The Federal Reserve’s Responsibilities in a Warming World: A Normative Case and Strategic Primer for Fed Action on Climate Change

Abstract

By the year 2100, according to one study, the high-end cost of unchecked climate change could be $551 trillion. That’s more money than currently exists on earth. Yet to date the Fed has failed to take any meaningful action on climate.

This paper argues that, given the critical role that fossil fuel finance plays in driving this crisis, such a head-in-the-sand approach to climate is not compatible with the Fed's statutory responsibilities. Not only does the Fed have the power to insulate our financial system from the contagious collapse of a dead-end fossil fuel industry and protect the U.S. economy from the ravages of climate change, it actually cannot follow its Congressional mandates, meet international comparisons, or fulfill its historical role in our governmental system without doing so.

Following this legal and normative argument, the paper describes the kinds of climate-related strategies available to the Fed, including both the regulatory and monetary-policy tools it could utilize. And finally it makes a strategic recommendation for the use of such tools by analyzing their resistance to judicial review, making the somewhat paradoxical observation that the Fed’s use of its more sweeping monetary powers may, in fact, be more strategically viable than the deployment of its arguably less controversial regulatory tools.

Keywords: Climate change, Federal Reserve, financial regulation, monetary policy