Updated May 18, 2020 - Energy & Environment

Trump’s energy chief: Banks are "redlining" oil and gas investments

Amy Harder, author of Generate

Illustration: Sarah Grillo/Axios

Bank restrictions on the financing of oil and gas drilling in the Arctic are akin to past practices —known as redlining — of not loaning to communities of color, Energy Secretary Dan Brouillette told Axios in an exclusive interview.

The big picture: A decades-long battle over Arctic drilling is suddenly escalating even as the world grapples with a pandemic. Five of America’s six biggest banks have recently announced they won’t finance oil and gas development in the Arctic, prompting conservative and industry backlash.

"For years and years and years, banks would not lend money, insurance companies would not write policies in minority areas in the country. Redlining is the term used all throughout those debates. We didn’t want banks redlining certain parts of the country. We don’t want that here. I do not think banks should be redlining our oil and gas investment across the country."
— Energy Secretary Dan Brouillette

What they’re saying: Brouillette cited his past work at USAA, a financial services firm. Experts said, though, that the redlining comparison is both inappropriate and inaccurate.

  • “It’s offensive and astounding that they would go there,” said Mehrsa Baradaran, a law professor at University of California-Irvine and an expert on redlining and racial discrimination in banking.
  • “A massive corporation being cut off from a few banks is absolutely nothing like the systematic exclusion and exploitation of black communities for hundreds of years. It displays an unfortunate ignorance about the history of redlining.” 
  • “Redlining had to do with race and race is specifically constitutionally protected as an area you can’t discriminate against,” said Tony Fratto, a former top official in the Bush administration who's now at the public affairs firm Hamilton Place Strategies. “There is no similar protection for businesses.”

The other side: “Secretary Brouillette has zero tolerance for discrimination of any type, and he was not in any way equating the plight of minority communities to that of energy companies," Department of Energy spokesperson Shaylyn Hynes said of the redlining analogy. "Accusing him of doing so in order to manufacture a dramatic headline is both disingenuous and not based in any truth."

  • "What he did do is make the powerful point that historically there had been discrimination practiced by some in the financial services industry, a custom he and many others worked hard to eliminate and continue to oppose.”

Driving the news: Three dozen Republican lawmakers sent a letter to the Trump administration on May 7, urging it to “use every administrative and regulatory tool at your disposal to prevent America’s financial institutions from discriminating against America’s energy sector while they simultaneously enjoy the benefits of federal government programs.”

Reality check: There’s probably not much the administration can do.

  • “At the end of the day, they’re private companies,” Fratto said. 
  • “I think it’s a really slippery slope to have the government making those kinds of decisions for lending institutions,” he continued. “They may feel like they want to do it while they’re in charge, but will they feel the same way if it’s a Democratic administration pressing those decisions on banks?”

For the record: Spokespeople for the banks and spokespeople for the White House and Treasury Department declined to comment.

Catch up fast: Since last December, five of America’s six biggest banks — Goldman Sachs, Wells Fargo, Citi, Morgan Stanley and JPMorgan — have announced they won’t directly finance new oil and gas development in the Arctic. This includes specifically the Arctic National Wildlife Refuge

  • Congress tucked a provision into the 2017 tax law allowing drilling in a small portion of the refuge, a victory Republicans and oil executives had sought for decades.
  • It’s unclear how much oil and gas exists under the refuge — though it could be a lot. Alaska’s overall oil production has been slowly declining for decades. New investment interest is similarly tepid (particularly with oil prices in the toilet).

How it works: Generally speaking, these banks (and other global ones) have increasingly supported financing in renewable energy. In this case, they argue that financing of Arctic drilling is risky as the world transitions to cleaner sources of energy to address climate change.

Yes, but: Critics of the banks’ moves say the policies are crafted narrowly enough to still allow financing of Arctic oil and gas projects, as long as it’s general financing to a company, not specific to a project.

  • JPMorgan Chase and Citi are the top two bankers of Arctic oil and gas in the world, according to a March report by Rainforest Action Network that analyzed financing before the new policies.
  • JPMorgan provided $1.7 billion worth of financing to Arctic oil and gas companies (led by Russian-state owned firms) between 2016 and 2019. Citi, meanwhile, provided $1.4 billion over that time frame.

The intrigue: In private, even officials in the industry say these moves are rather modest financially speaking, despite the outsized political backlash.

  • “I think what we’re seeing at all the banks is an effort to make a shift in their energy businesses to be slightly less carbon intensive,” said a banking industry official who would only speak anonymously about the politically charged topic.
  • “So you’re seeing all these commitments around renewable energy and very modest restrictions on the fossil side.”

What we’re watching: What, if any, action the administration takes in response to Republicans. Meanwhile, the Interior Department is on the cusp of announcing next steps in leasing drilling rights in the Arctic.

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