[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]




 
                 CREATING A CLIMATE RESILIENT AMERICA:
                STRENGTHENING THE U.S. FINANCIAL SYSTEM
                   AND EXPANDING ECONOMIC OPPORTUNITY

=======================================================================

                                HEARING

                               BEFORE THE

                        SELECT COMMITTEE ON THE
                             CLIMATE CRISIS
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                            OCTOBER 1, 2020

                               __________

                           Serial No. 116-19
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    

                           


                            www.govinfo.gov
   Printed for the use of the Select Committee on the Climate Crisis
   
   
   
   
                          ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
 42-185              WASHINGTON : 2020 
    
   
   
                 SELECT COMMITTEE ON THE CLIMATE CRISIS
                     One Hundred Sixteenth Congress

                      KATHY CASTOR, Florida, Chair
BEN RAY LUJAN, New Mexico            GARRET GRAVES, Louisiana,
SUZANNE BONAMICI, Oregon               Ranking Member
JULIA BROWNLEY, Calfornia            MORGAN GRIFFITH, Virginia
JARED HUFFMAN, California            GARY PALMER, Alabama
A. DONALD McEACHIN, Virginia         BUDDY CARTER, Georgia
MIKE LEVIN, California               CAROL MILLER, West Virginia
SEAN CASTEN, Illinois                KELLY ARMSTRONG, North Dakota
JOE NEGUSE, Colorado

                              ----------                              

                Ana Unruh Cohen, Majority Staff Director
                  Marty Hall, Minority Staff Director
                        climatecrisis.house.gov
                        
                            C O N T E N T S

                              ----------                              

                   STATEMENTS OF MEMBERS OF CONGRESS

                                                                   Page
Hon. Kathy Castor, a Representative in Congress from the State of 
  Florida, and Chair, Select Committee on the Climate Crisis:
    Opening Statement............................................     1
    Prepared Statement...........................................     3
Hon. Garret Graves, a Representative in Congress from the State 
  of Louisiana, and Ranking Member, Select Committee on the 
  Climate Crisis:
    Opening Statement............................................     4

                            WITNESS: PANEL 1

Hon. Rostin Behnam, Commissioner, Commodity Futures Trading 
  Commission
    Oral Statement...............................................     5
    Prepared Statement...........................................     8

                           WITNESSES: PANEL 2

Joanna Syroka, Senior Underwriter and Director of New Markets, 
  Fermat Capital Management, LLC
    Oral Statement...............................................    30
    Prepared Statement...........................................    32
Rich Powell, Executive Director, ClearPath
    Oral Statement...............................................    35
    Prepared Statement...........................................    36
Maggie Monast, Director of Working Lands, Environmental Defense 
  Fund
    Oral Statement...............................................    42
    Prepared Statement...........................................    44

                                APPENDIX

Questions for the Record from Hon. Kathy Castor to Hon. Rostin 
  Behnam.........................................................    64
Questions for the Record from Hon. Kathy Castor to Joanna Syroka.    66
Questions for the Record from Hon. Kathy Castor to Maggie Monast.    69


                 CREATING A CLIMATE RESILIENT AMERICA:

                STRENGTHENING THE U.S. FINANCIAL SYSTEM

                   AND EXPANDING ECONOMIC OPPORTUNITY

                              ----------                              


                       THURSDAY, OCTOBER 1, 2020

                          House of Representatives,
                    Select Committee on the Climate Crisis,
                                                    Washington, DC.
    The committee met, pursuant to call, at 1:31 p.m., via 
Webex, Hon. Kathy Castor [chairwoman of the committee] 
presiding.
    Present: Representatives Castor, Bonamici, Brownley, 
Huffman, Levin, Casten, Graves, Palmer, Carter, and Miller.
    Ms. Castor. The committee will come to order.
    Without objection, the chair is authorized to declare a 
recess of the committee at any time.
    Good afternoon, and thank you all for joining this remote 
hearing.
    As a reminder, members participating in a hearing remotely 
should be visible on the camera throughout the hearing.
    As with in-person meetings, members are responsible for 
controlling their own microphones. Members can be muted by 
staff only to avoid inadvertent background noises.
    In addition, statements, documents, or motions must be 
submitted to the electronic repository at 
[email protected].
    Finally, members and witnesses experiencing technical 
problems should inform committee staff immediately if that 
happens.
    I now recognize myself for 5 minutes for an opening 
statement.
    Well, whether it is extreme heat, intense flooding, 
stronger storms, or relentless wildfires, the climate crisis 
continues to pose a severe threat to America's economy and the 
pocketbooks of all Americans.
    Year after year, we have seen how climate change hurts 
businesses, it strains resources across the nation, and it 
harms workers. And we have seen the impact it has on budgets of 
local governments, who don't always have the resources to 
recover from worsening disasters, and on the budget of the U.S. 
government, as we are forced to provide greater amounts of 
disaster aid in the wake of calamity.
    The risks and harm of climate change are hurting families, 
farmers, small business owners, as well as workers in 
manufacturing and the energy sector. The changing climate is 
especially harming working-class households and people of 
color, the same folks who have been historically marginalized 
through discriminatory practices and underinvestment.
    It is also putting financial institutions at risk. Just 
last month, the Commodity Futures Trading Commission issued a 
landmark report describing these risks and giving lawmakers and 
financial regulators actionable recommendations on how to 
mitigate the growing risks.
    Climate change is affecting insurance markets, and it is 
making lending costlier. It is making it harder for frontline 
communities to afford the protection and peace of mind that 
they deserve. And it is hurting farmers and agricultural 
workers.
    The writing is on the wall. Financial markets, federal 
regulators, and business leaders recognize the risks posed by 
climate change, but they are also publicly optimistic about the 
opportunities to solve the climate crisis, by directing capital 
towards climate-smart investments and making our economy more 
resilient and stronger than ever.
    Just today, 55 international financial institutions, 
including U.S.-based MetLife and Amalgamated Bank, released a 
framework for setting specific climate goals for mortgages, 
bonds, and other asset classes in their portfolios.
    Our workers, our financial institutions, and our small 
businesses are looking to Congress now for solutions. So, as we 
find ways to bounce back from the harm done by COVID-19, we 
must build back our economy so that it is better and stronger 
than ever. And it starts by investing in long-term solutions--
lasting solutions that will protect workers, strengthen our 
financial systems, and ensure economic growth.
    These solutions are climate solutions. Investing in a 
resilient clean energy economy will put Americans back to work 
through millions of good-paying, life-sustaining jobs. It will 
strengthen the middle class and provide justice for Black and 
Brown Americans. And it will make our financial institutions 
stronger and more resilient.
    By bringing transparency to climate-related risks, we will 
be able to build a 21st-century economy that withstands the 
test of time. Climate solutions give us a chance to rebuild our 
economy and our infrastructure, making them stronger, more 
resilient, more grounded in environmental justice. We can 
create the jobs of the future, at a time when our nation 
desperately needs them. But we have to act with urgency, and we 
have to follow the science.
    States and local communities are already leading the way. 
For example, California has created a special task force on 
climate risk and insurance, while cities in my own state of 
Florida have formed regional climate compacts to pool resources 
and knowledge. And, along the Mississippi River, communities 
have come together to address flood and drought risks that 
threaten farmers. They are finding innovative solutions in 
collaboration with insurers, catastrophe risk modelers, and 
investors.
    So now Congress must step up. We must enact policies that 
give communities the tools and resources they need. We must 
ensure their access to climate data so that they can make 
informed decisions. We must help them overcome barriers to 
private investment in climate resilience and protect investors 
from hidden sources of climate risks.
    The science is in, the risks are clear, and the incredible 
opportunities for progress are within our reach. It is up to us 
what to do next.
    I yield back.
    And now I recognize Ranking Member Graves for a 5-minute 
opening statement.
    [The statement of Ms. Castor follows:]

                Opening Statement of Chair Kathy Castor

 Hearing on ``Creating a Climate Resilient America: Strengthening the 
       U.S. Financial System and Expanding Economic Opportunity''

                 Select Committee on the Climate Crisis

                           October 1st, 2020

                        As prepared for delivery

    Whether it's extreme heat, intense flooding, stronger storms, or 
relentless wildfires, the climate crisis continues to pose a severe 
threat to America's economy and the pocketbooks of all Americans. Year 
after year, we've seen how climate change hurts businesses, strains 
resources across the nation, and harms workers. And we've seen the 
impact it has on the budgets of local governments, who don't always 
have the resources to recover from worsening disasters--and on the 
budget of the U.S. government, as we are forced to provide greater 
amounts of disaster aid in the wake of calamity.
    The risks and harms of climate change are hurting families, 
farmers, and small business owners, as well as workers in manufacturing 
and the energy sector. The changing climate is especially harming 
working-class households and people of color--the same folks who have 
been historically marginalized through discriminatory practices and 
underinvestment.
    It's also putting our financial institutions at risk. Just last 
month, the Commodity Futures Trading Commission issued a landmark 
report, describing these dangers and giving lawmakers and financial 
regulators actionable recommendations on how to mitigate the growing 
risks. Climate change is affecting insurance markets and making lending 
costlier. It's making it harder for frontline communities to afford the 
protection and peace of mind they deserve. And it's hurting our farmers 
and agricultural workers.
    The writing is on the wall. Financial markets, federal regulators, 
and business leaders recognize the risks posed by climate change, but 
they're also publicly optimistic about the opportunities to solve the 
climate crisis--by directing capital toward climate-smart investments 
and making our economy more resilient and stronger than ever. Just 
today, 55 international financial intuitions, including U.S.-based 
MetLife and the Amalgamated Bank, released a framework for setting 
specific climate goals for mortgages, bonds and other asset classes in 
their portfolios.
    Our workers, our financial institutions, and our small businesses 
are looking to Congress for solutions. So, as we find ways to bounce 
back from the harm done by COVID-19, we must build back our economy so 
that it's better and stronger than ever. And it starts by investing in 
long-term solutions--lasting solutions that will protect workers, 
strengthen our financial systems, and ensure economic growth.
    Those solutions are climate solutions. Investing in a resilient 
clean energy economy will put Americans back to work through millions 
of good-paying, life-sustaining jobs. It will strengthen our middle 
class and provide justice for Black and Brown Americans. And it will 
make our financial institutions stronger and more resilient to growing 
climate impacts.
    By bringing transparency to climate-related risks, we'll be able to 
build a 21st-century economy that withstands the test of time. Climate 
solutions give us a chance to rebuild our economy and our 
infrastructure, making them stronger, more resilient, and more grounded 
in environmental justice. We can create the jobs of the future at a 
time when our nation desperately needs them--but we need to act with 
urgency and unite behind the science.
    States and local communities are already leading the way. For 
example, California has created a special task force on climate risk 
and insurance, while cities in my own state of Florida have formed 
regional climate compacts to pool together resources and knowledge. And 
along the Mississippi River, communities have come together to address 
flood and drought risks that threaten farmers, finding innovative 
solutions in collaboration with insurers, catastrophe risk modelers, 
and investors.
    Now Congress must step up and lead.
    We must enact policies that give communities the tools and 
resources they need to become resilient and mitigate climate risks. We 
must ensure their access to climate data, so they can make informed 
decisions about how to sustain their local economies and build lasting 
growth. And we must help them overcome barriers to private investment 
in climate resilience and protect investors from hidden sources of 
climate risks.
    The science is in. The risks are clear. And the incredible 
opportunities for progress are within our reach. It's up to us what to 
do next.

    Mr. Graves. Okay. Thank you, Madam Chair. Thank you for 
hosting this hearing today, and I want to thank the 
Commissioner for joining us.
    Madam Chair, you mentioned a report that the Commission 
recently released, and there are a number of things in there 
that I think are important issues that the Commission has 
raised in regard to risk and risk assessment and mitigation.
    I also wonder about looking at risk holistically and 
whether or not the report should actually be even more 
encompassing.
    And I will give some examples. There is no question, as, 
Madam Chair, your state and my state well know, of the risk of 
sea rise and hurricane intensity and other challenges that our 
states have experienced and may experience with greater 
frequency in the future. But I think that, as we look at the 
future, we also have to think about the volatility, the risk 
associated with some of the strategies that are being carried 
out to mitigate the very threat that we are discussing today.
    And, Madam Chair, you talked about the State of California. 
Seeing things like blackouts and brownouts in a state, that is 
extraordinary risk. How do you have a business, how do you take 
care of your family, how can you even live there--as I 
understand, we have seen a net departure of families from 
California--if you are having rolling blackouts and brownouts?
    How can we provide business certainty and encourage folks 
to create new small businesses if we are having double the 
electricity cost in California than they do, for example, in my 
home state of Louisiana?
    How can we provide certainty for our businesses and for our 
families that are trying to keep their homes heated and cooled 
if, not just the blackouts and brownouts, but if we are 
subjecting ourselves to the volatility of energy sources or 
energy technology from China, where we recently saw during the 
coronavirus pandemic how they were using PPE effectively as 
warfare against the United States and other countries around 
the world?
    Thankfully, just today, the President has issued an 
executive order related to critical minerals. And, as we move 
in this direction of a cleaner energy portfolio and cleaner 
energy resources, something that all of us share, that we don't 
play into the hands of China by subjecting ourselves to 
dependence upon them, where they are able to continue just 
pulling these strings and causing problems and volatility in 
the United States.
    I think, also, the report scope--how do you actually 
address certainty, or how do you provide certainty, when the 
reality is that--well, the United States has been the world 
leader in reducing emissions. For every 1 ton of emissions we 
have reduced, China has increased by 4. Therefore, we don't 
actually even have control over our own destiny, our own 
future, if we are going to have irresponsible parties, like 
China, trying to pretend as though they are a developing 
nation, yet spending trillions of dollars on their defense and 
on their investments around the globe, adversely affecting the 
United States, our European allies, our Pacific allies, and 
others. There is all sorts of uncertainty that I think poses an 
even greater threat or a greater risk to the United States than 
the limited scope that the Commission has looked at.
    And I want to say, look, I agree with many of the things 
the Commission has identified, but I believe we need to look 
even broader and focus on the things that we truly have control 
over.
    Madam Chair, one of those is something you and I share, of 
course, and that is the resiliency investments. And if we are 
going to move forward on resiliency, if we are going to move 
forward in deploying renewable energy projects, we have to look 
at our regulatory structure that is currently impeding those 
very projects for resiliency. We have to look at the regulatory 
structure that is impeding our efforts to try to build new 
renewable wind projects and solar arrays and other things, 
again, that I think we all share.
    So I think we need to look more broad. I am glad we are 
having this hearing today, and I look forward to hearing from 
the two panels of witnesses.
    Ms. Castor. Thank you very much.
    Without objection, members who wish to enter opening 
statements into the record may have 5 business days to do so.
    Now I would like to welcome our witnesses.
    We will hear from a range of experts on recent findings and 
emerging opportunities to address climate threats to financial 
systems and the Nation's economic vitality.
    We will have two panels. On the first panel, we will hear 
from Rostin Behnam, a Commissioner for the Commodity Futures 
Trading Commission, where he has served since September of 
2017.
    As sponsor of the CFTC's Market Risk Advisory Committee, 
Commissioner Behnam convenes leading market experts and public 
consumer groups to discuss the timeliest issues to evolving 
market structures and movement of risk across clearinghouses, 
exchanges, intermediaries, market makers, and end users.
    Commissioner Behnam convened the Climate-Related Market 
Risk Subcommittee to provide a report to the MRAC on climate-
related financial and market risks.
    Without objection, the witness's written statement will be 
made part of the record.
    With that, Commissioner Behnam, welcome. You are now 
recognized to give a 5-minute presentation of your testimony.

