Federal

Fossil Free Finance Act of 2023

Source: Congress.gov · 2,960 words in original text

What This Bill Does

This bill requires large banks to develop plans to reduce the greenhouse gas emissions (pollutants that trap heat in the atmosphere) they finance through their investments and lending. The bill also changes how federal regulators decide which financial companies need closer supervision based on their contribution to climate-changing emissions.

Who It Affects

- Bank holding companies with at least $50 billion in total consolidated assets - The Federal Reserve Board (the central banking system that supervises banks) - Nonbank financial companies supervised by the Federal Reserve - Workers and communities dependent on fossil fuel industries - Companies that receive financing from covered banks

Key Provisions

- Covered banks must submit emission reduction plans to the Federal Reserve within 210 days of the law taking effect and every two years after that, with plans to reach zero financed emissions by January 1, 2050. (Sec. 2(b) and (c)) - Banks must reduce their financed emissions by 50 percent by January 1, 2030 and stop all fossil fuel financing by January 1, 2030. (Sec. 2(c)) - Banks must stop financing new or expanded fossil fuel projects within 60 days of the law's enactment and stop financing thermal coal (coal burned for electricity) by January 1, 2025. (Sec. 2(c)) - Banks cannot use carbon offsets (voluntary reductions elsewhere to cancel out their own emissions) to meet these requirements, though they may use proven negative carbon emission technologies if those do not harm low-income, minority, or indigenous communities. (Sec. 2(c)) - The Federal Reserve has 180 days to review and either accept or reject the plans. If rejected, banks must revise them following the Federal Reserve's suggestions. (Sec. 2(d)) - If banks fail to submit plans or meet their requirements, the Federal Reserve can apply penalties, require asset sales, and notify the Federal Deposit Insurance Corporation (the agency that insures bank deposits). (Sec. 2(e))

What Changes

If this bill becomes law, large banks would be required by federal regulation to progressively stop financing fossil fuel projects and reduce the greenhouse gas emissions tied to their investments. Banks would face financial penalties or forced asset sales if they fail to comply. The Federal Reserve would use a bank's contribution to financed emissions as a factor when deciding if the bank needs stricter regulatory supervision. The Federal Reserve must issue regulations within 180 days to establish how and when banks submit their plans. Congress would receive reports every two years on progress toward reducing financed emissions across the financial system.

Important Definitions

- **Financed emissions**: The greenhouse gas emissions from companies or projects that a bank invests in or provides financial services to, measured in metric tons of carbon dioxide equivalent (a standard way to measure different greenhouse gases). - **Covered bank holding company**: A bank holding company with at least $50 billion in total consolidated assets. - **Fossil fuel financing**: Investment in a company that gets at least 15 percent of its revenue from exploring, extracting, processing, exporting, transporting, or other significant actions involving oil, natural gas, coal, or their byproducts, or investment in a fossil fuel project. - **Fossil fuel project**: A project designed to facilitate or expand exploration, extraction, processing, exporting, transporting, or other significant actions involving oil, natural gas, or coal, or to build related infrastructure like wells, pipelines, terminals, refineries, or electricity generation facilities. - **New or expanded fossil fuel project**: A fossil fuel project that would increase proven or developable oil, natural gas, or coal reserves, or increase the amount of material that moves through pipelines, terminals, or refineries, or increase the burning of fossil fuels for electricity generation. - **Deforestation risk commodities**: Globally traded goods and raw materials that come from natural forest ecosystems or areas previously under forest cover, where extracting or producing them significantly contributes to converting forests to agriculture, tree plantations, or other non-forest land use. - **Natural forest**: A natural tree ecosystem where a significant percentage of species are native species and where tree canopy covers more than 10 percent over an area of at least 0.5 hectares (about one acre). - **Carbon offsets**: Reductions or removal of greenhouse gases calculated and tracked to offset another entity's greenhouse gas emissions. - **Greenhouse gas**: Carbon dioxide, methane, nitrous oxide, nitrogen trifluoride, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. - **Science-based emissions targets**: Greenhouse gas emission reductions consistent with preventing an increase in global average temperature of at least 1.5 degrees Celsius compared to pre-industrial levels.

Effective Date

Not specified in bill text for the overall law. However, specific deadlines are stated: covered banks must submit their first emission reduction plan within 210 days after the date this section becomes law; they must stop new or expanded fossil fuel project financing within 60 days of enactment; the Federal Reserve must issue regulations within 180 days of enactment; and the Federal Reserve must submit its initial report to Congress within 180 days of enactment.

