Governments created central banks to provide relative financial stability within their nations via monetary policy, through the establishment of a national banking system at least semi-independent of the vagaries of changing government policies.
In some countries, central banks may print or mint money, but in general central banks control the money supply by setting interest rates and currency reserves for private banks. They also usually set monetary exchange rates, issue or underwrite government bonds, set gold reserves, and regulate a nation’s banking industry. An almost universal reason for central banks’ existence is to maintain financial stability by keeping inflation low, employment high, and prices relatively stable. (This is in fact often the main, direct goal stated in their statutory charters.) Central banks in authoritarian countries are less independent of their central governments than are those in most developed Western democracies, and they are often used to further the geopolitical aims of the government.
Very few countries, all uniformly small in population and geographical area, have no central bank.
The U.S. central bank is the Federal Reserve Banking system (Fed), created in 1913. Its creation was controversial. The Fed came into being only after several previous central banks had been created and dismantled in the nation’s history.
The 12 regional Federal Reserve Banks that comprise the Fed are jointly responsible for managing the country’s money supply, making loans and providing oversight to banks, and serving as a lender of last resort. The Fed’s charter is “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
Similar language appears in the organizing charters of most other nations’ central banks. The European Central Bank has the legal responsibility to mint or print Euros and manage their supply, to maintain price stability and sustainable economic growth.
Central banks in developed countries are expected to stay out of the political fray and not side with political parties, candidates, goals, or policies.
Central banks weren’t formed to dictate, direct, or suggest trade policies, treaties, declarations of war, infrastructure construction, public-land policies, or agency management. Nor are central banks supposed to influence or interfere with policy decisions by elected officials in the legislative and executive branches. Agriculture, crime, education, firearms, health care, housing, industrial development, labor, and retirement are outside the banks’ purview, as are social policies about gender, racial, and sexual matters. So are energy and environmental issues such as oil and gas development and delivery, government and private support of renewable energy sources, promotion of electric vehicles, and climate change policies in general, such as government efforts to discourage or force the phase-out of technologies that emit greenhouse gases.
This being Climate Change Weekly, we’ll limit our discussion to the issue of central banks stepping outside their explicit legal mandates to become woke climate warriors. Justin Haskins, director of The Heartland Institute’s Stopping Socialism project, brought this issue to my attention, and for that I owe him a debt of gratitude.
As far as I’ve been able to ascertain, one can read copious pages of documents and never find the words “environment,” “environmental policy,” “energy,” “energy policy,” “transportation,” “transportation policy,” “climate change,” or “climate change policy” in any central bank’s charter.
Central banks were not formed or designed to implement or suggest public policies on climate change. Nor were central banks given the authority to intervene in decisions made by the chartered banks under their regulatory purview about lending policies, underwriting, lines of credit, and other banking services based on whether their customers embrace climate alarmism, the goals of the Paris climate agreement, the statements and agreements developed at COP-26, and involvement in or profits from carbon-intensive industries.
If a bank wants to develop or continue an existing relationship with an oil and gas company, a coal mine, a steel producer, a concrete manufacturer, or a cattle rancher, that is the bank’s business alone. The Fed has no authority to dictate such decisions.
The owners of a privately owned bank, guided by their own consciences, may be within their rights if they choose not to do business with companies in the fossil-fuel industry. However, publicly traded banks have no business making banking decisions based on anything other than a potential client/partner company’s business history and prospects, profits and losses, financial condition, legal status, and merits of its plans to continue operating and make profits on an ongoing basis. What counts is the ability of the enterprise or person to secure and pay back the loans or services it receives from those banks.
Central banks certainly have no business telling the banks under their control to make fighting climate change or greening the supply chain and their customer base a part of their mission, much less central to it. Nor do their charters empower central banks to set higher banking reserve requirements for industries or businesses they consider non-green or insufficiently wedded to international climate goals.