    STATEMENT OF THE HONORABLE ROSTIN BEHNAM, COMMISSIONER, 
              COMMODITY FUTURES TRADING COMMISSION

    Mr. Behnam. Thank you, Chair.
    Chair Castor, Ranking Member Graves, and members of the 
committee, it is an honor to appear before you today to discuss 
creating a climate resilient America.
    Before I begin, please recognize that the views I express 
today are my own and do not represent the views of the CFTC, 
its staff, or my fellow Commissioners.
    The critical work of this committee could not be timelier. 
As of Tuesday, wildfire activity continued in 10 Western 
States, and the Gulf Coast is still reeling from the damage of 
Hurricanes Laura and Sally. The impact of wildfires on air 
quality have led to the use of the word ``airpocalypse'' to 
describe high particulate pollution in parts of the United 
States.
    These are all manifestations of the physical risks 
associated with climate change and extreme weather events. But 
how is an airpocalypse or climate risk generally accounted for 
in the financial markets, and why is a financial regulator in 
the right position to move this conversation forward?
    I serve as a Commissioner of the Commodity Futures Trading 
Commission, the primary U.S. derivatives markets regulator. 
Derivatives are critical risk management and price discovery 
tools that touch nearly every corner of our economy, from the 
price of bread to the price at the pump.
    With a previous background in financial services policy and 
agricultural policy, the multitude of risks related to climate 
change faced by farmers, ranchers, and the entire value chain 
has been at the forefront of my thinking.
    At the CFTC, when we think about financial market risk, we 
think about scenarios that are extreme but plausible. What if 
there were years in which wildfires impaired the economy of the 
Western States, record flooding in the Midwest shocked the 
agricultural engine of the country, and Gulf Coast and East 
Coast hurricanes destroyed coastal property? And what if these 
events happened in quick succession or at the same time? Beyond 
the implications for our lives, health, and national security, 
would our economy and the financial markets be able to 
withstand the shock?
    The CFTC has active and insightful federal advisory 
committees which provide outside input and make recommendations 
to the Commission. In June of 2019, the Market Risk Advisory 
Committee, which I sponsor, held a public meeting on the 
relationship between climate change and financial market risk. 
I left that informative day with three fears confirmed: Climate 
risk manifests in the financial markets, the U.S. financial 
regulators were behind their global counterparts, and much more 
work needed to be done.
    To more fully focus on this issue, I immediately began the 
process of forming the Climate-Related Market Risk 
Subcommittee. I am grateful to each of the 34 subcommittee 
members--professionals from multiple sectors of the economy and 
financial markets--for their commitment to the effort and their 
willingness to tackle a difficult issue during an unprecedented 
time.
    I could not have been more fortunate with Dr. Bob Litterman 
as the subcommittee's chair, an economist with expertise in 
finance and risk management, who has more recently focused his 
endeavors on climate change.
    When I asked for a consensus document, I knew that was a 
high bar. But I was very pleased when, earlier last month, the 
subcommittee voted unanimously, 34 to 0, to approve the report.
    I would also like to take a moment to recognize my chief of 
staff, David Gillers, who has shepherded this initiative, and 
thank John Dunfee, Laura Gardy, and Alicia Lewis.
    ``Managing Climate Risk in the U.S. Financial System'' is a 
first-of-its-kind document. A few of the critical findings of 
the report: climate change poses a major risk to the stability 
of the U.S. financial system and to its ability to sustain the 
American economy; U.S. financial regulators should move 
urgently and decisively to measure, understand, and address the 
risk; and the financial system can be a catalyst for investment 
that accelerates economic resilience and the transition to a 
net-zero emissions economy.
    The report provides 53 policy recommendations, establishing 
at the outset that policies should be flexible, open-ended, and 
adaptable in real time, based on close and iterative dialogue 
with the private sector.
    Second, the report recognizes that climate change already 
has placed disproportionate burdens on low- and moderate-income 
households and historically marginalized communities. It is 
critical that any policy does not make this problem worse.
    The first recommendation of the report is also the one that 
requires congressional action. The U.S. should establish a 
price on carbon. The report highlights that this is the single 
most important step to manage climate risk and drive 
appropriate allocation of capital.
    As Dr. Litterman has pointed out on several occasions, 
financial markets do an amazing job of allocating capital in 
the direction of the incentives that they are given. When 
incentives are appropriate, they lead to innovation, 
improvements in health and safety, and quality of life.
    In the absence of a price on carbon, there is still an 
urgent role for regulators. The report points out that 
financial regulators should actively promote, and in some 
cases, require better understanding, quantification, 
disclosure, and management of climate-related risk by financial 
institutions and other participants. The report argues for 
critical action regarding disclosures, stress testing, scenario 
analysis, and governance.
    Another few recommendations of the report is international 
collaboration and harmonization. When it comes to pricing 
carbon, disclosures, stress testing, and scenario analysis, it 
is critical that we approach this together with our 
international partners.
    Perhaps my favorite chapter is the last, which focuses on 
opportunities in financing the net-zero transition. The report 
makes the case that structural changes and market innovations 
can expand capital flows to sustainable finance solutions, 
creating significant employment opportunities.
    I will end my remarks with the observation from the report 
that captures the seriousness and urgency at hand: a world 
wracked by frequent and devastating shocks from climate change 
cannot sustain the fundamental conditions supporting our 
financial system.
    The good news, though, is that we have virtually all of the 
tools that we need to start our work. With the exception of a 
price on carbon, existing legislation already provides U.S. 
financial regulators with wide-ranging and flexible authorities 
that could be used to start addressing financial climate-
related risk now.
    I strongly believe that all congressional committees with 
relevant oversight jurisdiction should consider the policy 
recommendation.
    As one observer has noted, ``We missed the subprime 
mortgage crisis, which led to the Great Recession. We missed 
the COVID-19 crisis, which has led to catastrophic loss of 
human life and economic shock. Let us not miss the climate 
crisis.''
    Thank you for your time, and I am happy and look forward to 
answering your questions.
    [The statement of Mr. Behnam follows:]

                  Prepared Statement of Rostin Behnam

           Commissioner, Commodity Futures Trading Commission

        Before the House Select Committee on the Climate Crisis

    ``Creating a Climate Resilient America: Strengthening the U.S. 
         Financial System and Expanding Economic Opportunity''

                   Thursday October 1, 2020 1:30 p.m.

