Janet Yellen planted a flag during her confirmation hearing in January 2021. Climate change, she declared, was an “existential threat,” and as Treasury secretary, she would make it a focus of her work.
Since taking office, she’s warned of the danger to the economy and financial system. She’s urged Congress and foreign governments in the rich world to do more to help poorer countries adapt to global warming, and thrown the Treasury behind implementing President Joe Biden’s signature climate bill, seeking to squeeze the most from the sprawling new law.
Yellen is the “best ally of climate action in the entire Biden administration,” according to Democratic Senator Sheldon Whitehouse of Rhode Island, an outspoken climate hawk.
In short, no US Treasury secretary has made climate change a higher priority than has Yellen. For some that’s a great relief. But for others it’s a distinction that’s too easy to claim. Critics argue Yellen hasn’t done enough to push for better oversight of climate risks to the financial system or worked hard enough to mobilize capital in the global race to embrace clean energy.
Her window is closing as the 2024 presidential election draws nearer. Meanwhile, the past summer of damaging heat waves, wildfires and floods underscores the threat of climate chaos, with major insurers curbing their business in some hard-hit states.
“She has elevated climate in a way that’s very welcome,” said Joe Thwaites, an international climate finance expert at the Natural Resources Defense Council. “But the Treasury really hasn’t pulled out all the stops.”
In an interview with Bloomberg Green, Yellen, 77, rejected that criticism. “We’re working as fast as we can to move this agenda forward. You’ll remember for the previous four years the United States was nowhere, was actively opposing climate. We’ve turned the ship 180 degrees around.”
On Tuesday, the Treasury released new principles for financial institutions making voluntary net zero commitments, to promote best practices and encourage greater ambition. Yellen spoke Tuesday at a climate finance forum on the sidelines of the United Nations General Assembly in New York City. (The forum was hosted by the parent company of Bloomberg News.)
“Moving forward the clean energy transition at the needed pace will not be easy,” Yellen said at the forum. “We’re still working to overcome challenges related to technological advancements and new business models, among others. But the progress we’re making is important.”
Separately on Tuesday, the Glasgow Financial Alliance for Net Zero announced a consultation with finance professionals to refine the definitions of “transition finance,” which is the flow of dollars required to decarbonize economic activity. (GFANZ is co-chaired by Mark Carney, who has been named chairman of Bloomberg Inc.’s board and is a former Bank of England governor, and Michael Bloomberg, the founder of Bloomberg News parent Bloomberg LP.)
In many ways, Yellen is as good a Treasury pick as climate advocates might have hoped for. She’s got a track record on climate that goes back to the 1990s, when she served in the Clinton administration as chair of the White House Council of Economic Advisers.
She said she knew “almost nothing about climate change” when she arrived at CEA in the fall of 1997, and threw herself into research on the topic to help prep then-President Bill Clinton for the decisions he’d have to make around the Kyoto Protocol.
“She was on the forefront of this,” said Joe Aldy, a public policy professor at the Harvard Kennedy School who worked under Yellen at the CEA. “Find me one economic adviser, one finance minister, one minister of planning anywhere in an OECD country in the late ’90s speaking out as publicly and frequently on climate as Janet Yellen.”
At the Treasury, Yellen stands at the center of the administration’s economic, fiscal and financial regulatory policymaking. As one of the world’s most prominent economists, she understands the power of using financial incentives, instead of government interdiction, to shape the behavior of companies and households, drawing them into the climate effort with carrots over sticks.
That shows up in Biden’s Inflation Reduction Act, which is projected to lower US greenhouse gas emissions to a level 40% below where they stood in 2005. The act encourages purchases and domestic production of everything from electric vehicles to solar panels, largely through a raft of tax credits that, according to Deputy Treasury Secretary Wally Adeyemo, bear Yellen’s fingerprints.
“It needs to be something that’s effective, but it also needs to be something that can command widespread support in the country,” Yellen said of the IRA. “And I think President Biden was absolutely right that an approach that involves more carrots than sticks is one that could get enough support, and generate enough activity, that it would be an effective program.”
Implementing the law has been a massive undertaking for the Treasury. Its newly created IRA Program Office is working with the Office of Tax Policy, the general counsel’s office and the Internal Revenue Service, and several other agencies, to draft thousands of pages of rulemaking and guidance that will be crucial to the law’s success. Along the way, according to three Treasury officials, Yellen has remained deeply engaged, hashing through details with staff on at least a weekly basis.
Still, anxiety is growing over the pace of work to develop critical guidance on a slew of clean energy tax credits in the IRA, including incentives for hydrogen and sustainable aviation fuels, with tens of billions of dollars in potential investment hanging in the balance. And there are building concerns that the Treasury may move too slowly in implementing guidelines for claiming new, technology-neutral clean electricity tax credits that go into force in 2025 and have been dubbed the “workhorse” of the law.