II 118TH CONGRESS 1ST SESSION S. 1138 To amend the Bank Holding Company Act of 1956 and the Financial Sta- bility Act of 2010 to require a reduction of financed emissions to protect financial stability, and for other purposes. IN THE SENATE OF THE UNITED STATES MARCH 30, 2023 Mr. MARKEY (for himself, Mr. MERKLEY, and Mr. SANDERS) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Bank Holding Company Act of 1956 and the Financial Stability Act of 2010 to require a reduction of financed emissions to protect financial stability, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Fossil Free Finance 4 Act of 2023’’. 5 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 2 •S 1138 IS SEC. 2. ALIGNMENT OF FINANCED EMISSIONS WITH 1 SCIENCE-BASED TARGETS. 2 The Bank Holding Company Act of 1956 (12 U.S.C. 3 1841 et seq.) is amended by adding at the end the fol- 4 lowing: 5 ‘‘SEC. 15. ALIGNMENT OF FINANCED EMISSIONS WITH 6 SCIENCE-BASED TARGETS. 7 ‘‘(a) DEFINITIONS.—In this section: 8 ‘‘(1) Carbon offsets—The term ‘carbon offsets’ 9 means an emissions reduction or removal of green- 10 house gases in a manner calculated and traced for 11 the purpose of offsetting an entity’s greenhouse gas 12 emissions. 13 ‘‘(2) COVERED BANK HOLDING COMPANY.—The 14 term ‘covered bank holding company’ means a bank 15 holding company with total consolidated assets not 16 less than $50,000,000,000. 17 ‘‘(3) DEFORESTATION RISK COMMODITIES.— 18 The term ‘deforestation risk commodities’ means 19 globally traded goods and raw materials— 20 ‘‘(A) that originate from natural forest 21 ecosystems— 22 ‘‘(i) directly from within forest areas; 23 or 24 ‘‘(ii) from areas previously under for- 25 est cover; and 26 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 3 •S 1138 IS ‘‘(B) the extraction or production of which 1 contributes significantly to the conversion of 2 natural forest to agriculture, tree plantation, or 3 other nonforest land use. 4 ‘‘(4) FINANCED EMISSIONS.—The term ‘fi- 5 nanced emissions’ means, with respect to a covered 6 bank holding company, and any nonbank financial 7 company supervised by the Board in accordance with 8 section 113 of the Financial Stability Act of 2010 9 (12 U.S.C. 5323), the greenhouse gas emissions of 10 such company, expressed in metric tons of carbon di- 11 oxide equivalent, attributable to investment in, or 12 the providing of financial services to, another com- 13 pany or project of another company, including— 14 ‘‘(A) investments in a debt or equity in- 15 vestment in such another company or the assets 16 of such another company; 17 ‘‘(B) project finance investment; 18 ‘‘(C) underwriting; 19 ‘‘(D) syndication or securitization of loans 20 or asset-backed securities; 21 ‘‘(E) derivative transactions related to fi- 22 nancing or hedging; and 23 ‘‘(F) market making. 24 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 4 •S 1138 IS ‘‘(5) FOSSIL FUEL FINANCING.—The term ‘fos- 1 sil fuel financing’ means, with respect to a covered 2 bank holding company, investment in— 3 ‘‘(A) a company that derives not less than 4 15 percent revenue from exploration, extraction, 5 processing, exporting, transporting, and any 6 other significant action with respect to oil, nat- 7 ural gas, coal, or any byproduct thereof; or 8 ‘‘(B) a fossil fuel project. 9 ‘‘(6) FOSSIL FUEL PROJECT.—The term ‘fossil 10 fuel project’ means a project intended to— 11 ‘‘(A) facilitate or expand exploration, ex- 12 traction, processing, exporting, transporting, or 13 any other significant action with respect to oil, 14 natural gas, coal; or 15 ‘‘(B) construct any infrastructure related 16 to the activities described in subparagraph (A), 17 such as wells, pipelines, terminals, refineries, or 18 utility-sale generation facilities. 19 ‘‘(7) GREENHOUSE GAS.—The term ‘greenhouse 20 gas’ means carbon dioxide, methane, nitrous oxide, 21 nitrogen trifluoride, hydrofluorocarbons, 22 perfluorocarbons, and sulfur hexafluoride. 23 ‘‘(8) NATURAL FOREST.—The term ‘natural 24 forest’ means a natural arboreal ecosystem that— 25 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 5 •S 1138 IS ‘‘(A) has a species composition a signifi- 1 cant percentage of which is native species; and 2 ‘‘(B) contains a tree canopy cover of more 3 than 10 percent over an area of not less than 4 0.5 hectares. 5 ‘‘(9) NEW OR EXPANDED FOSSIL FUEL 6 PROJECT.