    Chair Castor, Ranking Member Graves, and members of the committee, 
it is an honor to appear before you today to discuss creating a climate 
resilient America through strengthening the U.S. financial system and 
expanding economic opportunity. Before I begin, please recognize that 
the views I express today are my own and do not represent the views of 
the CFTC, its staff, or my fellow Commissioners.
    The critical work of this committee and the topic of today's 
hearing could not be timelier. As of Tuesday, wildfire activity 
continued in 10 western states where 70 large fires have burned more 
than 3.9 million acres,\1\ and the Gulf Coast is still reeling from the 
damage of Hurricanes Laura and Sally. Data from NASA satellites 
confirms that 2020 fire activity in California, Oregon, and Washington 
State has broken several records in both size and scope.\2\ In 
particular, a review of the data collected since 1997 indicates that 
2020 is the highest year of fire carbon emissions for California, and, 
notably, this figure only reflects activity through September 11th.\3\
---------------------------------------------------------------------------
    \1\ Fire Information, National Interagency Fire Center, https://
www.nifc.gov/fireInfo/nfn.htm (last visited Sept. 29, 2020).
    \2\ Historic Fires Devastate the U.S. Pacific Coast, NASA Earth 
Observatory, https://earthobservatory.nasa.gov/images/147277/historic-
fires-devastate-the-us-pacific-coast (last visited Sept. 29, 2020).
    \3\ Id.
---------------------------------------------------------------------------
    The impact of wildfires on air quality has led to the use of the 
word ``airpocalypse'' to describe the dangerously high particulate 
pollution in parts of the United States, a term that in the past has 
only applied to other countries.\4\ The impact of airpocalyptic 
conditions on human health and welfare is indisputable. Even as this 
country continues to battle COVID-19 with its own litany of impacts on 
respiratory function, Oregon hospitals recently reported a 10% increase 
in emergency room visits for breathing problems related to air 
quality.\5\
---------------------------------------------------------------------------
    \4\ Blacki Migliozzi, Scott Reinhard, Nadja Popovich, Tim Wallace, 
and Allison McCann, Record Wildfires on the West Coast are Capping a 
Disastrous Decade, N.Y. Times (Sept. 24, 2020), https://
www.nytimes.com/interactive/2020/09/24/climate/fires-worst-year-
california-oregon-wash ington.html.
    \5\ Id.
---------------------------------------------------------------------------
    These are all manifestations of the physical risks associated with 
changing climate and extreme weather events. But how is an 
``airpocalypse,'' or climate risk generally, understood and accounted 
for in the financial markets? And, why is a financial regulator in the 
right position to move this conversation forward? Before I answer these 
questions, I'd like to provide a bit of background.
Background and Beginnings
    I serve as a Commissioner at the Commodity Futures Trading 
Commission, or the CFTC. The CFTC is a bipartisan, five-member 
independent federal regulatory agency that serves as the primary U.S. 
derivatives market regulator. Derivatives, which include futures, 
options, and swaps, are financial contracts that derive their value 
from an underlying asset, ranging from a variety of commodities 
including wheat, natural gas, gold, interest rates, and bitcoin. 
Derivatives are critical risk management and price discovery tools that 
touch nearly every corner of our economy, from the price of bread to 
gas at the pump.
    The CFTC's mission is to foster open, transparent, competitive and 
financially sound markets; prevent and deter price manipulation and 
other disruptions to market integrity; and to protect all market 
participants and the public from fraud, manipulation, and abusive 
practices.\6\ When the CFTC was established as an independent agency in 
1974, most futures trading took place in the agricultural sector.\7\ 
Today, the portfolio of derivatives is much more diverse, with the vast 
majority of the contracts being financial in nature, including global 
currencies, interest rates, and financial indices. Like the contracts 
themselves, the market participants also vary, including banks, 
institutional investors, manufacturers, farmers and ranchers, and 
energy companies.
---------------------------------------------------------------------------
    \6\ See Section 3 of the Commodity Exchange Act, 7 U.S.C. 5.
    \7\ About the Commission, Commodity Futures Trading Commission, 
https://www.cftc.gov/About/AboutTheCommission (last visited Sept. 29, 
2020).
---------------------------------------------------------------------------
    With a previous background as a congressional aide focused on both 
financial services policy and agricultural policy, including the 2014 
Farm Bill,\8\ the multitude of risks related to climate change faced by 
farmers, ranchers, and the entire value chain has been at the forefront 
of my thinking since joining the Commission in 2017. Weather and 
climate present the greatest, consistent--yet uncertain-- risks to the 
agricultural economy and rural communities. More frequent and more 
severe extreme weather events, from flooding, hurricanes, and 
tornadoes, to wildfires have presented a growing set of longer term 
challenges that require a different way of assessing long-term risk 
management and the policies to support it.
---------------------------------------------------------------------------
    \8\ Agricultural Act of 2014, Pub. L. No. 113-79, 128 Stat. 649 
(2014).
---------------------------------------------------------------------------
    At the CFTC, when we think about financial market risk we are 
required to think about scenarios that are ``extreme but plausible.'' 
What if there were years in which wildfires impaired the economy of the 
Western states, record flooding in the Midwest shocked the agricultural 
engine of the country, and Gulf Coast and East Coast Hurricanes 
destroyed coastal property? And what if these events happened in quick 
succession, or, even worse, but still plausible, and this is key, what 
if they happened at the same time? Beyond the implications for our 
lives, health, safety, and national security, would our economy and the 
financial markets that underpin it be able to withstand such withering 
and debilitating shock? And, more to the point, what could or should 
policy makers do about it?
    Like many other agencies and departments, the CFTC has active and 
insightful Federal Advisory Committees, authorized under the Federal 
Advisory Committee Act,\9\ which provide outside input and make 
recommendations to the Commission on regulatory and market issues. Our 
advisory committees are comprised of industry participants, subject 
matter experts, and stakeholders in the markets we oversee. I have 
proudly served as the sponsor of the Market Risk Advisory Committee 
(MRAC) since I arrived at the Commission. During my tenure, the MRAC 
has convened to address a variety of matters, including the impending 
transition away from the London Interbank Offered Rate, more commonly 
known as Libor, market structure issues, and clearinghouse risk issues.
---------------------------------------------------------------------------
    \9\ Federal Advisory Committee Act (``FACA''), as amended, 5 U.S.C. 
App. 2.
---------------------------------------------------------------------------
    The MRAC advises the Commission on matters relating to evolving 
market structures and movement of risk across the derivatives markets. 
It examines systemic issues that threaten the stability of the 
derivatives and other financial markets. The MRAC is therefore 
perfectly situated to explore the links between climate change and 
financial market risk, and what role policy makers should and could 
play to mitigate these more extreme, emerging risks, specifically with 
respect to financial market participants.
    In June of 2019, the MRAC held a public meeting on the relationship 
between climate change and financial market risk.\10\ I left that 
informative day with three fears confirmed: (1) climate risk manifests 
in the financial markets in multiple and sometimes amplifying ways; (2) 
the U.S. financial regulators were far behind their global 
counterparts; and (3) much more work needed to be done to examine the 
potential risks that might demand a policy response. It turns out that 
central banks and financial regulators across the world have been 
working on this issue for years, but in the U.S. we are only at the 
very nascent stages. I'd like to recognize the leading work of the Bank 
of England in this space, and a number of excellent papers they have 
authored on this topic.\11\ Additionally, the Bank for International 
Settlements, the Network for Greening the Financial System, and the 
Financial Stability Board's Task Force on Climate-related Financial 
Disclosures have also done superb work in this space.\12\
---------------------------------------------------------------------------
    \10\ Information on all of the MRAC meetings, including press 
releases, archived webcasts, and presentation materials are available 
at https://www.cftc.gov/About/CFTCCommittees/
MarketRiskAdvisoryCommittee/mrac_meetings.html.
    \11\ Climate Change, Bank of England, https://
www.bankofengland.co.uk/climate-change (last visited Sept. 29, 2020).
    \12\ See Patrick Bolton, Morgan Despres, Luis Awazu Pereira da 
Silva, Frederic Samama, and Romain Svartzman, The Green Swan: Central 
Banking and Financial Stability in the Age of Climate Change, Bank for 
International Settlements (Jan. 2020), https://www.bis.org/publ/
othp31.pdf; Origin and Purpose, Network for Greening Fin. Sys., https:/
/www.ngfs.net/en/about-us/governance/origin-and-purpose (last visited 
Sept. 29, 2020); The Task Force on Climate-related Financial 
Disclosures, https://www.fsb-tcfd.org/ (last visited Sept. 29, 2020).
---------------------------------------------------------------------------
    To more fully focus on the issues and ensure we were able to gather 
the right mix of stakeholders, I immediately began the process of 
forming the Climate-Related Market Risk Subcommittee of the MRAC. After 
unanimously confirming its formation and charge, and soliciting the 
public for membership nominations,\13\ the CFTC unanimously confirmed 
its membership in November, 2019.\14\ I charged the Subcommittee with 
exploring the relationship between climate risk and financial market 
risk, and asked that it produce a report with findings and 
recommendations to address the risk.
---------------------------------------------------------------------------
    \13\ See Press Release Number 7963-19, CFTC Commissioner Behnam 
Announces the Establishment of the Market Risk Advisory Committee's 
Climate Related Market Risk Subcommittee and Seeks Nominations for 
Membership (July 10, 2019), https://www.cftc.gov/PressRoom/
PressReleases/7963-19.
    \14\ See Press Release Number 8079-19, CFTC, CFTC Commissioner 
Rostin Behnam Announces Members of the Market Risk Advisory Committee's 
New Climate-Related Market Risk Subcommittee (Nov. 14, 2019), https://
www.cftc.gov/PressRoom/PressReleases/8079-19.
---------------------------------------------------------------------------
    The Subcommittee membership includes 34 professionals from banking, 
asset management, insurance, a credit rating company, agricultural and 
energy markets, data providers, environmental groups, and academia, 
singularly focused on climate change, adaptation, public policy, and 
finance. Identifying a chairperson of the Subcommittee was a critical 
step, and I could not have been more fortunate with Dr. Bob Litterman's 
willingness to serve as the Subcommittee chair.
    Dr. Litterman's professional career has spanned more than four 
decades and across many disciplines, including economics, finance, and 
risk management. Dr. Litterman spent 23 years at Goldman, Sachs & Co., 
where he served in research, risk management, and investments, 
including the head of the firm-wide risk function, and as the co-
developer of the Black-Litterman Global Asset Allocation Model with Dr. 
Fischer Black. After leaving Goldman, Bob became a founding partner at 
Kepos Capital, a New York City based macro investment firm, shifting 
much of his focus to addressing the risks of climate change. Concerned 
with the inadequate manner in which society addressed climate risk, 
Bob, as an economist and risk manager, has strongly advocated for 
appropriate incentives to reduce carbon emissions, through a price on 
carbon. This unique mixture of expertise in finance, risk management, 
economics, and climate change risk made Bob the perfect candidate to 
lead the effort, and we should all be grateful to him for his service.
    The Subcommittee represents a diverse and broad coalition of 
stakeholders that includes some of the sharpest minds on climate 
related financial market risk and also represents a novel, 
comprehensive, and inclusive public sector supported effort to study 
and address climate risk issues. I am grateful to each of the members 
for their commitment to the effort, and their willingness to step up 
and tackle a difficult issue during an unprecedented time in our 
country's history.
    The Subcommittee held two in person meetings beginning 10 months 
ago before the COVID-19 pandemic, and then held monthly, then weekly, 
and then almost daily telephonic meetings as they conducted their work. 
I received updates on their progress throughout the process. When I 
asked for a consensus document, I knew that was a high bar to achieve. 
However, I was very pleased, when in early September, the Subcommittee 
voted unanimously, 34-0, to approve the 165 page report.
    In the months preceding the vote, there were many reasons to doubt 
the Subcommittee would meet its goal, specifically with the scope and 
charge of the Subcommittee. Many outsiders thought arriving at 
consensus with members from such diverse parts of the economy and 
market was simply not feasible. But, I was optimistic and determined 
given the seriousness of the issue and the need for action. More 
importantly, as a result of the dedication, skill, and creativity of 
each of our members, adept leadership and diplomacy by the Chairman, 
the cogent writing of the work stream leads, and the grit, 
determination, and wisdom exhibited by our talented editorial team, the 
Subcommittee produced what I am very proud to present to you today.\15\
---------------------------------------------------------------------------
    \15\ Managing Climate Risk in the U.S. Financial System, Report to 
the CFTC's Market Risk Advisory Committee by the Climate-Related Market 
Risk Subcommittee (Sept. 2020), https://www.cftc.gov/About/
AdvisoryCommittees/MarketRiskAdvisory/MRAC_Reports.html (the 
``Report'').
---------------------------------------------------------------------------
    Before I turn to the report itself, I would like to take a moment 
to recognize and thank my Chief of Staff, Mr. David Gillers. David 
joined my office in July, 2019, and in many respects has shepherded 
this initiative from his very first day at the CFTC. David's commitment 
and belief in the Subcommittee's success has been steadfast, and his 
comprehensive understanding of the policy issues is a significant part 
of why we are here today. I'd also like to recognize and thank John 
Dunfee, Laura Gardy, and Alicia Lewis for their tireless work and 
support.
The Report
    Managing Climate Risk in the U.S. Financial System (the ``Report'') 
is a first-of-its kind document. This is the first time an advisory 
coalition representing a broad swath of the U.S. economy has come 
together under the leadership of the federal government, presented a 
consensus view diagnosing climate-related financial market risk, and 
outlined a roadmap to directly tackle the problem. Fortunately for us, 
the members were not bashful in what they have recommended.
    A few of the critical findings of the Report:
    1. Climate change poses a major risk to the stability of the U.S. 
financial system and to its ability to sustain the American economy.
    2. U.S. financial regulators must recognize this, and should move 
urgently and decisively to measure, understand, and address this risk.
    3. The financial system can be a catalyst for investment that 
accelerates economic resilience and the transition to a net-zero 
emissions economy.
    The Report provides 53 policy recommendations, several of which I 
will highlight in a moment. But before I do, I'd like to establish a 
few threshold matters that the Report makes clear.
    First, the Report establishes at the outset that it calls for 
policy and regulatory choices that are ``flexible, open-ended, and 
adaptable to new information about climate change and its risks, based 
on close and iterative dialogue with the private sector.'' \16\ In 
other words, there is much about climate risk that we are still 
learning, and policy makers must adapt to new information in real time. 
This is by no means an argument to delay action; indeed, the case for 
urgent and immediate action is clear. But, that action must be prudent 
and thoughtful, accompanied by continued evaluation and consultation.
---------------------------------------------------------------------------
    \16\ Id.at ii.
---------------------------------------------------------------------------
    Second, the Report recognizes that climate change already has 
placed disproportionate burdens on the low and moderate income 
households and historically marginalized communities. This is why the 
framing of every one of the recommendations, and indeed, the entire 
Report, considers impacts on low-to-moderate income households and 
marginalized communities. Any policy prescription must not exacerbate 
existing inequitable burdens of climate change. This is absolutely 
critical in ensuring the actions the government takes do not make the 
problem worse.
    Finally, COVID-19 hit the Subcommittee as it did every other corner 
of our country, but there are lessons learned from the pandemic that 
are applicable to the climate discussion.
    We should take note of the lessons learned from the Covid-19 
pandemic: the importance of being decisive leaders, supporting and 
creating resilient stakeholders, of ensuring the availability of 
timely, consistent, and improved information, and of innovating to 
ensure our financial models build in risks and scenarios that are 
extreme but plausible in the near and longer term.
    If we start building better equipped financial systems now that 
both acknowledge and account for the inevitable impacts of climate 
change, we can be positioned to avoid the need for extreme shifts in 
balance sheet management and fiscal and monetary policy.
Recommendations
    The first recommendation of the Report is also the one that 
requires Congressional action: The U.S. should establish a price on 
carbon. The Report highlights that ``[t]his is the single most 
important step to manage climate risk and drive appropriate allocation 
of capital.'' \17\
---------------------------------------------------------------------------
    \17\ Id. at vi, 9, and 123.
---------------------------------------------------------------------------
    As the Subcommittee's chairman, Dr. Litterman has pointed out on 
several occasions, ``financial markets do an amazing job of allocating 
capital in the direction of the incentives that they are given.'' \18\ 
And that is why, when incentives are appropriate, they can help lead to 
innovation, improvements in health and safety, and quality of life the 
world has never seen. But when the incentives are mis-aligned, as in 
the case of carbon emissions, there is a market failure, and the 
incentives go in the wrong direction, things begin to break down.
---------------------------------------------------------------------------
    \18\ Id. at xix.
---------------------------------------------------------------------------
    A negative externality is a cost imposed on someone outside of a 
specific transaction.\19\ Carbon emissions are a perfect example of a 
negative externality. Emissions impose significant costs on society in 
the form of current and future climate impacts, but the markets have 
not priced in this cost. In other words, the costs of burning fossil 
fuels and ``other emitting activities have been treated until now as if 
they were `free'.'' \20\ When a negative externality is identified, 
``there is a role for the government to ensure those externalities are 
reflected in prices.'' \21\ Without a cost in place, ``financial 
markets lack the most efficient incentive mechanism to price climate 
risks.'' \22\ Though a price on carbon is the single most consequential 
action policy makers could take to address climate risk, this 
recommendation serves as the context for the Report, rather than its 
focus.
---------------------------------------------------------------------------
    \19\ See Externalities-The Economic Lowdown Video Series Episode 5, 
Federal Reserve Bank of St. Louis, https://www.stlouisfed.org/
education/economic-lowdown-video-series/episode-5-externalities (last 
visited Sept. 28, 2020).
    \20\ Report at 4.
    \21\ Id. at xix.
    \22\ Id. at 4.
---------------------------------------------------------------------------
    In the absence of a price on carbon, there is still an urgent role 
for regulators. The Report points out that ``financial regulators 
should actively promote, and in some cases require, better 
understanding, quantification, disclosure and management of climate-
related risks by financial institutions . . . and other market 
participants.'' \23\ Regulators today have the authority to implement 
these requirements. The Report argues for critical action regarding 
disclosure, stress testing, scenario analysis, and governance.
---------------------------------------------------------------------------
    \23\ Id. at 120.
---------------------------------------------------------------------------
    Another key recommendation of the Report is international 
collaboration and harmonization. The U.S. is not alone in facing this 
challenge, nor are we alone in identifying policy solutions. When it 
comes to pricing carbon, disclosures, stress testing, and scenario 
analysis, it's critical that we approach this together with our 
international partners. There are a host of international organizations 
active in this space. However, as the Report points out, the U.S. ``is 
a reluctant participant in these efforts, and in some cases, it is 
absent.'' \24\ This seems illogical given the size of the U.S. capital 
markets, which are the largest in the world. Indeed, ``[t]he largest 
futures exchange in the world is based in the United States . . . . 
Four of the five largest asset managers are based in the United States, 
and the United States represents the largest insurance market globally 
by premium volume. Without active leadership by U.S. regulators and 
financial institutions, the mission of prudent climate risk management 
will remain incomplete at best.'' \25\
---------------------------------------------------------------------------
    \24\ Id. at 121.
    \25\ Id. at 8.
---------------------------------------------------------------------------
    Perhaps my favorite chapter is the last, which focuses on 
opportunities in financing the net-zero transition. Unlike many 
existing reports, the Report does not just focus on the downside risks. 
It makes the case that structural changes and market innovations can 
expand capital flows to sustainable finance solutions.\26\ And in the 
process, create significant employment opportunities. By one estimate, 
the total worldwide investment needed in energy infrastructure to meet 
the Paris Agreement goal by 2050 (limiting warming to ``well below'' 2 
degrees Celsius) is $110 trillion. That's roughly 2% of average global 
GDP per year. That could translate to enormous economic opportunities, 
according to the Report.
---------------------------------------------------------------------------
    \26\ Report at 103.
---------------------------------------------------------------------------
    I'll end my remarks with an observation from the Report that 
captures the seriousness and urgency at hand: ``A world racked by 
frequent and devastating shocks from climate change cannot sustain the 
fundamental conditions supporting our financial system.'' \27\
---------------------------------------------------------------------------
    \27\ Id. at 2.
---------------------------------------------------------------------------
    The good news, though, is that we have virtually all of the tools 
we need to start our work. With the exception of a price on carbon, 
according to the Report, ``existing legislation already provides U.S. 
financial regulators with wide-ranging and flexible authorities that 
could be used to start addressing financial climate-related risk now.'' 
\28\ As this Committee's Majority Staff Report \29\ has called for the 
Report to be provided to various congressional committees, I strongly 
believe all congressional committees with relevant oversight 
jurisdiction should consider the policy recommendations.
---------------------------------------------------------------------------
    \28\ Id. at iii.
    \29\ Select Comm. on the Climate Crisis, 116th Cong., Rep. on 
Solving the Climate Crisis: The Congressional Action Plan for a Clean 
Energy Economy and a Healthy, Resilient, and Just America (Majority 
Staff Rep. June 2020), https://climatecrisis.house.gov/sites/
climatecrisis.house.gov/files/Climate%20Crisis%20Action%20Plan.pdf.
---------------------------------------------------------------------------
    As one observer noted, we missed the subprime mortgage crisis which 
led to the Great Recession; we missed the COVID-19 crisis which has led 
to catastrophic loss of human life and economic shock; let us not miss 
the climate crisis.
    Thank you for your time. I am happy to take any questions.

