With temperatures in the Arctic reaching over 100 degrees Fahrenheit for the first time, we know the test results and don’t need to contact trace the origin of our planet’s fever. Except now the very tools Congress authorized to fight the economic fallout from COVID-19 are working to benefit the fossil fuel industry.
As part of the CARES Act, Congress authorized the Federal Reserve to buy $250 billion in corporate bonds to prop up corporations across a variety of sectors. This week Influence Map released data showing that fossil fuel companies are likely to account for $19 billion of these purchases. According to the data, $4 billion are likely to be junk bonds, considered non-investment grade.
For the most part, the purpose of this financing is to fund the continued extraction of fossil fuels that will wreak havoc on our climate and cause economic calamity at a greater scale than the coronavirus. Making the Fed’s decision even more dangerous is the evidence that the air pollution increases death rates from the virus.
The fundamental question for fighting the climate crisis is not simply passing a Green New Deal that ramps up massive infrastructure spending in the clean energy sector. It is time we end the Dirty New Deal that back-doors massive investment in fossil fuel spending by the government.
Just after the CARES Act passed, nearly three dozen members of the House of Representatives along with nine Senators, led by Senator Ed Markey and Representative Nanette Barragán, wrote a letter to Treasury Secretary Steve Mnuchin and Federal Reserve chairman Jerome Powell demanding they not use bailout money for expressly this purpose.
“The Treasury Department and the Fed face an important choice. Funds from the CARES Act are intended to support struggling families, workers, businesses, states, and municipalities,” they wrote. “Giving that money to the fossil fuel industry will do nothing to stop the spread of the deadly virus or provide relief to those in need. It will only artificially inflate the fossil fuel industry’s balance sheets.”
The truth is, the fossil fuel industry is unique in the poor performance of its debt. Influence Map notes that research on “historical credit rating movements across the 11 sectors covered by the S&P 1500 population of US corporations . . . found that the fossil fuel value chain ‘energy’ sector stands out for its exceptional and secular decline over 20 and 5-year time spans.”
Furthermore, this includes “a 5% decline in the credit ratings of energy companies since the COVID-19 crisis began.”
Former Fed board member Sarah Bloom Raskin noted the recklessness of the Fed’s decision writing, “Many fossil fuel companies spent the past decade recklessly expanding production even as they failed to turn a profit. Oil and gas companies now hold $744 billion in bonds and debt, much of it below investment grade or close to it. Almost 83 percent of the industry’s debt is now eligible for cheap refinancing by the Fed.”
Raskin goes on to point out what a purely bad deal this is. “For taxpayers, shouldering these liabilities is a bad deal. Buying this bad debt is not likely to support the creation of jobs or even ensure that existing jobs survive,” she wrote.
The fact is oil companies didn’t find a loophole for this money. They asked the Federal Reserve for it. Bharat Ramamurti, a former Elizabeth Warren staffer who is now a member of the Oversight Commission tasked with overseeing the stimulus money handed out during this crisis by the Treasury Department and the Federal Reserve, wrote on Twitter about how successful the fossil fuel industries lobbying efforts were.
According to Ramamurti, the Fed acceded to the fossil fuel industry demands that bailout money could be used to refinance existing debt, that companies would be allowed to receive $200 million instead of the original $150 million, and finally they were successful in weakening the limit on how indebted a company could be that qualified for a loan.
What the Fed is inherently doing with this bond bonanza is picking winners and losers. This leads to the fundamental choice elected leaders who claim to want to solve the climate crisis have to make. We will not solve climate change if the energy industry as currently constituted continues to be propped up by the federal government. While the Fed’s action is a drop in the bucket, it is a demonstration of the lack of seriousness behind our response to the climate crisis.
Fossil fuel lobbyists will continue to fight to get their way and drown Washington in money in pursuit of that goal, the future of the planet be damned. We need an expansive Green New Deal and aggressive action on climate change. But as the most modest of steps, if lawmakers are serious about dealing with the climate crisis and saving the planet, they must stop propping up the fossil fuel industry and prohibit them from participating in future bailout programs.