—The term ‘new or expanded fossil fuel 7 project’ means a fossil fuel project that would in- 8 crease the— 9 ‘‘(A) level of proven or developable oil, nat- 10 ural gas, or coal reserves; 11 ‘‘(B) midstream throughput of pipelines, 12 terminals, or refineries; or 13 ‘‘(C) combustion of oil, natural gas, or coal 14 for utility-scale electricity generation. 15 ‘‘(b) REQUIREMENTS.—Not later than 210 days after 16 the date of enactment of this section, and not less than 17 once every 2 years thereafter, a covered bank holding com- 18 pany shall— 19 ‘‘(1) submit to the Board an emission reduction 20 plan for reducing emissions in accordance with this 21 section; and 22 ‘‘(2) if the plan is accepted under subsection 23 (d), implement such plan. 24 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 6 •S 1138 IS ‘‘(c) ELEMENTS OF PLAN.—Each plan required 1 under subsection (b)(1)— 2 ‘‘(1) shall include— 3 ‘‘(A) a plan for the covered bank holding 4 company to reach zero financed emissions not 5 later than January 1, 2050; 6 ‘‘(B) a plan to reduce the financed emis- 7 sions of the bank holding company by 50 per- 8 cent not later than January 1, 2030; 9 ‘‘(C) a plan to discontinue new or ex- 10 panded fossil fuel projects not later than 60 11 days after the date of enactment of this section; 12 ‘‘(D) a plan for the covered bank holding 13 company to discontinue thermal coal financing 14 not later than January 1, 2025; 15 ‘‘(E) a plan for the covered bank holding 16 company to discontinue all fossil fuel financing 17 not later than January 1, 2030; 18 ‘‘(F) a plan for the covered bank holding 19 company to eliminate financing of deforestation 20 risk commodities; and 21 ‘‘(G) such other requirements as the Board 22 determines is necessary to protect the financial 23 stability of the United States; 24 ‘‘(2) may not include carbon offsets; 25 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 7 •S 1138 IS ‘‘(3) may include proven negative carbon emis- 1 sion technologies to meet the requirements under 2 paragraph (1)(A) if the technologies do not nega- 3 tively impact low-income, minority, or indigenous 4 communities; 5 ‘‘(4) shall prioritize— 6 ‘‘(A) the covered bank holding company 7 withdrawing funding from companies and 8 projects that have a disproportionately negative 9 impact on the health and well-being of low-in- 10 come and minority communities; 11 ‘‘(B) lending to companies for purposes of 12 carrying out severance, retraining, and other 13 benefits to workers impacted by the transition 14 to zero financed emissions; and 15 ‘‘(C) enhanced due diligence about the im- 16 pacts of financing on biodiversity and commu- 17 nity and the framework of the client for and 18 track record in— 19 ‘‘(i) managing greenhouse gas and 20 other emissions; and 21 ‘‘(ii) compliance with regulations and 22 international standards. 23 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 8 •S 1138 IS ‘‘(d) CONSIDERATION OF PLAN.—Not later than 180 1 days after the date on which the Board receives a plan 2 submitted under subsection (b)(1), the Board shall— 3 ‘‘(1) accept the plan; or 4 ‘‘(2)(A) reject the plan if the plan does not 5 align with science-based targets without the use of 6 offsets or unproven carbon emission reduction tech- 7 nologies; and 8 ‘‘(B) require the covered bank holding company 9 to revise such plan in accordance with the sugges- 10 tions of the Board. 11 ‘‘(e) PENALTIES.—If a covered bank holding com- 12 pany does not submit a plan in accordance with this sec- 13 tion or meet the requirements set out in such a plan— 14 ‘‘(1) the Board shall— 15 ‘‘(A) apply the penalties under section 8 16 under regulations prescribed by the Board; 17 ‘‘(B) require divestiture of assets in order 18 to bring the financed emissions of a covered 19 bank holding company into compliance with the 20 requirements set out in such a plan; and 21 ‘‘(C) notify the Board of Directors of the 22 Federal Deposit Insurance Corporation of the 23 noncompliance of the covered bank holding 24 company; and 25 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 9 •S 1138 IS ‘‘(2) the Board of Directors of the Federal De- 1 posit Insurance Corporation may, with respect to 2 any covered bank holding company described in 3 paragraph (1)(C) or a subsidiary of the bank hold- 4 ing company that contributes to the failure of the 5 covered bank holding company to comply with this 6 section— 7 ‘‘(A) terminate the insured status of the 8 insured depository institution of which the bank 9 holding company has control under section 10 8(a)(2) of the Federal Deposit Insurance Act 11 (12 U.S.C. 1818(a)(2)); and 12 ‘‘(B) carry out any other corrective action 13 available under section 38 of the Federal De- 14 posit Insurance Act (12 U.S.C. 1831o) for the 15 insured depository institution of which the bank 16 holding company has control under section 17 8(a)(2) of the Federal Deposit Insurance Act 18 (12 U.S.C. 1818(a)(2)). 