    Ms. Castor. Thank you, Commissioner Behnam. And 
congratulations on your report. A 34-to-0 consensus report is 
an important signal to everyone, I think.
    It is encouraging to see the CFTC issue the report and its 
call for urgent and thoughtful action to address ways that the 
climate crisis is already impacting important economic sectors 
and placing disproportionate burdens on frontline communities.
    As you rightly note, the climate crisis poses threats that 
we cannot afford to ignore. You have testified that the single 
most important step to manage climate risk and drive 
appropriate allocation of capital is to establish a price on 
carbon. But in the absence of an explicit price on carbon, how 
are businesses responding to climate-related risk that may harm 
investors or destabilize markets?
    Mr. Behnam. Thanks for the question, Congresswoman.
    Certainly, businesses are recognizing this. And I think if 
you think about the effort and the subcommittee's effort, it 
really is a demonstration that the private sector--academia, 
public interests--are doing a lot of work in this space. They 
recognize the risks, and they are taking steps towards managing 
and mitigating those risks.
    From small businesses, midsize businesses, and large--you 
know, if you look at the diversity of the committee, we had 
large banks, asset managers, energy companies, agricultural 
companies, and a slew of other institutions in the financial 
services space and academia and public interests.
    So there are private sector initiatives to come up with 
disclosure regimes, to come up with matrices, and new, sort of, 
methods of measuring risks and disclosures. There is a number 
of efforts going on overseas to help, sort of, think about 
policy in this space. So I am very encouraged by the work that 
has been going on in the private sector. I think it absolutely 
is a template.
    And one clear message from the recommendations that really 
covers all of the recommendations, in a sense, is that we have 
to work together, it has to be collaborative, we have to work 
domestically and certainly internationally, but it is an 
iterative process. I noted that in my opening statement. We 
have to be flexible as policymakers, both elected officials and 
regulators, and we have to expect change.
    Climate change is not predictable, it is not linear. A lot 
of things will happen that we cannot predict based on science 
and the data that we have today, so that, as we sort of enter 
this process and really start to transition to a net-zero 
economy, we have to be willing to be flexible, work with 
private sector participants, and adapt on the fly. Because that 
is really going to be the only way to address these issues 
head-on and find solutions.
    Ms. Castor. All right.
    So let's talk about your favorite chapter of the report, 
the opportunities related to financing the net-zero transition. 
In your view, what are some of the economic growth and job 
opportunities Americans could expect to see if Congress 
implemented the recommendations in your report?
    Mr. Behnam. Thanks.
    You know, there are eight chapters in the report. It is 
fairly long. It gets into the weeds. But it is very 
comprehensive, and I think it is long past due. But most of the 
report, as you would imagine, focuses on risk and the steps 
that we need to take potentially to address the risk in the 
coming years.
    But, to your point, chapter 8 is this great, sort of, end 
of the report that I think creates a lot of opportunities and 
really sends an opportunistic opportunity for market 
participants that, you know what? There are a lot of risks with 
climate change, but there are a lot of opportunities as well, 
and we need to seize those.
    The amount of money flows going into renewable energy, I 
think there have been statistics--and they are cited in the 
report--$110 trillion between now and 2050 will go to renewable 
energy development; $4.5 trillion in the U.S. over the next 
decade or two to redo our electricity grid. These are obviously 
immense amounts of capital. The financial markets can play a 
huge role in allocating that capital to where it should go.
    And, ultimately, it is just going to create jobs. BLS, the 
Bureau of Labor Statistics, I think says two to three new jobs 
are focused on wind and solar. As you pointed out, the wages 
have a premium to the average mean for salaries.
    There are a lot of opportunities, as we think and emerge 
out of COVID, how are we going to rebuild the economy, how are 
we going to think about a 21st-century economy and build an 
infrastructure that is resilient to future climate challenges 
and really provide an economic spark for growth and prosperity 
for decades to come?
    So I think there is a lot of excitement in this space, and 
folks should be very interested in the opportunities, I think, 
for both employment and productivity across the board.
    Ms. Castor. And do you agree that those opportunities are 
international, that the clean energy transition will be a 
global one? How do you think America can best position itself 
to benefit and lead the transition?
    Mr. Behnam. You know, when I think about that issue, the 
international alignment issue--because it is critically 
important. This is an international issue. It is not a U.S. 
issue, it is not a geographic issue. It is certainly a global 
issue--I think about this in the context of U.S. markets, 
capital markets, derivatives markets being the most desirable 
in the world. I think about Silicon Valley being the envy of 
the technology world. I think about academia. U.S. academics 
and our institutions of higher learning are the envy of the 
world.
    As we have, you know, endured for many years to be energy 
independent, I think we have to think about the future, the 
next few decades. We have to think about energy independence, 
and the opportunities are now to provide the U.S. with the 
independence that we will need for the decades to come.
    And, obviously, that affects our environment, that affects 
human health. Ranking Member Graves mentioned this for sure, 
but we need to think about national security, as well, and what 
are we going to do and how are we going to position ourselves 
in the decades to come?
    And I think this is the opportunity. As we see these 
amazing capital flows going to renewable energy, we have to 
seize on our capital markets, we have to seize on our 
academics, we have to seize on our industrial base and our 
middle class, and really start to innovate so that we can be 
the centerpiece of the renewable-energy transition for years to 
come.
    Ms. Castor. Outstanding. Thank you.
    Ranking Member Graves, you are recognized for 5 minutes.
    Mr. Graves. Thank you, Madam Chair.
    Commissioner, again, welcome, and appreciate you being here 
today.
    What role do you see U.S. competitiveness playing in this 
larger issue? You have mentioned this being an international 
issue a number of times today already. What role do you see 
that playing?
    Mr. Behnam. Congressman, I totally appreciate your point 
about, really, the competitive element of the transition and 
what we can do. I think and I am a firm believer that we have 
to take a leading role in this.
    Naturally, if we take steps toward transitioning to a net-
zero economy, we could potentially put ourselves at a 
competitive disadvantage in the short term. But climate change 
is a long-term issue. It is one that we have to think about 
over the next 10, 20, 50, 100 years and more. And I think, you 
know, historically, the U.S. has had a leading role in any 
number of policy issues, and I really think this is an 
opportunity for us to really elevate the rest of the world in 
demonstrating our leadership both on the production side and 
the consumer side so that others will follow.
    And, you know, it is not going to be a smooth ride. Again, 
in your opening statement, I couldn't agree more, there are 
going to be roadblocks and barriers. But a lot of the report 
focuses on flexibility and understanding that we are going to 
have to adapt over the course of the next few years and decades 
to address the climate risks.
    Mr. Graves. And you did talk about flexibility, you talked 
about working within the international community. I totally 
agree.
    When you talk about flexibility, do you think it is 
appropriate for us to choose the energy technology winners and 
losers? Or do you think it is better for us to allow the market 
to effectively innovate, as they do, and, kind of, innovate us 
into the solutions that are needed, as in the past the United 
States has done, by reducing emissions more than any other 
country?
    Mr. Behnam. I certainly support what you say, that we 
need--I would err on the side of not picking winners and 
losers.
    I think if you think about the first recommendation and the 
carbon price, if there is a carbon price, capital will be 
allocated to different industries, and I don't think it is 
going to be industry-specific or product-specific; it is just 
going to be focused on renewables and, sort of, supporting the 
innovation in that space.
    Mr. Graves. Well, but why do you say renewables only, when 
we have proven that we can actually complement conventional 
fuels with carbon capture, storage, and utilization technology 
and end up with net-zero emissions or even maybe net reduction 
in emissions through some new emerging technologies? So isn't 
it----
    Mr. Behnam. Congressman----
    Mr. Graves [continuing]. Emissions we are targeting, right?
    Mr. Behnam. Yeah, absolutely. And from a carbon capture 
standpoint, I can't speak specifically to the technology and 
where it is, sort of, in the arc of its growth and development. 
But I think, at this point, when you think about the core 
energy sources that could sort of help us transition in the 
short term, a lot of the renewable sources, whether it is wind 
or solar, are going to be there, but carbon capture, I know, is 
developing--you know, I don't know about quickly, but it is 
developing and certainly is going to play a key role in our 
net-zero transition.
    Mr. Graves. And you mentioned earlier that the U.S. should 
play a leadership role. You talked about that would cause 
volatility. What degree of volatility do you think is 
acceptable?
    Mr. Behnam. I can't put a number on it specifically, but I 
will say this: In terms of--and this kind of goes to the issue 
of transition risk, which the report talks about.
    As we move forward, there is going to be transition risk. I 
think we need to continue moving forward regardless of, sort 
of, the bumps along the road. Because the longer we take to 
transition to a net-zero, the shock that we may face down the 
road because of a climate disaster or a growing climate event 
will be greater. So----
    Mr. Graves. But it also----
    Mr. Behnam [continuing]. As we transition----
    Mr. Graves. We would also have greater volatility or an 
exacerbated volatility by moving unilaterally, which is why you 
have said numerous times that a carbon price or other types of 
solutions must be done in a multilateral or an international 
format. Did I understand that correctly?
    Mr. Behnam. That is correct. But I think, by not moving, we 
are only creating essentially a feedback loop on the climate 
issue that will just grow if we don't transition.
    Mr. Graves. I am not going to argue with you at all on 
that, but do you----
    Mr. Behnam. Yeah.
    Mr. Graves [continuing]. Just ``yes'' or ``no,'' because my 
time is running----
    Mr. Behnam. Yeah, yeah.
    Mr. Graves [continuing]. Just ``yes'' or ``no,'' and I 
don't mean to box you on this one, but----
    Mr. Behnam. Sure.
    Mr. Graves [continuing]. Don't you agree that, with the 
momentum we have already built up through greenhouse gas 
concentrations, resiliency investments are some of the best 
things we can do to help provide certainty and put brackets on 
the uncertainty, right?
    Mr. Behnam. Yes.
    Mr. Graves. Because we can't do anything about the momentum 
that is already in the environment.
    Mr. Behnam. Yeah.
    Mr. Graves. Yeah.
    And then, lastly, Madam Chair, I just want to read in the--
in the Senate Democrat report, they say that it is a global 
issue and unilateral action could harm the United States, 
agreeing with the Commissioner's comments.
    They say that increased overall production--it would 
increase overall production costs, that, left unchecked, the 
policies would threaten U.S. competitiveness. It said, ``quote, 
we could see U.S. companies shift their production overseas.'' 
And they further acknowledge, quote, ``it will not only lead to 
an increase in total global emissions but also outsources the 
American jobs.''
    So the Commissioner's comments about this international 
approach, not moving unilaterally, I think is really key here.
    Last thing, Madam Chair, I just want to clarify that--it 
was mentioned that this is a CFTC report, and I don't believe 
it was actually a CFTC report. I think it was the 
subcommittee--or your report that the subcommittee then 
approved.
    Mr. Behnam. That is correct.
    Mr. Graves. Yeah.
    Thank you. Yield back.
    Mr. Behnam. Thank you.
    Ms. Castor. Yeah, I think we understand it is going to take 
an international approach. And I wish we would have had more 
GOP Members join us in our Climate Action Now bill that just 
said simply that the U.S. needs to remain in the international 
climate agreement.
    So, at this point, I will recognize Congresswoman Bonamici 
for 5 minutes.
    Ms. Bonamici. Thank you, Chair Castor and Ranking Member 
Graves and to our witnesses.
    I represent a district in Oregon. Nearly a million acres 
have burned across my home state in the last month as a result 
of historic winds and dry fuel conditions. Air quality has 
surpassed hazardous levels and at times has been comparable to 
the most polluted places in the world, further endangering the 
health and livelihoods of those already at risk of respiratory 
issues from the coronavirus pandemic.
    Many Oregonians have been placed under evacuation orders, 
and hundreds have lost their homes. And if this immediate 
crisis were not enough, many experts are predicting significant 
flooding and landslides this winter as precipitation increases 
and soil remains unstable.
    So, Commissioner, I thank you for your testimony.
    In your testimony, you have noted that the CFTC is focused 
on extreme but plausible scenarios. So how can the compounding 
crises of the coronavirus pandemic, raging wildfires in the 
West, and extreme weather events in the Gulf over the last 
month inform our understanding of financial market risks in the 
future?
    And can you please explain how these examples further 
demonstrate that the cost of inaction may be higher than the 
cost of transitioning to a 100-percent clean energy economy?
    Mr. Behnam. Thanks, Congresswoman.
    One thing I would point out--there can be a lot of answers 
to that question. It is a great question. There is a term used 
in the report called ``subsystemic shocks.'' We obviously dealt 
with systemic shock in the 2008 financial crisis. But, to your 
point, you have a series of regional weather events that happen 
at any one time. We are not accustomed to them happening 
together or, sort of, compounded. But these are the extreme 
events that are plausible, and we are seeing that on a day-to-
day basis, and that we need to plan for. Obviously, an unlikely 
scenario, but something that we should plan for.
    And the unfortunate reality, as you pointed out, with our 
wildfires out West and then the flooding because of the 
hurricanes in the Gulf Coast, you can start to see the pattern 
of what might happen if you then compound a series of flooding 
over the spring/summer season that would affect the 
agricultural productivity or Gulf Coast hurricanes going up the 
East Coast.
    With these subsystemic risks, you are going to have local 
issues and local challenges for regional economies, regional 
growth and productivity, regional financial institutions in 
terms of credit and lending. And, again, if you have that 
extreme scenario where a couple of these events happen at the 
same time, that subsystemic risk could certainly rise to a 
systemic shock nationally. We learned very clearly in 2008 the 
interconnectedness of the financial markets, and we have to be 
aware of that.
    In terms of transition risk, I would say, yes, we are going 
to face bumps along the road, as I pointed out with Ranking 
Member Graves. It is going to be difficult, but that goes to 
the point of being flexible and iterative as we go forward. But 
I still think we have to move forward.
    If we don't move forward and just use these challenges and 
these bumps as reasons to stop, we are only, sort of, creating 
a feedback loop of creating more climate risk because of carbon 
emission.
    Ms. Bonamici. Right. Right. And the cost of inaction is 
pretty clear.
    So our committee's climate action plan calls for a Climate 
Risk Information Service to develop localized climate risk 
information that will include projections of floods, wildfires, 
and other natural disasters. And this approach is designed to 
better inform the development of resilience codes, 
specifications, and standards for local communities. And I am 
working now to turn this recommendation into a standalone bill.
    In chapter 5 of the report, the CFTC subcommittee 
recommends that financial regulators and the private sector 
should support the availability of consistent, comparable, and 
reliable climate risk data and analysis.
    So what climate risk data is the most important for 
integration into financial models? And are there any gaps that 
Congress should be aware of?
    Mr. Behnam. Congresswoman, it is a great question. In my 
view, the heart of solving this problem, among many other 
strategies, is data and disclosures.
    There have been a lot of efforts in the private sector, as 
I pointed out, in terms of identifying data. A lot of this is 
yet to be determined. I think there are a lot of academics that 
are working on this, private market participants that are using 
climate science to identify what type of data would identify 
risk to the financial system that could be then, sort of, 
caught before issues happen.
    I would recommend, sort of, working with some of the 
private institutions that have started thinking about this. 
Under the Financial Stability Board, the Task Force on Climate-
Related Financial Disclosures has done a lot of work in this 
space.
    Any effort to get the data and disclosure that is needed is 
going to, again, have to be collaborative. It is going to have 
to be a public-private partnership. But data is critical. And 
having a data source that is shared among public and private 
participants is going to be critical to addressing these 
issues.
    Ms. Bonamici. Terrific. Thank you very much.
    I am going to yield back the balance of my time. Thank you, 
Madam Chair.
    Ms. Castor. Thank you.
    Representative Palmer, you are recognized for 5 minutes.
    Mr. Palmer. Thank you, Madam Chairman.
    I just want to ask the witness, if the U.S. achieves net-
zero, what is the net effect that it will have on climate 
change?
    Mr. Behnam. Sir, thanks for the question.
    I can't answer that with complete certainty. I am not a 
scientist. But, you know, from my basic understanding, as we 
shift towards net-zero--you know, as we think about carbon 
emissions and greenhouse gas emissions, there is, you know, 
heat capture in the atmosphere, which is causing rising air 
temperatures, rising sea levels, and is, you know, connected to 
the weather events that we are seeing, these more extreme, more 
frequent weather events.
    Mr. Palmer. Well----
    Mr. Behnam. So, based on my understanding and what the 
science would say, if we can achieve net-zero, then we can 
start to think about reducing carbon in the atmosphere and 
hopefully stabilizing the atmosphere.
    Mr. Palmer. Well, the answer that we have gotten in this 
committee in previous hearings is that, if the U.S. went to 
absolute-zero--not net-zero, absolute-zero--it wouldn't have 
any impact on climate change.
    And I understand the climate is changing. I think that CO2 
emissions have a warming effect. But the bigger problem is the 
climate change we can't do anything about that is occurring 
through natural variations.
    So, considering that the scientists say that if the United 
States went to absolute-zero that it would have no impact on 
climate change, does it make sense to put the country through 
the economic devastation that these policies would create 
instead of investing more in adaptation and resilience, as my 
colleague Congressman Graves has pointed out?
    Mr. Behnam. Sir, I would point out that, specifically with 
respect to the CFTC report, it really focuses on what you said, 
that, regardless of what you think has caused the change in 
climate, I think there is, you know, fairly broad acceptance 
that the climate is changing and that we need to adapt to that.
    From a financial markets perspective, that means building 
in new scenarios, that means building up new information data 
sets that we disclose to regulators and investors, that means, 
you know, adapting our best practices in governance so that we 
can adapt to a changing climate.
    Mr. Palmer. Well----
    Mr. Behnam. Again, I can't answer the scientific questions 
of the climate change and how a net-zero economy will affect 
it, but I am speaking from a financial regulator standpoint 
that----
    Mr. Palmer. Reclaiming my time----
    Mr. Behnam [continuing]. There is a----
    Mr. Palmer. Reclaiming my time, the point is that most of 
what is being proposed in the Green New Deal and these other 
policies, it is all about eliminating CO2 emissions, when we 
know that doesn't really affect climate change, especially if 
the rest of the world is not doing it. And even if the entire 
world went to net-zero or to absolute-zero, it would only 
mitigate the impact.
    So it is kind of like recommending extensive chemo for 
someone who doesn't have cancer or has another disease. It 
might have, you know, a mild impact, but the remedy would be 
worse than the disease. And that is the problem that I have 
with some of these policies.
    And, you know, I have looked at what is going on in other 
places around the world and how they have adapted and built in 
resiliency for everything from sea level rise to floods to 
wildfires. And despite what my colleagues from the Western 
States on the other side of the aisle think about forest 
management, forest management is the best solution to 
controlling wildfires. And that is part of the resiliency that 
you build into your forests in anticipation of extreme weather 
events.
    So the stuff that I have looked at indicates that we are 
far better off to do adaptation, build in resiliency, but do it 
in a holistic manner that takes into account the climate change 
that we can't do anything about that occurs from solar 
variations and other natural phenomena that, frankly, we can't 
deal with.
    I think there are a lot of people, a lot of companies that 
like the old idea of the cap-and-trade and the carbon tax 
because they are going to make a boatload of money out of it, 
but it really doesn't do anything to solve the problem of 
climate change.
    And my last question to you, sir, in the few seconds that I 
have left is: Do you support the Green New Deal? Apparently----
    Mr. Behnam. Sir, I am not----
    Mr. Palmer. Apparently, the Democratic nominee, Biden, 
doesn't support it anymore. I just wonder if you do.
    Mr. Behnam. Sir, I am not going to--I have not examined the 
Green New Deal front to back. I am a financial regulator. I 
certainly think about climate change issues, but not in the 
weeds enough on the Green New Deal to take a position.
    Mr. Palmer. Well, I thank the gentleman for his honesty, 
and I do thank you for your work.
    And I yield back.
    Mr. Behnam. Thank you.
    Mr. Levin. Chair Castor? I am sorry, I didn't hear you.
    Ms. Castor. Yes. Congressman Levin, you are recognized for 
5 minutes.
    Mr. Levin. All right. Thank you very much. I appreciate 
that.
    And thank you for having this hearing today. Extremely 
important topic. Because, obviously, climate change isn't only 
a threat to the health of our communities but also to our 
economic prosperity.
    And it is important that those risks are explained and 
quantified, which is why I am very grateful to work with my 
friend, Representative Casten, on the Climate Risk Disclosure 
Act, which he has just done a great job leading. His bill would 
require public companies to disclose how they will be impacted 
by the climate crisis and create an environment of transparency 
for investors. And I am really grateful for Representative 
Casten's leadership in this space on the Financial Services 
Committee.
    Commissioner Behnam, I was pleased to see the CFTC climate 
subcommittee report recommended that U.S. regulators should 
join as full members international groups focused on exchanging 
information on monitoring and management of climate-related 
financial risks, including the Network for Greening the 
Financial System.
    As you know, the Network for Greening the Financial System, 
or NGFS, is an international organization of central banks 
committed to meeting the goals set forward in the Paris 
agreement. There are currently 72 active members of the NGFS, 
including the central banks of Canada, China, Germany, and most 
European countries.
    However, despite our international partners' membership, 
the U.S. still has not joined the NGFS. In May, Representative 
Casten and I led a letter to Fed Chairman Powell urging him to 
join the NGFS as an active member.
    So, Commissioner Behnam, do you believe the U.S. should 
join international climate finance organizations, like the 
Network for Greening the Financial System, as recommended in 
the subcommittee's report? If so, why is it important for the 
United States to participate?
    Mr. Behnam. Thanks, Congressman.
    Yeah, as you point out, this is one of the recommendations 
in the report. And as I mentioned earlier, both in my statement 
and in response to the chair's question, international 
alignment is key on any climate change issue, whether it is 
dealing with the environmental impacts or, of course, in the 
context of this conversation, the financial resiliency impacts.
    So I agree with the recommendation. I think it is important 
that we work with our partners, and, as you said, that is a 
growing coalition of central banks and other regulators and 
policymakers. And I think it would be helpful to be a part of 
