Yellen, top pick for Treasury, sees carbon tax as a solution

Source: By Avery Ellfeldt, E&E News reporter • Posted: Sunday, November 29, 2020

President-elect Joe Biden is set to tap Janet Yellen as his Treasury secretary, a pick that could play a defining role in U.S. efforts to slash carbon emissions and prepare the economy for the realities of a warming world.

Last week, Biden hinted that his imminent decision would “be accepted by all elements of the Democratic Party, progressive to the moderate coalitions.”

His comment pointed to Yellen, and his choice — which was first reported Monday by The Wall Street Journal — has met with widespread support.

Praise has come from environmental groups and researchers, as well as lawmakers who have warned of climate change’s potential to undermine the stability of the global financial system.

Those include Sen. Elizabeth Warren (D-Mass.), who has introduced legislation to mitigate corporate climate risk and repeatedly called on Wall Street to stop “financing the climate crisis.”

“Janet Yellen would be an outstanding choice for Treasury Secretary,” Warren wrote in a Twitter post on Monday. “She is smart, tough, and principled. As one of the most successful [Federal Reserve] Chairs ever, she has stood up to Wall Street banks, including holding Wells Fargo accountable for cheating working families.”

Support for Yellen’s nomination stems from her wealth of experience and, in climate finance circles, an openness to confront global warming with efforts such as a carbon tax.

President Obama in 2014 tapped Yellen to become chair of the Federal Reserve, making her the first woman to fill the post. She was also formerly the president of the Federal Reserve Bank of San Francisco and, during the Clinton administration, chair of the White House Council of Economic Advisers.

If confirmed by the Senate, Yellen would become the first person to have been top brass at the Treasury Department, on the White House council and at the U.S. central bank. She would also be the first woman to lead the Treasury Department, which was established in 1789 with Alexander Hamilton in the top job.

On climate change specifically, Yellen’s stance for years has revolved around her support for a carbon tax, which she has called a “textbook solution” to global warming.

In 2017, she became a founding member of the bipartisan Climate Leadership Council — made up of corporations that include Ford Motor Co., Exxon Mobil Corp. and BP PLC — which advocates for a carbon fee.

Yellen’s focus on carbon pricing has stirred some skepticism among activists, who argue that placing a tax on carbon would not be enough to slow global warming.

“It could arguably be a small part of a Green New Deal … but the idea that a carbon tax alone is a sufficient response to climate change is ludicrous at this point,” said R.L. Miller, who founded Climate Hawks Vote and is a Democratic National Committee delegate.

Advocates also have noted that Yellen has not been as vocal about climate change as Warren or former Fed official Sarah Bloom Raskin. The pair repeatedly have called for major federal investments to curb climate change and create green jobs, and progressives have endorsed them both for Treasury secretary (Climatewire, Nov. 20).

As Miller sees it, “Yellen is not a climate hawk,” and it would have been wise for Biden to appoint someone who is.

Not everyone agrees. The World Resources Institute called Yellen a “champion for climate action.” And environmental economist Matthew Kahn of Johns Hopkins University said in an interview that Yellen could be “more effective” on climate change than her more progressive peers.

“There are ways to change our tax code to be pro-environment, and pro-economic growth, and pro-labor and pro-capital accumulation,” he said, which could create a “self-fulfilling prophecy” as businesses invest in a greener economy.

Kahn added that if Republicans maintain control of the Senate, the key to a successful carbon tax would be securing bipartisan support. He thinks Yellen would be capable of accomplishing that.

“In a world where everyone isn’t Greta Thunberg, how do you bring potential opponents into the big tent to support the agenda?” Kahn said. “I think that a smart economist will think through the political economy of how do you get these swing voters into your coalition.”

Ceres CEO Mindy Lubber, meanwhile, cited Yellen’s decadeslong record — including her recent work as co-chair of the Group of 30 — as evidence that she is “well-positioned” to address climate risk in the U.S. economy.

Financed-focused environmentalists already are turning up the heat to ensure that happens, whether via trade policy, tax policy, financial regulation or the creation of well-paid, low-carbon jobs.

A coalition of green groups on Monday called on Yellen to limit banks’ ability to do business with fossil fuel companies. It also said the likely next Treasury secretary should disincentivize oil and gas lending by increasing the amount of capital that banks are required to have on hand every time they do business with the planet-warming sector.

“Her record does show that she is willing to hold Wall Street to account. Not necessarily on climate issues yet, but that is a good sign,” said Moira Birss, an Amazon Watch finance campaigner.

Regulatory experts, meanwhile, say that one of Yellen’s most critical levers would be her role as chair of the Financial Stability Oversight Council, which Congress established after the 2007-08 financial crisis to guard U.S. financial stability.

As chair, the Treasury secretary sets the council’s agenda and guides how it uses its authorities. That means Yellen could issue climate-related policy recommendations to every major federal regulator in the United States, and urge them to work together to address the financial system’s climate vulnerabilities.

It remains to be seen what approach Yellen will take if confirmed. But most observers agree the job won’t be easy.

“She’s facing multiple crises at the same time, with the pandemic being on the front burner,” said the University of Colorado’s Erik Gerding, who specializes in securities regulation and banking law.

“The real challenge, I think, that faces her is how to address an immediate crisis while still trying to avert a potentially larger crisis in the future,” he said. “It’s kind of like multiple tsunami waves coming in.”