisation include asset purchases, collateral frameworks, reserves and targeted lending and credit allocation. Eligibility requirements, haircuts, interest rates and credit allocations could all be adjusted to reflect climate risk and emissions, the report says.

Financial supervision, disclosure and stress testing, and capital and liquidity requirements are further tools immediately available to the Fed to align its activities with the Paris agreement’s global heating targets and US national commitments.

The Fed has used the magnitude of the climate problem as a call for research rather than action, the report finds. It concludes with the hope that renewed US government commitment to the Paris agreement will encourage the Fed move faster on climate and improve its scores in future editions of the scorecard.