that dialogue so that we can address these issues in a more 
holistic manner.
    Mr. Levin. Thank you for that.
    I was also happy to see the CFTC report acknowledged that 
the Financial Stability Oversight Council, which is charged 
with monitoring and identifying emerging threats to our 
financial stability, should, and I quote, ``incorporate 
climate-related financial risks into its existing oversight 
function, including its annual reports and other reporting to 
Congress,'' end quote.
    In August, Senator Schatz and I led a bicameral letter 
urging Treasury Secretary Mnuchin, as Chair of the Financial 
Stability Oversight Council, or FSOC, to consider climate risk 
when responding to emerging risks to the stability of our 
financial system. I was disappointed, we got a one paragraph 
response from the Treasury Secretary stating that, quote, ``at 
this time, this is not a systemic risk that warrants FSOC 
review,'' end quote.
    So, Commissioner, what role do you think the Financial 
Stability Oversight Council should play in monitoring and 
identifying climate-related financial risks?
    Mr. Behnam. Thanks again, Congressman.
    You know, the FSOC was created in Dodd-Frank, and it was 
really, in my view, a response to the financial crisis and how 
we were not really looking at the financial system as 
holistically as we needed to. Obviously, we have a patchwork of 
financial regulators that deal with very different, discrete 
issues, whether it's a market regulator, like the CFTC, or a 
prudential supervisor, like the Fed. And FSOC serves as this 
really great central point of contact within Treasury, using 
all of the leads of the financial regulators to examine issues. 
So I do think it would be a very good issue to examine.
    Climate change is probably not something--again, as I said, 
that people think of financial markets when they first think 
about climate change. I also think, you know, you can use as an 
example, before the COVID pandemic, in the February-March 
period, you know, if you asked a few people a couple years ago, 
would you have thought that this would cause, you know, market 
instability and the issues that we experienced in March--that a 
health pandemic would cause the instability and the issues we 
saw in the March-April period, you know, a lot of people would 
probably say no. You don't draw those connections. But the 
COVID pandemic was a clear, I think, example of how any crisis 
in the economy or in the country is going to have a direct 
effect on the financial markets. We have the economy, 
obviously, as a proxy.
    So a climate crisis and the impending climate issues we are 
going to deal with in the next couple decades, I think, demands 
at least a starting discussion. And FSOC, I think, is a good 
place to start that discussion.
    Mr. Levin. Thank you, Commissioner.
    I am out of time, but I thank the chair again for having 
this important hearing today.
    Ms. Castor. Representative Miller, you are recognized for 5 
minutes.
    Mrs. Miller. Thank you, Chair Castor and Ranking Member 
Graves.
    And thank you to Commissioner Behnam for being here today.
    Can you hear me?
    Mr. Behnam. Yes, ma'am.
    Mrs. Miller. Okay. Thank you.
    Commissioner Behnam, your report notes that a small group 
of states have a carbon price.
    According to the most recent EIA data on carbon emissions, 
since 2010 those states have underperformed the rest of the 
country in reducing emissions. In addition, those states have 
electricity and energy prices significantly higher than the 
rest of the country. Furthermore, those states are now major 
importers of energy from other states.
    My state of West Virginia reduced emissions by nearly 10 
percent from 2010 to 2017, nearly 20 percent since 2005, while 
California's emission levels were unchanged from 2010 to 2017 
and only a paltry 5 percent below in 2005. At the same time, 
retail electricity prices in California are 78 percent higher 
than West Virginia's. I can't remember a time in West Virginia 
when we suffered from rolling blackouts because of energy 
starvation.
    If we have reduced emissions more and have cheaper energy 
and we don't have any blackouts, what is the argument for my 
state to become more like California?
    Mr. Behnam. Congresswoman, thanks for the question. Again, 
you know, I would just reiterate that the report is focused on, 
sort of, financial resiliency and not necessarily specifically 
the transition.
    But, you know, my response to your point--and, you know, 
there is the RGGI in the Northeast, and I know California has 
its own system. You know, these are--this goes to the point 
about this being an iterative process that has to be flexible 
along the way. It is not going to be perfect. It is going to 
have to build and probably be rebuilt and, sort of, evolve over 
time. And, you know, I would suggest that, to your points, 
which are very valid points, that people will have to adapt, 
systems will have to adapt, as we move forward to a net-zero 
economy.
    Mrs. Miller. Well, I hope we have a lot of flexibility, 
because I don't want to adapt to be like California.
    And, furthermore, I noticed that you mentioned in your 
testimony that your report recognizes that climate change 
already has placed disproportionate burdens on the low- and 
moderate-income households and historically marginalized 
communities.
    In order to combat climate change in West Virginia, we had 
a misguided renewable standard that forced our low-income 
individuals to choose between paying for their groceries or 
keeping their lights on.
    In fact, in California, civil rights leaders sued the state 
because the State of California's climate policies had a 
negative and a regressive impact on the poor and people of 
color.
    Commissioner, how would you respond that moving away from 
affordable baseload energy and, instead, moving towards 
expensive renewables actually harms low-income individuals and 
people of color?
    Mr. Behnam. Congresswoman, again, I am going to focus on 
the resiliency standpoint. I think it is important, as a 
broader matter, that we transition.
    Obviously, as you pointed out, the report suggests and 
there is evidence that climate change disproportionately 
affects low- to moderate-income communities and rural 
communities. As we think about policy--and I know the report 
outlines this specifically--it recommends research and it 
recommends thinking to, sort of, address these unintended 
consequences.
    I can't, again, speak to the specifics of West Virginia and 
what has happened there. But, again, to my earlier response to 
your first question, we have to adapt and we have to work 
towards the transition so that we don't have unintended 
consequences and burden. But, ultimately, I think it is 
important that we move forward. Because if we don't move 
forward, we are going to continue to, sort of, endure these 
more extreme, frequent weather events.
    Mrs. Miller. Well, I think unintended consequences are so--
we need to be so careful with how we legislate. I know, with my 
older retirees, when their electric bills tripled, they really, 
really struggled.
    I yield back my time.
    Ms. Castor. Rep. Casten, you are recognized for 5 minutes.
    Mr. Casten. Thank you, Chair Castor.
    And thanks so much for being here, Commissioner Behnam.
    I am excited, and notwithstanding some of the doom-saying 
from my colleagues across the aisle, we all know that replacing 
old, amortized, high marginal cost generation sources with new, 
zero marginal cost generation sources makes us all wealthier. 
Thank you.
    We also know that for 30 years we have made consistent 
arguments that we shouldn't act until others do. Over those 30 
years, we have elected some 15 Congresses, and every single 
person who ever ran for office claimed that they were capable 
of leadership and then sits here in these chairs and says, 
``God forbid we lead.'' Commissioner Behnam, thank you for 
leading.
    In your report, you recommend that public companies 
disclose their exposure to physical and transitional risks. 
Now, I think it is obvious how that benefits investors in those 
companies who might bear those losses. Can you explain a bit 
about how those disclosures might help the companies 
themselves?
    Mr. Behnam. Thanks, Congressman.
    Ultimately, you know, disclosures are a key part of this. I 
mentioned this earlier. Information--better information--allows 
regulators and investors to make more informed decisions.
    I think as the community of public companies starts to 
think about what climate risks are, I think it is just going to 
allow them to adapt to, again, a changing climate in the future 
and create more efficiencies for the company from both an 
employment standpoint and a productivity standpoint.
    The challenge is coming up with the common data sets, the 
metrics to measure risk by. One of the biggest challenges in 
the disclosure space is, sort of, what constitutes material 
risk. Material risk is a standard term for public companies 
under the SEC's 1934 act, but climate change is very different 
than, sort of, traditional material risk, I think, in my view, 
from what it is normally--from what the Commission and public 
companies expect.
    So we have to rethink that issue so that companies can 
assess climate risk better in the short, medium, and long term.
    Mr. Casten. Yeah. I am glad you raised that. You know, I 
think there is the separate section about disclosing emissions, 
which obviously is a separate issue, and that is easy. I have 
sort of compared the challenge that you described to being why 
we created generally accepted accounting standards, right? We 
need a standard way to disclose financial liabilities in the 
same way we need a standard way to describe environmental 
liabilities.
    On the disclosure of emissions, can you discuss--and just 
briefly, because I do want to get to a couple last questions--
how that benefits investors in companies, knowing how much a 
given company emits?
    Mr. Behnam. From an investor standpoint, the more 
information, the better, right? It is making the most informed 
decision. And whether it is scope 1, scope 2, or scope 3 
emissions, I think, for an investor, in institutional or retail 
or a pension, having an understanding of what type of emissions 
exist is certainly potentially going to affect the bottom line.
    And that could come from a transition standpoint--
transition risks being anything influenced by policy, consumer 
preference, or technology changes. And then, ultimately, you 
know, as we are seeing now, if emissions are a big part of a 
company's, sort of, production, then it could potentially, you 
know, lead to a stranded asset, which is a term that is often 
used within the context of transition risk.
    And these are the types of decisions and information that I 
think are super valuable to investors to make more informed 
decisions.
    Mr. Casten. I feel like I want to go out for a beer with 
you at some point. And, by the way, I love the book ``Titan.'' 
I am looking at it on your back shelf.
    Well, here is to transparency of risks and ensuring that 
markets can better allocate capital. As Mr. Levin pointed out, 
I have introduced H.R. 3623, the Climate Risk Disclosure Act, 
which would direct the SEC to require companies to disclose 
these physical, these transitional risks, these emissions 
risks.
    From your vantage point, do you believe the SEC has the 
authority to fulfill those obligations in the absence of 
legislative action?
    Mr. Behnam. Sir, from my understanding and from the report, 
I believe the authority is there to make those changes.
    Mr. Casten. Do you believe they have the obligation?
    Mr. Behnam. Under current rules, I think, given--in my 
view, given the material element and material risk of climate 
change, yes.
    And this is to my point earlier. Climate risk should be 
mandatory, and it should be clear, and it should be 
understandable. And, you know, the existing system and the 
existing disclosure system, although good and effective--for 
what we have done and built over a number of decades in terms 
of public company disclosures, it is fine, but, as we deal with 
climate risk, which is more forward-thinking, is nonlinear and 
creates a new and really unknown set of risks, I think to rely 
on the older existing system is really not going to be able to 
give both regulators and investors the information they need.
    Ultimately, you know, if you don't have clear, sort of, 
guidelines, I think, from an issuer standpoint to know what 
needs to be disclosed from a climate risk perspective, it is 
going to be become very subjective of what constitutes climate 
risk, what constitutes material. And that is, I think, where 
there needs to be a little bit more clarity and certainty from 
the SEC so that issuers can pinpoint exactly what climate risk 
is and what needs to be disclosed in these documents.
    Mr. Casten. Well, that is fascinating. I am out of time, 
but I really do, from the bottom of my heart, thank you for 
your leadership.
    And I yield back.
    Ms. Castor. Great.
    Rep. Huffman, you are recognized for 5 minutes.
    Mr. Huffman. Well, thank you, Madam Chair.
    And, one of these days, I would love to get some of our 
colleagues out to California. We hear a lot of this California 
bashing, but it would be great to help them better understand 
the difference between the unit cost of energy and people's 
electrical bills and other things, help them understand that 
the direction that California is going, toward a clean energy 
future, is not somehow empowering of the Russians or the 
Saudis. It is actually quite threatening to the energy 
influence of those regimes.
    But it is also quite threatening to the profits of the 
fossil fuel industry. And that is what this really is all 
about.
    In any event, if a desire to understand California's 
leadership on these issues is there, we would love to have them 
out to visit and to better understand these things.
    Commissioner Behnam, thanks for your testimony.
    I am speaking to you from California, where we are 
experiencing the ``airpocalypse'' that you describe--
dangerously high particulate pollution due to wildfires that 
are brought to us by this addiction to fossil fuel and the 
extreme weather that climate change is going to bring more of, 
not just to California but other places around the West.
    This is an historic year, to be sure. We have more homes 
burning, we have more communities devastated, and more lives 
tragically lost. And the communities I represent see this 
climate risk firsthand, but the world of financial markets too 
often just sees these as dollars and cents on a spreadsheet, 
these risks.
    So I really do want to thank you for working to bring 
attention to the real-world consequences of climate risk.
    And your recommendations note the importance of driving an 
appropriate allocation of capital, as financial markets, 
obviously, can do amazing things when they respond to 
incentives that are properly given, but we have to get those 
incentives right.
    When the incentives are wrong, we know we get disastrous 
results. And that happens when we let climate polluters 
externalize the costs of their pollution, when we don't factor 
in the impacts and costs of climate change, including to public 
health. We are going to get more extreme weather events--
droughts, heat waves, wildfires, hurricanes--and we need to 
factor in what that really means for people and communities all 
over this country.
    So you mentioned that, without active leadership by the 
United States, including its regulators, private capital really 
can't be fully unleashed to bring us this fast transition to 
clean energy, to a net-zero future that we need.
    I want to ask you about what happens when we not only fail 
to send those regulatory and policy signals but when we do the 
opposite--when we withdraw from the Paris Agreement, when our 
President rejects and trivializes climate change and claims 
science doesn't know.
    When this happens, do we see private capital go the wrong 
way? Do we see it continue to flow into dead end fossil fuel 
projects and technologies that actually makes these climate 
impacts worse?
    Mr. Behnam. Thanks, Congressman, for the question. I would 
say, and this is a result of sort of my experience with the 
subcommittee that I formed and the report they came up with, it 
is pretty remarkable what the private sector has been doing. 
And I think there is a recognition from the private sector that 
climate risk is real and that they want to protect their 
institution and their bottom line for the future and that 
addressing climate risk is important. I think also there is a 
natural sort of bottom-up flow from consumers and clients that 
are really forcing the institutions to start thinking about 
climate risk and building in some of these ESG factors which I 
am sure you are familiar with.
    So, on the one hand, I am very sort of comfortable, and it 
is confirming a lot of what I thought, that the private sector 
is working toward, but this is a public-private sort of 
challenge. It is the problem of the commons, and we have to 
work together. And it really becomes important, I think, for 
the public sector to push so that we can understand things 
better, assess risks better, and have a level playing field for 
domestic and international partnerships.
    Mr. Huffman. All right. Thank you.
    Commissioner, could you talk a little more about the 
importance of disclosure so that private capital can actually 
understand and act upon the areas of greatest climate risk?
    Mr. Behnam. Sure. Like I pointed out, disclosure is 
information to me. As I kind of break it down, it could be 
anything from disclosure to regulators or disclosure to 
investors and pensions. Having as much information, and this 
goes without saying, with any decision we make in life, when we 
are more informed, we are going to make better decisions, 
better for us, better for our families, better for our 
communities.
    So disclosures are key, but the information underlying the 
disclosures is also. It cannot be subjective. It has to be 
objective, it has to be fair, it has to be counted, and it has 
to be understandable, and it needs to assess the risk 
appropriately. And this really goes to the point of how we need 
to work both, you know, internationally and domestically to 
come up with a system, you know, working with the private 
sector, and a set of benchmarks that will collect the data that 
is necessary and will, you know, provide us the information we 
need to make the most informed decision.
    Mr. Huffman. All right. Thank you, Mr. Commissioner.
    Thank you, Madam Chair, I yield back.
    Ms. Castor. Thank you.
    Congresswoman Brownley, you are recognized for 5 minutes.
    Ms. Brownley. Thank you, Ms. Castor.
    And thank you, Commissioner, really, for your leadership in 
this area. I loved the end of your testimony when you said we 
have missed subprime mortgage crisis, we have missed the COVID-
19 crisis, and we can't afford to miss the climate crisis. And 
I think most of us here are clearly aware of the urgency of 
climate.
    So my question is, if--you know, if Congress, let's just 
say hypothetically that Congress did its part and, you know, 
invested significant Federal dollars into a clean economy in 
the ways we sort of laid out in our report, but the financial 
regulators don't do their part, don't implement their 
recommendations, you know, what is the net effect of that? How 
does it slow us down?
    Mr. Behnam. Thanks, Congresswoman. Yeah, this really goes 
to a key point in the report in that financial markets are 
extremely powerful. And if the incentives are correct, 
financial markets are going to be this amazing tool to allocate 
capital in the right place where the incentives push them. So 
if the incentives are in the right place and they are in line 
with some of the transitioned goals that the committee--your 
committee--advocates, and financial markets will certainly 
support and, I think, move that transition much quicker and 
much more efficiently so that we don't face the transition 
risks, which I spoke about a little bit earlier.
    Ms. Brownley. So I wanted to go back to carbon pricing for 
a minute. You know, you are stating very clearly that investors 
and regulators now have come a long way in terms of 
understanding the importance of climate risks and, you know, 
financial stability. And, you know, you say in your report 
carbon pricing is really, you know, the most important part of 
that whole equation, and that is something that Congress has to 
do, that the markets really can't do it.
    So I guess my question is, you know, when is it going to be 
when the financial markets and the industries are knocking on 
all of our doors here in Congress, saying in one voice that we 
need to move forward on this, we need to have an actual carbon 
price? When is that going to happen?
    Mr. Behnam. Well, you know, there are a number of groups 
that include companies from all industries that are--that 
already support a carbon price. So I would say we are not too 
far off. You know, even if you look at my subcommittee, I 
mentioned this earlier, you have a range of institutions, from 
banks and institutional investors to energy companies and 
agricultural companies, and a carbon price was the first--and 
the chair of the subcommittee said this--but the carbon prices 
were the first thing they agreed on, and it wasn't really in 
question or debated.
    And it really comes to the point of allocating risks. 
Carbon is a negative externality right now. There is no cost to 
it. It affects the atmosphere, and no one owns the atmosphere. 
So unless there is a price on carbon, there is really no risk 
to it. And if there is no risk to it, then the markets won't 
react around that risk and that cost.
    So if we are going to move the transition to net-zero 
smoothly without too many bumps along the road, then I think 
having a price on carbon is going to incentivize that move very 
clearly, eliminate the transition risk as much as possible, and 
get it to where we need to be to protect our environment, our 
economy, and our national security.
    Ms. Brownley. So last question is, there still seems to be, 
I think, a misperception among investors that, you know, 
investing--investing in climate and gaining good returns on 
that investment, that, you know, that they believe that that 
is--we are still not there yet, in terms of getting the kind of 
return that they want on their investment.
    So how do we--you know, how do we change that misperception 
that is out there? It sounds to me, based on everything you are 
saying, that it is changing. And the people who are--you know, 
many have already changed their mind and moving in that 
direction. And I think the more investors there are advising 
clients, more people in the financial markets advising their 
clients and so forth in terms of investing that kind of 
capital. But what can we do to sort of change that perception?
    Mr. Behnam. You know, institutional money is going there. 
Preferences are changing. You are seeing the growth in this ESG 
space, environmental, social, governance, investing pocket, 
grow really exponentially. And, if nothing else, that is the 
proof that there is demand for these products, there is an 
understanding that these products have long-term value, and 
that in the end, the return on your investment will be 
positive, and if not greater than, a traditional sort of asset.
    I think from a regulator or an elected official standpoint, 
it really goes back to just more clarity of understanding what 
constitutes ES&G, and any other thing in the sustainable 
finance space. These are all very different things. We have 
different sets of metrics, as I pointed out earlier. There is 
the domestic versus the international standard. Coordination 
along this line is just key so that investors know exactly what 
they are investing in, and especially down to the retail level 
as well, whether it is a retail investor on their, you know, 
computer investing in assets, or an institutional investor or a 
pension investor. You need to know what you are investing in, 
you need to know what the comps are, and you need to have a 
firm understanding of what constitutes sort of environmental or 
sustainable investing. So I think there is a role for 
policymakers in the public sector in that respect.
    Ms. Brownley. Thank you very much, and I yield back my 
time.
    Ms. Castor. Thank you.
    Well, thank you, Commissioner Behnam, for your outstanding 
testimony today. We really do appreciate all the hard work you 
put in for your Market Risk Advisory Committee report. And Rep. 
Casten will be in touch shortly for your socially distanced 
beer or Zoom beverage. But thanks again for being here today.
    Now, we will move to our second panel. We will give our 
witnesses a moment to turn on their cameras.
    Ms. Castor. Here we go. Great. Welcome to our second panel. 
I will go ahead and introduce everyone, and then we will hear 
from each of them for 5 minutes.
    Dr. Joanna Syroka is Senior Underwriter and Director of New 
Markets for Fermat Capital Management, an investment advisory 
firm. Prior to joining the firm, she was director of research 
and development at African Risk Capacity, Africa's first 
sovereign insurance school, where she led the development of 
their parametric drought, flood, pandemic, and climate 
insurance initiatives. Dr. Syroka also developed a weather risk 
management solutions with the World Bank and in the 
humanitarian arena with the United Nations World Food Program.
    Rich Powell is the Executive Director of ClearPath, whose 
mission is to develop an advanced conservative policy that 
accelerates clean energy innovation. Rich served as the member 
of the 2019 Advisory Committee to the Export-Import Bank of the 
United States. He is also on the Atlantic Council's Global 
Energy Center's Advisory Group.
    Maggie Monast is the Director of Working Lands at the 
Environmental Defense Fund. She works with farmers, food 
companies, agricultural organizations and others, to create an 
agricultural system that drives climate stability, clean water, 
and food security. Ms. Monast works to quantify the farm 
financial impacts of conservation practice adoption, 
collaborates with major corporations to develop sustainability 
initiatives, and develops innovative financial incentives to 
advance sustainable agriculture.
    Welcome to all of you.
    With that, Dr. Syroka, you are recognized for 5 minutes to 
give a summary of your testimony.