19 ‘‘(f) REGULATIONS.—Not later than 180 days after 20 the date of enactment of this section, the Board shall issue 21 regulations establishing the format and timing for submis- 22 sion of the plans required under this section.’’. 23 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 10 •S 1138 IS SEC. 3. CONTRIBUTION TO CLIMATE CHANGE INCLUDED IN 1 FSOC DESIGNATION. 2 (a) AUTHORITY TO REQUIRE SUPERVISION AND 3 REGULATION OF CERTAIN NONBANK FINANCIAL COMPA- 4 NIES.—Section 113 of the Financial Stability Act of 2010 5 (12 U.S.C. 5323) is amended— 6 (1) in subsection (a)(2)— 7 (A) in subparagraph (J), by striking ‘‘and’’ 8 at the end; 9 (B) by redesignating subparagraph (K) as 10 subparagraph (L); and 11 (C) by inserting after subparagraph (J) 12 the following: 13 ‘‘(K) the extent to which the company 14 makes a nontrivial contribution to the financed 15 emissions, as defined in section 15 of the Bank 16 Holding Company Act of 1956, of the financial 17 system of the United States; and’’; and 18 (2) in subsection (b)(2)— 19 (A) in subparagraph (J), by striking ‘‘and’’ 20 at the end; 21 (B) by redesignating subparagraph (K) as 22 subparagraph (L); and 23 (C) by inserting after subparagraph (J) 24 the following: 25 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 11 •S 1138 IS ‘‘(K) the extent to which the company 1 makes a nontrivial contribution to the financed 2 emissions, as defined in section 15 of the Bank 3 Holding Company Act of 1956, of the financial 4 system of the United States; and’’. 5 (b) ENHANCED SUPERVISION AND PRUDENTIAL 6 STANDARDS FOR NONBANK FINANCIAL COMPANIES SU- 7 PERVISED BY THE BOARD OF GOVERNORS AND CERTAIN 8 BANK HOLDING COMPANIES.— 9 (1) DEVELOPMENT OF PRUDENTIAL STAND- 10 ARDS.—Section 115(b)(1) of the Financial Stability 11 Act of 2010 (12 U.S.C. 5325(b)(1)) is amended— 12 (A) in subparagraph (H), by striking 13 ‘‘and’’; 14 (B) in subparagraph (I), by striking the 15 period at the end and inserting ‘‘; and’’; and 16 (C) by adding at the end the following: 17 ‘‘(J) divestiture of financed emissions, as 18 defined in section 15 of the Bank Holding Com- 19 pany Act of 1956.’’. 20 (2) REQUIRED STANDARDS.—Section 21 165(b)(1)(A) of the Financial Stability Act of 2010 22 (12 U.S.C. 5365(b)(1)(A)) is amended— 23 (A) in clause (iv), by striking ‘‘and’’ at the 24 end; 25 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 12 •S 1138 IS (B) in clause (v), by striking the period 1 and inserting ‘‘; and’’; and 2 (C) by adding at the end the following: 3 ‘‘(vi) emissions reduction plans in ac- 4 cordance with section 15 of the Bank 5 Holding Company Act of 1956.’’. 6 SEC. 4. REPORTS. 7 (a) DEFINITIONS.—In this section: 8 (1) COVERED BANK HOLDING COMPANY; FI- 9 NANCED EMISSIONS.—The terms ‘‘covered bank 10 holding company’’ and ‘‘financed emissions’’ have 11 the meanings given the terms in section 15 of the 12 Bank Holding Company Act of 1956, as added by 13 section 2 of this Act. 14 (2) SCIENCE-BASED EMISSIONS TARGETS.—The 15 term ‘‘science-based emissions targets’’ means reduc- 16 tion in greenhouse gas emissions consistent with pre- 17 venting an increase in global average temperature of 18 not less than 1.5 degrees Celsius compared to pre- 19 industrial levels. 20 (b) INITIAL REPORT.—Not later than 180 days after 21 the date of enactment of this Act, the Board of Governors 22 of the Federal Reserve System shall submit to Congress 23 a report that— 24 VerDate Sep 11 2014 03:01 Apr 13, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1138.IS S1138 kjohnson on DSK79L0C42PROD with BILLS 13 •S 1138 IS (1) identifies the current level of financed emis- 1 sions in the financial system of the United States; 2 (2) includes an analysis of trends in financed 3 emissions reductions; 4 (3) includes a summary of the commitments of 5 covered bank holding companies to reduce financed 6 emissions; 7 (4) estimates the financed emissions in the fi- 8 nancial system of the United States needed to meet 9 science-based emissions targets; 10 (5) identifies regulatory gaps in reducin [Text truncated for display. Full text available on Congress.gov.]

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