“If you’re talking about a whole new approach to clean-energy tax crediting, if you’re going to have investment continue apace and not go into a hole in late 2024, you’ve got to get that guidance out,” said Nat Keohane, president of the Center for Climate and Energy Solutions.
Adeyemo pledged the guidance will come in time for investors.
Even with $369 billion of climate provisions in the IRA, the world’s second-biggest polluter isn’t doing enough to help keep global warming to 2C above preindustrial levels, according to the independent research project Climate Action Tracker. Criticisms about IRA and its implementation from environmentalists, however, are marginal. Indeed, it’s drawing mostly plaudits. That’s not true for Yellen in other areas central to climate policy.
Whitehouse earlier this year criticized the Treasury’s climate hub for inaction and called out the agency for failing to stop lending by the International Monetary Fund for fossil-fuel energy projects. He wants Yellen to press for a carbon tax, as well as a US mirror of an emissions tax the European Union will levy on goods imported into the bloc.
Then there’s the lightning rod of the Financial Stability Oversight Council, a panel of regulatory chiefs headed by the Treasury secretary. FSOC was created after the 2008 financial crisis and charged with identifying and addressing systemwide financial threats.
Yellen hit the ground running in 2021, identifying climate change as a threat to financial stability and calling on FSOC members to begin gathering data on the exposure of financial firms and infrastructure to that risk. And while that work has continued, not much else has happened, leading David Arkush, climate program director at Public Citizen, a consumer advocacy group, to call Yellen’s leadership of FSOC a “major disappointment.”
Ethan Zindler, Yellen’s top adviser on climate, responds that the secretary can convene FSOC, set its discussion agenda and make public recommendations, but neither she nor the Treasury has the legal authority to direct the various regulatory bodies, from the Federal Reserve to the Securities and Exchange Commission, to act. (Zindler previously worked for BloombergNEF, a research firm owned by Bloomberg LP, the parent company of Bloomberg News.)
Arkush doesn’t buy that. “FSOC hasn’t made any substantial recommendations,” he said. “You can’t hide behind that if you’re not even suggesting they do anything aside from collect data, study the issue and coordinate more.”
Yellen said that on the international level, the Treasury recognizes “it’s critically important beyond the United States to mobilize resources globally to address climate change.” Middle- and low-income countries will need massive financial support from rich nations to shift away from fossil fuels while growing their economies.
Yellen has pitched the Treasury into a program organized through the Group of 20 known as the Just Energy Transition Partnerships, or JETPs. These aim to help countries like Indonesia, South Africa and India finance clean energy projects and retire their coal-fired electricity plants faster.
But so far, they’ve made little progress. The Indonesian effort, announced with great fanfare at last year’s G-20 summit in Bali, has already run aground, putting its initial promises in jeopardy.
More generally, the climate finance currently being mobilized is dwarfed by what’s needed to drive a genuine, global energy transition. Annual clean energy investment worldwide must rise to $4 trillion by 2030 to reach net zero emissions by 2050, according to the International Energy Agency.
Toward that end, Yellen has pushed a set of reforms for the World Bank and other development lenders that include giving them an explicit role in tackling multinational problems such as climate change. That’s a shift from their traditional country-by-country project lending.
The World Bank also is attempting to ramp up its efforts at what it calls “capacity development,” funding and running programs that would help developing countries absorb, and put to effective use, more private-sector investment — thereby making them better clean-energy investment targets.
“We have a huge agenda with respect to the multilateral development banks to get them to take on climate, to help them mobilize additional resources that they can devote to climate and also cooperate with the private sector to mobilize private capital,” Yellen said.
The Biden administration just requested $2.25 billion for World Bank funding from Congress, including $1.25 billion for “global challenges,” a euphemism for climate efforts. Treasury officials say this money could help “unlock” up to $25 billion in additional lending. And if other rich countries follow suit, the total effort, including private capital, could reach $100 billion.
NRDC’s Thwaites said the projections for driving private capital are unrealistic, and the public money being pledged is simply not ambitious enough.
The World Bank “is now led by someone who understands capital markets and attracting private capital,” Adeyemo counters, referring to its new president and former Mastercard Inc. chief executive Ajay Banga.
But Thwaites’s criticism wasn’t merely about dollar amounts. It’s Yellen, he noted, who has called climate change an “existential threat.”
He pointed to what happened in March when the failure of Silicon Valley Bank threatened to trigger a national banking crisis. The bank was seized by regulators on a Friday and officials knew they were facing a potential bloodbath when markets and banks reopened Monday. So Yellen leapt into action, coordinating extraordinary rescue efforts over the weekend that involved the Federal Deposit Insurance Corp. and the Federal Reserve. By Monday morning, the bullet was dodged.
“What would it take for that level of urgency to be injected into the Treasury” on climate? Thwaites asked. “It would be good to see the actions match the rhetoric.”
--With assistance from Jennifer A Dlouhy, Viktoria Dendrinou and Eric Roston.
(Updates with release of new Treasury principles for net-zero commitments, GFANZ announcement and Yellen remarks in paragraphs 8-10.)