STATEMENTS OF DR. JOANNA SYROKA, SENIOR UNDERWRITER & DIRECTOR 
   OF NEW MARKETS, FERMAT CAPITAL MANAGEMENT, LLC; MR. RICH 
 POWELL, EXECUTIVE DIRECTOR, CLEARPATH; AND MS. MAGGIE MONAST, 
      DIRECTOR, WORKING LANDS, ENVIRONMENTAL DEFENSE FUND

                 STATEMENT OF DR. JOANNA SYROKA

    Dr. Syroka. Thank you, Chair Castor, Ranking Member Graves, 
and the members of the Select Committee.
    As the chair said, my name is Joanna Syroka. I am a Senior 
Underwriter and Director of New Markets at Fermat Capital 
Management. Based in Connecticut, Fermat is one of the largest 
and most experienced investment managers in insurance-linked 
securities, or ILS for short.
    ILS are financial investments whose losses are directly 
linked to insured loss events, such as wildfires, floods, 
hurricanes, and earthquakes. To be clear, investors lose money 
when these events occur. ILS effectively convert the global 
bond markets into the largest de facto insurance company ever 
seen. By doing so, ILS has the potential to absorb catastrophe 
risks far better than the traditional insurance industry. The 
current market is just over 90 billion in size, but as climate 
risks and other risks outpace insurance supply, we foresee 
substantial market growth ahead.
    Some of the largest institutional investors in the world 
invest in ILS, usually through specialist companies like mine. 
An ILS investment manager has the duty to watch for even the 
slightest change in climate trends and integrate them into 
their investment processes. In this way, ILS provides society 
with a forward-looking, market-based indication, or price, of 
the costs of weather risks and, consequently, climate change.
    The U.S. is the cradle of the ILS market. It was born in 
the late 1990s, after Hurricane Andrew in 1992 and the 
Northridge earthquake in 1994, causing the collapse of 
insurance markets in Florida and in California. Since then, ILS 
has increasingly helped stabilize the U.S. insurance market, 
narrow the insurance protection gap, and reduce insurance costs 
for homeowners and businesses. However, as society responds to 
risks such as climate change and as new regulations are 
introduced to enforce climate-related guidelines, we believe 
ILS will play an even greater role in a more climate and 
disaster resilient future.
    ILS enjoys significant governmental support abroad. They 
are already helping emerging economies and other public 
entities to manage systemic catastrophe risks with an efficient 
pre-event approach, rather than an inefficient post-event 
approach to disaster response. Prearranged financing with 
timely, reliable, and transparent triggers for funding, 
significant funding flows, particularly when embedded in 
broader risk management programs, can significantly increase 
the efficacy of disaster financing and planning while promoting 
resilience for the long run.
    In the U.S., ILS is already a core component of residual 
homeowner insurance programs in states like Florida, Louisiana, 
North Carolina, and Texas. They are helping the State of 
California better manage its wildfires. The MTA uses ILS to 
cover storm surge losses to the New York City subway system. 
And the ILS market is helping the National Flood Insurance 
Program back claims after flood disasters without additional 
supplementals from Congress. A hallmark of our market has been 
innovation. ILS could quite easily be used more broadly in 
public-private partnerships to help communities across this 
nation recover and rebound in weather catastrophes.
    As an ILS investment manager, we see firsthand that global 
investors are actively seeking positive ESG investment 
opportunities, and we believe that ILS are inherently aligned 
with such positive principles. In short, while the need is 
great and growing, the capital required to set against this 
country's most pressing extreme climate risks is on standby to 
being deployed.
    To facilitate this, we have the following recommendations 
to the Select Committee. Congress can help bring the ILS market 
machinery onshore, which would make the market more accessible 
to private and public entities who lack the resources to tap 
the ILS market offshore. My written testimony contains more 
details, but such a step would also create jobs and valuable 
know-how in a new and expanding area of financial resilience.
    FEMA is already a pioneer in ILS. Congress should adopt key 
recommendations on technical assistance from the Select 
Committee's majority staff report so that communities, 
municipalities, states and others have access to the expertise 
they need to follow in FEMA's footsteps.
    Congress should also adopt pertinent recommendations on 
insurance and innovative risk transfer from the Select 
Committee's majority staff report, and consider legislation to 
encourage Federal agencies to work with the private sector to 
better manage and transfer the climate risks.
    We believe these steps would significantly reduce the 
burden of catastrophe costs on taxpayers and would help 
accelerate resilient recovery in times of disaster, while 
creating the insurance tools required to manage the climate and 
other risks that we face ahead in the 21st century.
    Thank you for the opportunity to testify today, and I look 
forward to answering any questions that you may have.
    [The statement of Dr. Syroka follows:]

                       Testimony of Joanna Syroka

    Senior Underwriter and Director of New Markets, Fermat Capital 
                            Management, LLC

           Before the Select Committee on the Climate Crisis

    ``Creating a Climate Resilient America: Strengthening the U.S. 
         Financial System and Expanding Economic Opportunity''

