Finance

Yellen will vow to ‘rid’ US from ‘dependence on fossil fuels’ in Detroit speech

Treasury Secretary Janet Yellen
Greg Nash
Treasury Secretary Janet Yellen answers questions from Sen. Elizabeth Warren (D-Mass.) during a Senate Finance Committee hearing to examine President Biden’s FY 2023 budget on Tuesday, June 7, 2022.

Treasury Secretary Janet Yellen will call out the fossil fuel industry in a Thursday speech on the Biden administration’s economic agenda to be delivered in Detroit, Mich., where oil and gas companies have long held influence in the U.S. auto manufacturing sector.  

The visit to Detroit comes on the heels of the Democrats’ passage of the Inflation Reduction Act (IRA), which includes $14.2 billion worth of subsidies for electric vehicles meant to wean the auto industry off of gasoline in an effort to reduce U.S. transportation emissions that are contributing to a rise in global temperatures. 

“We will rid ourselves from our current dependence on fossil fuels,” Yellen’s prepared remarks say. 

“Our plan — powered by the Inflation Reduction Act — represents the largest investment in fighting climate change in our country’s history. It will put us well on our way toward a future where we depend on the wind, sun, and other clean sources for our energy,” her remarks continue. 

Yellen’s speech will also emphasize the role that private capital can play in addressing climate change, putting her generally in line with the economic, social and corporate governance (ESG) movement. The ESG movement in the financial sector pursues environmental and social equality objectives through divestment practices and getting board members with particular political views elected to company boards. 

“By mobilizing private capital, the clean energy tax credits implemented by Treasury will propel our economy and workers to a leadership position in the fastest growing markets and technologies of today and the future, with positive spillovers to the rest of the world. And in the process of boosting domestic clean energy production, the law will support our energy security and insulate us from the type of fossil fuel-driven energy volatility that we’ve seen in the past year,” her remarks say. 

Republicans at the state level have been mobilizing to block ESG practices, which they view as harmful to their economies, with various initiatives in states like West Virginia and Texas that include a blacklist of financial firms that “[boycott] energy companies” and a request for documents from certain institutional investors on Wall Street. 

Texas state Sen. Bryan Hughes (R), whose State Affairs Committee sent letters to asset management giant Blackrock and three other firms asking for information on ESG practices, said in an interview with The Hill that he is concerned about corporate power advancing a “left-wing agenda.” 

“You know how it goes. Blackrock comes to Company X and says we own however many million shares in your company, and if you want us to vote for your directors and your compensation, then you better do what we say,” Hughes said.  

“It’s one thing for that power to exist, but when we see a handful of firms control this amount of the stock market and we see them moving in lockstep using that power for this left-wing agenda, it’s just something we’ve never seen in America,” he said. 

Blackrock previously stated it does not boycott fossil fuel companies, but CEO Larry Fink has said that he believes capitalism can change the way societies operate. 

“Capitalism has the power to shape society and act as a powerful catalyst for change,” he wrote in a 2022 open letter to CEOs, adding that “companies perform better when they are deliberate about their role in society” and that “the relationship between a company, its employees, and society is being redefined.” 

However, critics of ESG say that the institutional requirements of the private sector — namely, short-term returns on investment — make it a haphazard strategy for dealing with a problem as urgent and large-scale as climate change. 

The main international proposal for emissions reductions to address climate change is a carbon tax — an idea that has repeatedly failed to gain political traction in the U.S. 

But even economists who support the carbon tax, including Yellen, are still neglecting the role that direct public investment, rather than industry-specific private sector investments, should play in climate change mitigation, critics say.

“These economists offer no support for increases in public investments in renewable energy and energy efficiency, thereby surrendering the power of the public sector, amounting to 35 percent of GDP in the U.S. and higher shares elsewhere, to push the clean energy transformation forward at the most aggressive possible rate,” University of Massachusetts economist Robert Pollin wrote in a 2020 book titled “Climate Crisis and the Global Green New Deal.”

In an interview, Pollin said that the IRA represents a step forward but is still too focused on the private sector. 

“The IRA is almost entirely geared toward incentivizing private investment. Between federal, state and local governments, we’re talking about $7 trillion of public spending. Why not take a tiny slice of that and do things like investing in, say, retrofitting every single public building to raise energy efficiency standards, or investing in 100 percent renewable energy to supply public buildings, or having public sector purchases of electric vehicles for public transportation significantly?” 

Transportation sector emissions reductions resulting from the IRA constitute the smallest segment of reductions overall, beaten out by improvements in agriculture, electricity, industry and building technology, according to an analysis of the law by climate think tank Energy Innovation Policy and Technology. 

Over the next eight years, transportation emissions are expected to drop due to the IRA by about 21 million metric tons’ worth of carbon dioxide, compared to a reduction of 610 million metric tons in the electricity sector and 113 million metric tons in the agriculture and waste sector, according to the think tank. 

Wall Street analysts say it’s still too soon to tell how the IRA will affect individual companies in the auto sector, since the legislation has yet to be interpreted by regulatory agencies. 

“It’s too soon to say what impact the Inflation Reduction Act will have for Tesla,” analysts for Goldman Sachs wrote in a Monday note. “A lot will depend on guidance from the government about how the law will be interpreted. However, we note that the IRA does seek to encourage a North America based EV [electric vehicle] supply chain and Tesla has more local manufacturing than average.”  

“We believe this will be a positive for Tesla to potentially qualify for at least partial credits on some vehicles over time (and Tesla could potentially benefit as well in our view from incentives for solar, batteries, charging, and commercial vehicles),” they wrote. 

While voting for the IRA, congressional Democrats from Michigan have expressed doubts about how exactly the EV tax credits meant to shake up the auto industry were designed. 

“Let me say that the consumer tax credit was certainly not written in a way that I would write it or want it to be,” Sen. Debbie Stabenow (D-Mich.) said in an August briefing to local reporters in Michigan. “And I know Sen. [Gary] Peters feels the same way. There’s a lot of wonderful things in here for us on EV production and clean energy manufacturing, but this is the one area for me that was very, very concerning.”

Tags Electric vehicles Janet Yellen Michigan
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