This is just what they are doing today. Haskins sent me notes detailing the formation of the Network for Greening the Financial System (NGFS). The NGFS, created by eight central banks in 2017, now counts as members more than 100 nations’ central banks and supervisors, among them the Fed, the Bank of Canada, and the Bank of England. The NGFS was formed to use nations’ monetary systems to promote environment, social, and governance (ESG) causes. (I have discussed ESG policies in earlier issues of Climate Change Weekly and in podcasts linked below.)
At COP-26 in Glasgow, the NGFS announced a “Glasgow Declaration” titled “Committed to Action”:
Looking ahead, and in light of the urgency and seriousness of climate change and environmental issues, we will expand and strengthen our collective efforts to improve the resilience of the financial system to climate-related and environmental risks, and encourage the scaling up of the financing flows needed to support the transition towards a sustainable economy.”
In the coming years, the NGFS will [among other things] … deepen its analysis on integrating climate change considerations into monetary policy strategies and frameworks, in the context of the mandates of its members, … [and] supplement the set of NGFS practical guides with guidelines on [Task Force on Climate-Related Financial Disclosures]–aligned reporting for central banks.
In practical terms, this means central banks around the world are promising to use monetary policy to promote the “E” (environment) in ESG causes and to expand climate-related metrics and reporting requirements for central banks and the banks they regulate, essentially mandating some sort of ESG score.
Other meetings occurred in Glasgow related to banking, financial, and monetary policy, Haskins says. These meetings were not open to the public. Despite making decisions, one suspects, affecting everyone in the world, these meetings were intentionally kept opaque. For example, a “Coalition of Finance Ministers for Climate Action” met at a closed-door event for more than three hours at COP-26. The schedule described the meeting as follows: “Finance Ministers, Central Bank Governors and Financial Institutions have a central role to play in aligning financial flows with the Paris Agreement. The Coalition and the Network for Greening the Financial System will meet to discuss best practices to mainstream climate-related risks and opportunities into their financial and economic policy decision-making.”
It should be no surprise that central banks have experienced mission creep and are engaging in policy issues beyond their legal charters. As creatures of government, these institutions attract people who want power, and as Lord Acton sagely warned, “Power corrupts.” The problem with central banks is the same problem people face in trying to restrain government in general, a question which goes back at least to the ancient Greeks or Romans: “Who will watch the watchers?”
No one has provided a wholly satisfactory answer to that question for more than 2,000 years, including the founders of the United States who devised an ingenious system of separation of powers in the U.S. Constitution.
In lieu of waiting for the design of perfect institutions, I suggest anyone who cares about employment, business opportunities, housing, personal wealth creation, economic progress, and the freedom to make personal financial decisions based on one’s own values, hopes, and dreams instead of the desires of a small cabal of unelected and largely unaccountable central bank bureaucrats had better pay attention to what’s going on with the Fed. It is everyone’s responsibility to watch the watchers. I also suggest people make it clear to their elected representatives that they should closely watch the Fed and rein it in. The Fed’s board of governors should not be allowed to engage in extracurricular activities or policy initiatives unrelated to its mission of ensuring price stability, low inflation, and high employment.
Climate policy is the proper purview of the legislature. Unless our elected representatives change its charter, the Fed is obligated to stay out of climate policy. A good start would be for the Fed to withdraw from the NGFS. Absent that, Congress should force the Fed to do so.
IN THIS ISSUE …
COAL USE CONTINUES TO RISE … GREENLAND’S ANCIENT BEACHES WERE NOWHERE NEAR CURRENT COASTLINE … SOLAR ACTIVITY HAS LARGE INFLUENCE ON CLIMATE, NEW RESEARCH CONFIRMS
COAL USE CONTINUES TO RISE
Despite COP-26 negotiators’ best efforts to restrain fossil-fuel use and end the era of coal, demand for coal is increasing as developing and developed economies alike experience continued economic growth and tackle geopolitical issues.