                            October 1, 2020

    Good afternoon, Chair Castor, Ranking Member Graves, and members of 
the Select Committee, my name is Joanna Syroka, and I am a senior 
underwriter and director of new markets at Fermat Capital Management. 
Based in Westport, Connecticut, Fermat is one of the largest and most 
experienced investment managers in Insurance-Linked Securities, or ILS 
for short.
    ILS are financial investments whose losses are directly linked to 
insured loss events such as wildfires, floods, hurricanes and 
earthquakes. To be clear: investors lose money when these events occur. 
ILS are most often used by insurers and reinsurers to transfer 
catastrophic risks that stress their balance sheets the most directly 
to the capital markets where capacity for such risks is greater.[1] 
This frees up capital, allowing insurers to provide more coverage to 
the areas that demand it and to support homeowners, businesses and 
vital economic activity in all geographies in the United States. As 
governments act as the ``insurer of last resort'', many governments and 
public entities around the world--including the U.S. federal 
government--are also issuing ILS to manage their obligations in times 
of disaster. ILS effectively convert the global bond market into the 
largest de facto insurance company ever seen. By doing so, they have 
the potential to absorb catastrophe risks far better than the 
traditional insurance industry. The current ILS market stands at over 
US$90 billion in size, but as climate and other risks outpace insurance 
supply, we foresee substantial market growth ahead.[2]
    Some of the largest institutional investors in the world invest in 
ILS, usually through specialists like my company. Our portfolios, like 
the ILS market, are predominantly U.S. focused and primarily exposed to 
U.S. weather risks, such as hurricanes, floods, tornadoes and 
wildfires, as well as earthquakes and other catastrophe risks. As such, 
the ILS market--like the insurance and reinsurance markets it 
supports--is at the forefront of monitoring changes in weather extremes 
and their impact on economies. Unlike long-duration investments like 
equities, traditional bonds and real estate, ILS are more short-term in 
nature (maturities typically range from one to five years) and can, 
therefore, reprice their returns in the relative near term as new 
information about the frequency and severity of weather events becomes 
available. As a leading manager in this space, we continually monitor 
events and check our models and benchmarks for any potential changes in 
extreme weather activity, seeking to detect and integrate emerging 
climate trends into our investment processes. This ongoing feedback 
loop is critical to the functioning of the ILS market, creating a 
``climate linker'' market architecture within which ILS can be thought 
of as ``climate-indexed floating rate'' investments. In this way, 
investors and ILS issuers alike are provided with a forward-looking, 
market-based indication--or price--of the costs of weather risks and, 
consequently, climate change. The insurance and ILS markets are 
uniquely placed to provide this essential price discovery function to 
society.
    The United States is the cradle of the ILS market. It was born in 
the late 1990s after two events--Hurricane Andrew in 1992 in suburban 
Miami and the Northridge Earthquake in 1994 in suburban Los Angeles--
caused a near-collapse of the insurance markets in Florida and 
California. These disasters created an opportunity for capital market 
investors to provide new capital to the insurance sector. Since then, 
ILS have had an increasingly important role in helping stabilize the 
U.S. insurance market through the sharing of risks across a broader and 
deeper capital pool and in narrowing the insurance protection gap by 
increasing the available insurance capacity for catastrophe risks. By 
providing multi-year protection against events so large that any 
traditional reinsurer's solvency would be called into question, ILS 
have reduced insurance costs for U.S. homeowners and businesses and 
have helped ensure that coverage remains stable nationwide in the 
aftermath of a major catastrophe.[3] However, as society responds to 
risks such as climate change--by shifting towards a low-carbon economy, 
investing in risk mitigation and adaptation measures, and as new 
regulations are introduced to enforce climate-related guidelines--we 
believe ILS will have an even greater role to play in building a more 
climate and disaster-resilient future.
    ILS are already helping emerging economies rebound from disasters 
quicker and enjoy significant governmental support abroad. They enable 
governments and other public entities to manage systemic catastrophe 
risks with an efficient, pre-event approach--rather than an 
inefficient, post-event approach to disaster response. Pre-arranged 
financing with timely, reliable and transparent triggers for funding 
flows, when embedded within broader disaster risk management programs 
aimed at reducing the impact of disasters on local economies and that 
include contingency plans for how communities build back better, can 
significantly increase the efficacy of disaster financing and planning, 
while promoting resilience for the long-run. For example, the World 
Bank has been enabling client countries, such as Chile, Columbia, 
Mexico, Peru and the Philippines, to manage their natural catastrophe 
risks with catastrophe bonds, the best-known type of ILS, since 
2009.[4] These bonds use triggers based upon transparent and objective 
parameters of an event, such as the central pressure of a hurricane, 
that can unlock capital quickly and efficiently when disaster strikes 
to respond to areas in need. The U.K.'s terrorism insurance pool issued 
a terrorism risk catastrophe bond in 2019, with the aim of further 
distancing Her Majesty's Treasury and the U.K. taxpayer from any 
liability in the event of a major claim due to a large terrorism attack 
(or attacks).[5]
    In the U.S., ILS are already a core component of residual homeowner 
insurance programs in states like Florida, Louisiana, North Carolina 
and Texas, ensuring they can pay claims after hurricanes and remain 
solvent to provide coverage for the next year.[6] They are helping 
utility companies in California better manage their wildfire risk and 
reduce the risk for the communities they serve.[7] The Metropolitan 
Transportation Authority (MTA) uses catastrophe bonds to cover storm 
surge losses to the New York City subway system.[8] Catastrophe bonds 
are helping the National Flood Insurance Program (NFIP) ensure it can 
pay claims after flood disasters without additional supplemental 
appropriations from Congress.[9] A hallmark of our market has been 
innovation, and there is no reason why ILS could not be used more 
broadly in public-private partnerships to help communities across the 
nation recover and rebound more quickly from weather catastrophes and 
reduce the need for post-disaster federal outlays.
    As an ILS investment manager, we see first-hand that global 
investors are actively seeking positive Environmental, Social and 
Governance (ESG) investment opportunities that support the United 
Nations Sustainable Development Goals and we believe that ILS are 
inherently aligned with such positive principles. As outlined above, on 
the environmental front, ILS provide a market-based pricing mechanism 
giving an essential signal of the relative benefits of climate risk 
mitigation and adaptation measures to communities, creating a powerful 
feedback loop that aligns incentives for better risk management in the 
long term. On the social front, ILS are already helping to stabilize 
insurance markets, allowing them to support sustainable economic 
activity and reduce the economic impact of disasters on citizens. With 
respect to governance, ILS enable companies and governmental entities 
to manage systemic catastrophe risks with a rational, forward-looking 
approach--rather than an inefficient, after-the-fact approach--with 
significant multiplier effects for economies and society. For these 
reasons, our asset class has received significant attention from 
investors who are increasingly considering these qualities in their 
investments. In short, while the need for insurance capacity is great 
and growing, the capital required to set against this country's most 
pressing extreme weather risks is on stand-by to be deployed.
    To facilitate this, we have the following recommendations to the 
Select Committee:
    1. Congress can take measures to help bring the ILS market onshore, 
which would make it more accessible to private and public entities who 
lack the resources or find it operationally difficult to do business 
offshore yet desire to tap the market. Currently, all catastrophe bonds 
and ILS are issued offshore in jurisdictions that have favorable 
regulatory and tax treatments for the special purpose insurers (SPIs) 
that are used to create and issue these securities. In the U.S., these 
SPIs are classified and therefore taxed at the federal level as 
corporations, making it prohibitively expensive to securitize 
catastrophe risks onshore. Allowing a so-called ``pass-through tax 
status'' for ILS SPIs would remove this impediment and enable ILS to be 
issued onshore. If implemented correctly, such pass-through legislation 
would result in a pure gain in revenue to the federal government. 
Bringing the market onshore would mean municipalities, states and other 
public entities would be freer to cede their risk to the capital 
markets and create programs to manage that risk with an efficient, pre-
event approach. Moreover, such a step would also create jobs in the 
U.S. with valuable know-how in a new and expanding area of financial 
resilience, and generate opportunities in data, science and cutting-
edge technologies in disaster risk mitigation as on-the-ground programs 
are created.
    2. The Federal Emergency Management Agency (FEMA), through the 
NFIP, is already a pioneer in catastrophe bonds. Congress should adopt 
key recommendations on technical assistance from the Select Committee's 
majority staff report, ``Solving the Climate Crisis: The Congressional 
Action Plan for a Clean Energy Economy and a Healthy, Resilient, and 
Just America'', so that entities seeking to access the ILS market--such 
as communities, municipalities and states--can optimally leverage 
existing experience and programs and have access to the expertise they 
need to follow in FEMA's footsteps.
    3. Congress should also adopt pertinent recommendations on 
insurance and innovative risk transfer from the Select Committee's 
majority staff report, ``Solving the Climate Crisis: The Congressional 
Action Plan for a Clean Energy Economy and a Healthy, Resilient, and 
Just America'', including:
           Increasing the role of insurance and innovative 
        finance to support rapid and resilient recovery from disasters.
           Strengthening the NFIP by, among other things, 
        providing community-wide flood insurance.
           Directing FEMA to evaluate and report on the use of 
        innovative risk transfer mechanisms such as parametric 
        insurance and catastrophe bonds to cover assets that are 
        eligible for Stafford Act Category E funds.
    4. Congress should consider legislation to encourage federal 
agencies to work with the private sector to better manage and transfer 
climate risk.
    We believe these steps would significantly reduce the burden of 
catastrophe costs on taxpayers and help accelerate resilient recovery 
in times of disaster, while creating the insurance tools required to 
manage the climate, and other, risks ahead in the 21st century and 
ensuring the nation can finance and support continued economic growth 
in all geographies.
    Thank you for the opportunity to testify today to the House Select 
Committee on the Climate Crisis and I look forward to answering any 
questions you may have.

                              references:
    [1] Reinsurers are companies that insure insurance companies.
    [2] ILS Annual Report 2020, Aon, September 28, 2020. Available at: 
http://thoughtleadership.aonbenfield.com//Documents/
280920_aon_securities_ils_annual_2020_update.pdf
    [3] Alternative Capital and Its Impact on Insurance and Reinsurance 
Markets, Robert P. Hartwig and James Lynch, Insurance Information 
Institute, March 2015. Available online at: https://www.iii.org/sites/
default/files/docs/pdf/paper_alternativecapital_final.pdf. See also: 
ILS: ``Taller'' Than You Might Think, John Seo, presented to the 
Federal Insurance Office, U.S. Department of the Treasury, November 4, 
2015. Available online at: https://home.treasury.gov/system/files/311/
Fermat_Capital_Presentation.pdf
    [4] E.g. see World Bank Catastrophe Bond Provides Financial 
Protection to Mexico for Earthquakes and Named Storms, World Bank, 
March 9, 2020. Available online at: https://www.worldbank.org/en/news/
press-release/2020/03/09/world-bank-catastrophe-bond-provides-
financial-protection-to-mexico-for-earthquakes-and-named-storms
    [5] Placed World's First Terrorism Insurance-Linked Security (ILS) 
of £75m, Pool Re, 2019. Available online at: https://
www.poolre.co.uk/history/placed-worlds-first-terrorism-insurance-
linked-security-ils-of-75m/
    [6] The most recent transaction of this kind was by the Texas 
Windstorm Insurance Association in June 2020, see TWIA's New Alamo Re 
2020 Cat Bond Doubles in Size to $400m, Artemis, June 1, 2020. 
Available at: https://www.artemis.bm/news/twias-new-alamo-re-2020-cat-
bond-doubles-in-size-to-400m/
    [7] E.g. Sempra Energy, see Sempra Energy's SD Re 2020-1 Wildfire 
Cat Bond May Upsize to $90m, Artemis, July 2, 2020. Available at: 
https://www.artemis.bm/news/sempra-energys-sd-re-2020-1-wildfire-cat-
bond-may-upsize-to-90m/
    [8] See New York's MTA Sells Storm Bond: Agency Gets Creative in 
Disaster Planning as Usual Sources of Insurance Dry Up, Wall Street 
Journal, July 31, 2013. Available at: https://www.wsj.com/articles/
SB10001424127887323681904578640401075075198
    [9] More information on NFIP's reinsurance program and catastrophe 
bond issuances can be found online at: https://www.fema.gov/flood-
insurance/work-with-nfip/reinsurance

    Ms. Castor. Thank you very much.
    Mr. Powell, you are recognized for 5 minutes.

                  STATEMENT OF MR. RICH POWELL

    Mr. Powell. Good afternoon, Chair Castor, Ranking Member 
Graves, and members of the committee. I lead ClearPath. We 
advance conservative policies that accelerate clean energy 
innovation across all zero-emission resources. An important 
note, we receive no industry funding.
    We believe this Select Committee plays an important role in 
America's response to the global climate challenge. We commend 
Chair Castor and Ranking Member Graves for holding this 
important hearing on reducing the risks of climate change.
    I plan to cover, first, climate change and its economic 
risks; second, reducing these risks through global emissions 
mitigation and local adaptation; third, the challenges of 
changing developing countries' emissions trajectories; fourth, 
a strategy for America to lead on solving the global climate 
challenge; and fifth, opportunities to build on last Congress' 
bipartisan clean innovation record.
    Climate change is real. Global industrial activity is the 
dominant contributor, and its risks to society merit 
significant action at every level of government and private 
sector. Earlier this month, as we have heard, a CFTC 
subcommittee led by Commissioner Behnam issued a report finding 
climate change could pose systemic risks to the U.S. financial 
system.
    According to NOAA, just 14 extreme weather events in 2018 
caused $93.5 billion in damages. The Wharton Risk Center 
recently found a federally insured, mortgage-backed securities 
account for more than 60 percent of our outstanding mortgage 
debt, tripling to $6.7 trillion since 2000. American taxpayers 
will inevitably foot this bill, subsidizing the risky choices 
of those remaining in harm's way. This system is unsustainable.
    Now, how to respond. To start, we can do much to adapt to 
climate risk with smarter resilience policies. According to 
FEMA, every dollar spent on pre-disaster mitigation saves, on 
average, $4. Louisiana's Coastal Protection and Restoration 
Authority Master Plan, for example, would spend $950 million in 
fiscal year 2021 as part of their 50-year, $50 billion 
resilience and restoration plan.
    On mitigation, the science of climate change is harsh. The 
global atmosphere responds the same way to every ton of 
greenhouse gases. A molecule of CO2 from Birmingham has the 
same effect as one from Beijing. No country can single-handedly 
mitigate global climate risk. And every country must take care, 
lest its policies risk domestic economic damage with little 
climate outside. Or even worse, so-called leakage of their 
energy intensive industries as well, increasing emissions. 
These realities, however, are no excuse for inaction. Rather, 
they simply require us to design U.S. policy responses heed 
toward global emission reduction; a massive innovation 
challenge.
    Let's take a look around the world. Despite tremendous 
progress, India, for example, still has 178 million people 
without reliable electricity. Why? Well, in 2018, the 
International Energy Agency found that when Indians could 
access electricity, it was on average twice as expensive as in 
the U.S. The share of global energy supplied by clean sources 
have barely increased since 2005. In other words, clean 
development is only just keeping up with economic development. 
Clean is not gaining ground. Clean technology systems must come 
to represent better, cheaper alternatives that are reliable 24/
7, 365, so developing nations consistently choose them.
    If America does not provide the world with affordable and 
reliable clean energy, developing countries will continue 
reliance on our adversaries, China and Russia. In addition to 
its major build of new domestic coal, China is financing and 
building nearly 100 gigawatts more in other developing 
countries through Belt and Road, all without carbon capture, 
locking in emissions for decades.
    To meet this challenge, we must greatly increase pace and 
ambition. There are four legs to success. First, we must 
innovate. Major technology demonstrations would prove the 
viability of a portfolio of 24/7 clean technologies at full 
scale, covering everything from grid-scale storage and enhanced 
geothermal to carbon capture and advanced nuclear.
    Second, we must remove unnecessary regulatory hurdles 
needlessly slowing down projects. This includes new source 
review reforms, as Representative Griffith has recommended, and 
the processes around NEPA. Ranking Member Graves' BUILDER Act, 
H.R. 8333, for example, introduced last week, would remove 
barriers and accelerate the deployment of clean energy 
technologies.
    Third, we must build enough of this new technology to bring 
down costs. Smart incentives help innovators learn by doing. 
Delivering the technologies here in the 2020s, the developing 
countries can deploy in the thirties and forties.
    Fourth and finally, we must export the proven technology to 
new clean energy markets. Global energy trends will decline 
when we have products and export support ready for rapidly 
growing countries like Nigeria to buy. No country will use a 
single clean power technology. Every country will need to find 
the right mix, given its national circumstances, resource 
endowments, and preexisting industry.
    We hope policymakers will work towards a bipartisan 
solution based on the principle of more innovation and less 
regulation for clean technologies before the end of this 
Congress. There are a number of House-passed bills that, if 
appropriately combined with pending Senate legislation, will 
create moonshots for E-clean technology. To address climate 
change, we must develop every tool to achieve clean, reliable, 
affordable, and exportable energy.
    Thank you again for this opportunity, and I look forward to 
the discussion.
    [The statement of Mr. Powell follows:]

                     Testimony of Richard J. Powell

                     Executive Director, ClearPath

              House Select Committee on the Climate Crisis

Creating a Climate Resilient America: Strengthening the U.S. Financial 
               System and Expanding Economic Opportunity

