WASHINGTON (Legal Newsline) - An economist has dubbed a government plan that identifies financial risks of climate change as nothing more than an abuse of executive power that usurps Congressional authority.
The Financial Stability Oversight Council (FSOC) 2021 Report on Climate-Related Financial Risk purports to identify emerging threats to the stability of the U.S. financial system.
However, American Enterprise Institute senior fellow Paul H. Kupiec, an economist, views the plan as a veiled attempt to establish a partisan national industrial policy.
“This plan uses the ambiguous language and the poorly drafted Dodd-Frank Act to hijack financial regulatory powers and disrupt non-financial companies that are disfavored by the current administration,” he said. “Congress never granted the executive branch or independent financial regulatory agencies the power to regulate non-financial firms.”
The Dodd-Frank Act, enacted under President Obama's administration in 2010, established new rules aimed at mitigating financial systemic risk, however Kroniec argues that either by design or oversight, the Act never defines "systemic risk."
“By never defining the term ‘systemic risk,’ the Dodd-Frank Act creates ambiguity that FSOC can exploit to designate institutions, activities, or practices as a source of systemic risk, which is a designation that requires federal financial regulatory agencies to promulgate new regulations to mitigate the risk,” he said. “True to plan, the administration has capitalized on this loophole by having the FSOC conclude that climate change is a systemic risk of the financial sector.”
Kroniec made the comments while speaking on a panel called, Climate Risk a New Regulatory Risk? Implications for Financial Regulatory Control of the Financial System, at the Federalist Society’s 10th Annual Executive Branch Review Conference on May 3.
“Transitional risk is the risk that affirms revenues or costs could be negatively impacted by future government policies or regulations or because of diminished demand as a consequence of changing consumer preferences," Kroniec added. "The ambiguous concept of transitional risk is wholly conjecture and not based on specific historical experiences. The concept of hypothetical transition risk could be and can be applied to any firm to justify any political goal.”
Other speakers on the panel included Jeremy Kress, assistant professor of business law at the University of Michigan, Christina P. Skinner, assistant professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School, Jeffrey H. Wood, leader of the Department of Justice’s environment division for the first two years of the Trump administration, and Graham Steele, the U.S. Department of the Treasury’s assistant secretary for financial institutions.
“We view the transition as a chance to use our innovation and our technology to move away from a carbon-based economy and to innovate into new areas of the clean energy transition,” Steele said. “I would note that we are not alone in this view. Financial institutions with assets of over $130 trillion have made voluntary commitments to become net-zero by 2050, and to achieve strong science-based interim targets for emissions reductions by 2030.”
Biden signed Executive Order 14,030, which specifically directs the secretary to engage with members of FSOC and instructs the federal insurance officer to address climate financial risks.
“There is a role for the Treasury to interact with the financial regulatory agencies in their capacity as FSOC members, however, those agencies are independent agencies and independent regulators,” Steele added. “We take that distinction very seriously between the political agencies that are in the cabinet and the independent financial regulatory bodies.”