In response to rising natural gas prices, “New federal data has U.S. coal-fired power generation leaping 22 percent in 2021 to 945 terawatt-hours—the first annual increase for coal since 2014, … [and] the demand boom has U.S. coal companies now offering miners six-figure salaries,” Forbes reports.
China alone added more coal generation in 2020 than was retired by all other countries combined. and the International Energy Agency projects China’s coal use will set new records this year. Demand for coal has also risen sharply in India as that nation continues industrializing to raise millions of people out of poverty.
Even in Germany and Japan, countries that have historically led the effort to end the use of coal in order to fight climate change, the amount of electric power generated by burning coal has been stable in recent years or increased modestly, Forbes notes. Germany and other European countries have, in fact, reopened previously shuttered coal-fueled power plants in recent years in response to Russia restricting natural gas shipments to Europe as a political lever, higher natural gas prices, and uncooperative weather hampering electricity generation from their huge arrays of wind turbines and solar panels.
Coal use is also growing as economies recover from the pandemic-induced government shutdowns, because it is integral to steel production. Reenergized economies are erecting more buildings and associated infrastructure, all of which requires steel, which in turn demands coal.
It seems, to paraphrase Mark Twain, the rumors of King Coal’s demise have been greatly exaggerated—at least for now.
GREENLAND’S ANCIENT BEACHES WERE NOWHERE NEAR CURRENT COASTLINE
New research published in the peer-reviewed journal Boreas finds sea levels have been much higher across large portions of Greenland at other times during the present interglacial than they are at present, indicating current rising seas are not unusual in relatively recent history.
Examination of cobble surfaces—large assemblages of small rocks, whale bones, and marine shells that mark ancient beach sites—along the shores of western Greenland from 5,000 and 9,000 years ago shows these sites are 32 to 36 meters (m) above today’s shorelines. Even as recently as 1,500 to 2,000 years before present, beach sites were approximately six meters higher than now.
Although the research team studied a limited number of sites and ages, the research clearly indicates Greenland has experienced significant changes in sea levels and shorelines during the present interglacial. This includes long periods of time when sea levels were much higher than they are at present.
All of this sea level rise occurred long before any human greenhouse gases were emitted into the atmosphere. Nature, not people, dominates Greenland’s seas.
SOLAR ACTIVITY HAS LARGE INFLUENCE ON CLIMATE, NEW RESEARCH CONFIRMS
New research published in Nature: Scientific Reports seems to confirm what other research has indicated: cosmic ray showers in the atmosphere probably influence cloud formation, which in turn affects temperature and possibly, over time, climate.
Researchers from DTU Space at the Technical University of Denmark and from The Hebrew University of Jerusalem traced the consequences of solar eruptions on cosmic rays and the formation of aerosols and resulting clouds which affect the amount of solar radiation that reaches and reflects back out from the Earth’s surface.
“We tested cosmic ray effects on the atmosphere for about two weeks,” study lead author Henrik Svensmark told Phys.org. “When solar explosions reduce the cosmic ray flux reaching Earth, they temporarily reduce the production of small aerosols.
“The aerosols are molecular clusters in the air that normally grow to seed the water droplets of low-level clouds,” Svensmark said. “This, in turn, reduces the cloud cover, which is known to affect climate.”
Using detailed satellite observations from the CERES instrument on NASA’s Terra and Aqua satellites, the researchers were able for the first time to quantify the effect of solar eruptions on the Earth’s energy budget. According to their measurements, the Earth absorbs almost 2 W/m2 more energy within four to six days of a cosmic-ray minimum.
“We now have simultaneous observations of decreases in cosmic rays, aerosols, clouds, and the energy budget, which is quite amazing,” study coauthor Prof. Nir Shaviv told Phys.org.
Although the solar effects discovered in this research are too short-lived and temporary to have a long-term effect on the climate, the scientists hope the findings will result in climate researchers taking more seriously the role the sun plays in climate change and reexamine what, if any, long-term effects solar activity might have on it.
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