SACRAMENTO – Financial institutions operating in California that provide more than $1 billion in funding to fossil fuel industries would face a climate resiliency surcharge under legislation introduced by Senator Josh Becker.
“Senate Bill 1301 would send a clear message to major financiers that if they fund fossil fuel industries, then they must also help fund the climate resiliency of our state,” said Senator Becker, chair of the Senate Subcommittee on the Clean Energy Future and vice chair of the Legislature’s Joint Committee on Climate Change Policies.
“There should be a cost for doing business with firms that make their money by literally fueling climate change and undermining the resiliency of our planet,” he said. “The financial institutions bankrolling those firms and their ventures make environmental destruction possible, and those funders must take responsibility for their engagement. SB 1301 the Climate Surcharge Resiliency Surcharge Act requires the fossil fuel industry financiers own up to their responsibility.”
Financing Fossil Fuel Industries
Worldwide, banks play an enormous role in financing fossil fuel projects and operations. The burning of fossils fuels, especially in the power and transportation sectors, is responsible for three-quarters of US carbon emissions. Globally, fossil fuel emissions are the primary cause of climate change. Shockingly from 2016 through 2021, the 60 largest commercial and investment banks, through their lending and underwriting practices, invested $4.6 trillion in oil and gas extraction, petroleum refining, coal mining and other fossil fuel industries.
A year ago, on the eve of Earth Day 2021 and President Biden’s Head of State Climate Summit, the banking industry and the UN announced a new consolidated effort to address the problem. A global coalition of leading financial institutions formed the Glasgow Financial Alliance for Net Zero (GFANZ) to accelerate decarbonization of the world economy and acknowledge the role their industry plays in affecting climate change and measures to curtail it.
By last fall at the COP 26 international climate summit Glasgow, firms with a combined $130 trillion in assets answered GFANZ’s call to action by pledging to help build a net zero global financial system and committing to transition their own investments and businesses to net zero no later than 2050.
Big Promises from Financial Giants But Little Action
Despite the strong response to GFANZ at COP 26, recent data from Bloomberg shows the financial industry poured more than $600 billion in capital to fossil fuel producers in the past 12 months — about the same as the year before. In findings published April 20, the climate advocacy group Reclaim Finance said it assessed 30 major asset managers and learned they hold more than $82 billion in companies developing new coal projects. For the oil and gas industry, the same 30 asset managers “hold $468 billion in 12 major oil and gas companies with massive upstream expansion plans,” the group said.
While in Glasgow, Senator Josh Becker and Washington State Senator Reuven Carlyle were among the lawmakers attending the summit who talked with each other about possible legislation in their own states to spur financial institutions to participate in the transition. Senator Carlyle’s bill on a surcharge for charge for fossil fuel funder did not survive committee review in early March. But Senator Becker is forging ahead with his SB 1301, which was inspired by Carlyle’s efforts.
Keeping the Pressure On
“The data published in recent days shows why pressure must be kept on financial institutions to deliver on their promises to reform,” Senator Becker said. “In Glasgow, Reuven Carlyle and I and other (lawmakers from around the world) talked about the importance of bringing this issue to our legislatures. SB 1301 spotlights this issue for California. With strong our climate commitment, our state can take a bold step to make major financial institutions operating here uphold their industry’s climate action pledge.”
Specifically, SB 1301 would establish a surcharge on financial institutions operating in California whose financing of fossil fuel industry businesses exceeded $1 billion globally in the previous tax year. The bill would:
- Apply to tax years beginning or after January 1, 2023, and before January 1, 2049, for financial institutions that meet the financing threshold.
- Set the surcharge at:
- 0.25% of net income for entities with a fossil fuel financing percentage that is not greater than 1% of its global financing.
- 0.5% of net income for entities with a fossil fuel financing percentage that is greater than 1% but not greater than 2% of its global financing.
- 0.75% of net income for entities with a fossil fuel financing percentage that is greater than 2% of its global financing.
- Define “fossil fuel financing” as the financing of an entity that makes at least 10 % of its annual revenue from coal operation; oil and gas exploration and production; integrated oils; oil and gas services and equipment; oil and gas pipelines; or oil and gas refining and marketing.
The Senate Government and Finance Committee is scheduled to hold a hearing on SB 1301 on May 4. Office of State Senator Josh Becker