    Good afternoon Chair Castor, Ranking Member Graves and members of 
the Committee. My name is Rich Powell, and I am the Executive Director 
of ClearPath.
    ClearPath is a 501(c)3 organization whose mission is to develop and 
advance conservative policies that accelerate clean energy innovation. 
We support solutions that promote a wide array of clean energy 
technologies--including next-generation nuclear, hydropower, fossil 
fuels with carbon capture and grid-scale energy storage. Our core 
mission advocates markets over mandates and bolstering technological 
innovation while easing regulatory bottlenecks. ClearPath provides 
education and analysis to policymakers, collaborates with relevant 
industry partners to inform our independent research and policy 
development, and supports mission-aligned grantees. An important note: 
we receive zero funding from industry.
    We believe this Select Committee plays an important role in 
America's response to the global climate challenge. I commend Chair 
Castor and Ranking Member Graves for holding this important hearing on 
reducing the risks of climate change.
    With this in mind, I will discuss a few topics today to help 
achieve clean, reliable, affordable and exportable energy in the U.S.:
           First, the reality of climate change and its risks 
        to our economy.
           Second, how the nature of these risks call for 
        global emissions mitigation and local climate adaptation.
           Third, the realities and challenges we face on the 
        global level due to the appetite for energy and new industrial 
        activity of developing countries.
           Fourth, a strategy going forward for America to lead 
        on solving the climate challenge.
           Fifth, opportunities to build on last Congress' 
        bipartisan clean innovation record to improve clean energy's 
        competitiveness globally.
1. Climate change risks to the U.S. economy and financial system
    First, the elephant in the room: Climate change is real, industrial 
activity around the globe is the dominant contributor, and the 
challenge it poses to society merits significant action at every level 
of government and the private sector. It is too important to be a 
partisan punching bag. Climate change deserves a pragmatic and 
technology-inclusive agenda to make the global clean energy transition 
cheaper and faster.
    Earlier this month, the Commodity Futures Trading Commission issued 
a report, Managing Climate Risk in the U.S. Financial System, that 
finds climate change could pose systemic risks to the U.S. financial 
system.\1\ While it notes that significant uncertainty remains in the 
climate projections and their potential effects on our financial 
system, it argues that prudent economic management calls for ``err[ing] 
on the side of caution if we are to maintain the relative stability and 
proper functioning of our market economies.''
---------------------------------------------------------------------------
    \1\ Commodity Futures Trading Commission (CFTC), ``Managing Climate 
Risk in the U.S. Financial System'' (Forward, XIX)
---------------------------------------------------------------------------
    For example, analysis from the Risk Center at the Wharton School 
recently demonstrated how the federal mortgage finance system will face 
multiple challenges due to climate risks. According to Wharton, 
mortgage-backed securities insured by the federal government through 
Fannie Mae, Freddie Mac, or FHA/VA programs account for more than 60 
percent of the outstanding residential mortgage debt in the United 
States, totaling $6.7 trillion.\2\ This is up from $2.5 trillion in 
2000.
---------------------------------------------------------------------------
    \2\ Wharton, University of Pennsylvania, ``Can the Federal Mortgage 
Finance System Help Manage Climate Risk?''
---------------------------------------------------------------------------
    According to the National Oceanic and Atmospheric Administration 
(NOAA), this accumulation of financial risk is occuring in the face of 
14 individual weather and climate events doing at least $1 billion in 
damage in 2018, totaling $93.5 billion in total damages.\3\ 
Additionally, a 2017 report by the Inspector General found that only 42 
percent of the Federal Emergency Management Agency's (FEMA) flood maps 
correctly identified flooding risk at this point.
---------------------------------------------------------------------------
    \3\ National Oceanic and Atmospheric Administration, ``Billion-
Dollar Weather and Climate Disasters: Events''
---------------------------------------------------------------------------
    In some jurisdictions prone to flooding, exacerbated by sea level 
rise, private insurers have already largely withdrawn leaving the 
public options--either the National Flood Insurance Program or FEMA 
emergency spending, as an ever growing public liability.\4\
---------------------------------------------------------------------------
    \4\ Amine Ouazad, Matthew E. Kahn, ``Mortgage Finance in the Face 
of Rising Climate Risk''
---------------------------------------------------------------------------
    This trend will likely continue to worsen. As climate-related 
exposure continues to increase, those impacts will be felt in 
securities backed by the federal government, with higher costs passed 
on to Americans as a result. This also subsidizes the risky choices of 
those remaining in harm's way. In other parts of the country, excessive 
regulation of home insurance is leading to unsustainable mandates to 
maintain coverage of fire risk, for example, impeding accurate pricing 
and risking a further withdrawal of private insurers and an inevitable 
demand that more federal dollars subsidize the vulnerable. This system 
is unsustainable.
2. Climate risks call for global emissions mitigation and local 
        adaptation
    The harsh reality of global climate change is that the global 
atmosphere responds the same way to a ton of greenhouse gases 
regardless from where it is emitted. A ton from the United States today 
has an identical effect as a ton from Nigeria, India, Indonesia, and 
China today, or in the years to come. This makes combatting the risks 
from climate change necessarily a global issue. No country can single-
handedly mitigate global climate risk. Indeed, the United States, while 
a major historical contributor, now emits 15 percent of global 
emissions, and our share is dropping as those of rapidly developing 
countries rise.
    This must never be taken as an excuse for inaction. Rather, the key 
to mitigating the risks of global climate change is designing U.S. 
policy responses keyed towards global emissions reductions--a massive 
innovation challenge discussed below. As well, the U.S. must be wary 
not to drive emitting industries across our borders and to other 
jurisdictions in developing countries with cheaper inputs and lax 
environmental controls--a phenomenon known as emissions leakage that 
risks increasing global emissions. Nor should we risk policies that are 
so harmful to our own markets and financial systems that they do more 
harm than good to our economy.
    Even as we pursue a strategy of global climate risk mitigation via 
clean technology diffusion, state and local jurisdictions can do much 
to lessen climate risk with smarter adaptation and resilience policy.
    Since 1980, the United States has spent $1.75 trillion in disaster 
recovery from 258 ``billion-dollar events.'' From 2014 to 2018, the 
United States saw an average of 13 billion-dollar disasters every year. 
This is all deficit spending. If we don't better prepare, we will 
further increase deficit spending. According to FEMA, every $1 spent on 
pre-disaster mitigation saves on average $4.
    The current, tragic wildfires in California, and some of the 
proposed policy responses, present a potential example of how these 
mitigation and adaptation priorities can be conflated and risk doing 
more harm than good. While a global response to climate change will 
eventually reduce the risk of uncontrollable wildfires in California, 
the absolute near-term priority in the state must be on better climate 
resilience and adaptation policy--a huge step up in forest and 
vegetation management--if large portions of the state are to remain 
livable. Calls for tripling down on mitigation policy within 
California's borders as a near-term fire risk reducer, as some have 
suggested,\5\ risk providing citizens with false hope and distracting 
from the essential local task of reducing the massive accumulated fuel 
load ready to burn across the West.
---------------------------------------------------------------------------
    \5\ California Governor Gavin Newsom held a press conference, 
9.11.20
---------------------------------------------------------------------------
    Louisiana's Coastal Protection and Restoration Authority master 
plan is a great example of long-term resilience efforts at the local 
level. In Fiscal Year 2021, they plan to spend more than $950 million 
as part of their 50-year, $50 billion master plan for hurricane surge 
risk reduction and coastal restoration projects.\6\
---------------------------------------------------------------------------
    \6\ Louisiana Coastal Protection and Restoration Authority
---------------------------------------------------------------------------
3. Global energy realities
    To have a debate about climate change rooted in political and 
technical realism, as well as economic competitiveness, we need to 
understand the needs of the rest of the world. Developing countries 
have an insatiable energy appetite.
    As populations and economies grow, they are demanding more and more 
affordable energy options. Let's take a look around the globe--hundreds 
of millions of people in Asia and Africa continue to lack basic 
necessities for human development and public health linked to clean 
electricity, like lights in their hospitals and clean air to breathe. 
India has some of the dirtiest air and one of the largest populations 
without reliable electricity access in the world. Despite tremendous 
progress, India still has 178 million people without reliable 
electricity and is home to 22 of the world's 30 most polluted cities.
    Why does so much of India lack reliable electricity? Ultimately, it 
costs too much. In 2018, the International Energy Agency (IEA) found 
when Indians could access electricity, it was on average twice as 
expensive as in the United States, adjusted for purchasing power. And 
that's for electricity far dirtier than U.S. electricity. In the early 
days of the coronavirus lockdowns, India relied on coal for 72 percent 
of their electricity, while the U.S. was down to 17 percent--and U.S. 
coal plants have far more modern environmental controls. This 
illustrates the significant hurdle we need to achieve on affordability 
and performance for new zero-emissions technologies.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The current energy choices available to developing nations are 
simply not up to the task of rapid global decarbonization. Despite 
significant global renewables deployment, emissions continue to rise. 
The share of global energy supplied by clean sources has barely 
increased since 2005. In other words, clean development is only just 
keeping up with economic development; clean is not gaining ground. 
Clean technology must come to represent a better, cheaper alternative 
that is reliable 24/7/365 so developing nations consistently choose it 
over higher-emitting options. We must remember that developing nations 
are building energy systems, not just individual plants, and must take 
into account the overall system costs of new energy sources. For 
example, a reliable energy system based on variable wind and solar also 
must incorporate the costs of additional transmission to load centers, 
along with either over-build in the generation to account for 
variability given their capacity factors, or short and long duration 
storage to smooth out that variability, or flexible, usually emitting, 
back-up generators which increase emissions. All of these add to the 
costs of a system.
    It's also unlikely that this story will change any time soon unless 
new clean technologies become market competitive. China built new coal 
plants roughly 20 percent the size of the entire U.S. coal fleet last 
year. Despite China's recent net-zero pledge, they continue to 
greenlight dozens of new coal power plants without carbon capture 
today, which will `lock in' emissions for decades to come.\7\ China's 
climate problem is our climate problem, just like their virus problem 
became our virus problem.
---------------------------------------------------------------------------
    \7\ Institute for Energy Economics & Financial Analysis, ``China at 
a Crossroads: Continued Support for Coal Power Erodes Country's Clean 
Energy Leadership''
---------------------------------------------------------------------------
    If America does not provide the rest of the world with affordable 
and reliable clean energy technologies, developing countries will turn 
to our adversaries, partnering with countries like China and Russia, 
who view the spread of their technology as a way to expand their power 
while weakening the United States. In other words, by failing to 
develop affordable clean energy sources of all kinds, we not only fail 
to solve the climate issues at hand but also threaten our own national 
security and geopolitical position.
    China and Russia have gained the upper hand in energy exports by 
leveraging state-owned enterprises to achieve their economic and 
political interests. The aforementioned Belt and Road initiative that 
China is pursuing relies heavily on state-owned enterprises to achieve 
its goals. By project value, as of last October, 70 percent of Belt and 
Road projects were contracted to state-owned enterprises. These state-
owned enterprises seek to achieve the strategic objectives of the 
initiative: to use economics to promote politics and to combine 
politics and economics.\8\ They seek to achieve these objectives with 
more than just financial backing from China. The Chinese government 
offers policy, performance evaluation, and risk management and analysis 
to these companies to make them more effective.
---------------------------------------------------------------------------
    \8\ The Lowy Institute, ``China's Belt and Road Initiative, from 
the inside looking out''
---------------------------------------------------------------------------
    As for Russia, they also utilize state-owned enterprises to achieve 
their goals. Their state-owned nuclear company, Rosatom, reports that 
at least 33 plants are currently planned for development. Whereas the 
United States historically led the world in peaceful and safe nuclear 
technology exports, Russia has attempted to corner the global market, 
positioning themselves as the leading exporter with more than a dozen 
plants currently being built in countries like Turkey, Bangladesh, 
India and Hungary.\9\ China is close behind Russia, having increased 
nuclear exports under the belief that more nuclear energy proliferation 
will make the world more peaceful while also supporting their economic 
goals.\10\
---------------------------------------------------------------------------
    \9\ The Economist, ``Russia leads the world at nuclear-reactor 
exports''
    \10\ Carnegie Endowment for International Peace, ``The Future of 
Nuclear Power in China: Introduction''
---------------------------------------------------------------------------
    We should also note that our global competitors and their state 
owned enterprises (who control roughly 90% of known oil and gas 
reserves) do not fall within the same voluntary corporate governance 
regimes currently being constructed by the growing number of U.S. and 
European investors with an ESG focus. While those regimes can helpfully 
encourage investment in cleaner resources and consideration of the 
physical risks of climate change in business planning, we should take 
care that they do not unduly disadvantage or re-direct investment out 
of higher efficiency, cleaner operating American companies and into the 
hands of their sovereign-owned global competitors who are subjected to 
little environmental scrutiny or regulation. For example, the National 
Energy Technology Laboratory study has found that Russian natural gas 
exported to Europe has lifecycle greenhouse gas emissions over 40% 
higher than U.S. liquified natural exported to Europe. Policies that 
give Gazprom a competitive advantage over U.S. LNG are policies that 
will result in higher global emissions.\11\
---------------------------------------------------------------------------
    \11\ Department of Energy, National Energy Technology Laboratory, 
``Life Cycle Greenhouse Gas Perspective on Exporting Liquefied Natural 
Gas from the United States''
---------------------------------------------------------------------------
    These examples illustrate both the economic potential and the 
pitfalls of inaction present in this debate. The markets America could 
serve are vast, and the trade benefits we can experience are huge, if 
we are the first to develop truly scalable clean energy solutions and 
craft a cohesive plan for international deployment assistance. More 
broadly, continuing an innovation-focused approach to American clean 
energy dominance will cement our geopolitical gains from the shale 
revolution, ensuring we continue as the global energy superpower 
throughout the 21st century.
4. A roadmap to global climate change mitigation
    Given the scale of the climate challenge, we need to greatly 
increase the pace and ambition of our efforts. ClearPath has laid out 
four legs to success.
    First, we must innovate. That means developing clean technologies 
the world wants to buy that give America a competitive advantage. Big 
energy projects can't be done in someone's basement with a small angel 
investor like a new food delivery app. And we must drive progress with 
public investments in close partnership with the private sector, with 
very clear accountability at DOE to produce huge cost and performance 
improvements.
    Second, we must limit excessive regulatory hurdles that needlessly 
slow down clean energy workers. Members of this Committee are 
supporting important reforms to the National Environmental Protection 
Act (NEPA), for example. The efficient permitting of projects is 
essential to effectively using scant taxpayer resources and to scaling 
clean energy deployment rapidly. We can only build clean energy 
technologies and put more energy workers back on the job as fast as we 
can permit the projects.
    Ranking Member Graves' BUILDER Act (H.R. 8333), for example, 
introduced last week, would remove barriers and accelerate the 
deployment of clean energy technologies.
    Third, we must demonstrate how the technology works. Let's work 
with the utility companies and private sector making bold net-zero 
emissions commitments, not against them. Congress is working on 
authorizing bills to cost share federal demonstration programs, 
incentivize demonstrating new technology via tax credits, and smooth 
the regulatory path to deploying these at scale, driving affordability.
    America's largest electric utilities--with more than 22 investor-
owned utilities setting net zero by 2050 goals--include North Carolina-
based Duke Energy and Georgia-based Southern Company, which operates 
the largest grid in the country. According to the Smart Electric Power 
Alliance, 68 percent of all electricity customer accounts in the 
country are now served by a utility with a significant carbon emissions 
reduction goal, and 19 of the 48 companies setting goals are for net-
zero or carbon-free power by 2050.\12\ These electricity producers have 
been virtually uniform in stating that the technology does not exist 
today to achieve these goals affordably and reliably, and that Federal 
policy should focus on identifying and demonstrating affordable, 
flexible clean energy resources like carbon capture, advanced nuclear, 
grid scale storage, geothermal and clean hydrogen--along with carbon 
dioxide removal technologies like direct air capture that could allow 
them to offset any remaining fossil plants' emissions by 2050.
---------------------------------------------------------------------------
    \12\ Smart Electric Power Alliance, ``Utilities' path to a carbon-
free energy system by 2050''
---------------------------------------------------------------------------
    Corporate commitments go well beyond the energy industry. Walmart's 
``Project Gigaton'' is aimed at reducing 1 gigaton of greenhouse gas 
emissions from their supply chain by 2030 and going carbon neutral by 
2040. Microsoft has committed to reducing its emissions to zero--and 
then some--promising to remove all the emissions it has ever created 
over its lifetime. These commitments share a need for bold new 
technology.
    Fourth, we must export the proven technology and create new clean 
energy markets. Everything we are innovating and demonstrating must not 
only have a niche in our own energy sector, but also apply to countries 
like India, Tanzania or Indonesia that are growing exponentially--and 
consider what they would be willing and able to buy from us. In turn, 
we must carefully avoid near-term policies that lock in exclusive 
investments towards immediately available, higher cost resources 
because doing so will divert resources from the solutions that are 
exportable.
    America has several levers to ensure our technology offerings are 
competitive with countries who do not share our interests or values. 
These include engagement with the international community in financing 
like the U.S. International Development Finance Corporation (DFC)--
created by the Better Utilization of Investments Leading to Development 
(BUILD) Act of 2018 from the Overseas Private Investment Corporation 
(OPIC)--and the Export Import Bank, along with bilateral and 
multilateral engagement on clean energy exports and technology transfer 
in forums like the Clean Energy Ministerial.
    For the past decade, the United States has ceded leadership on 
international energy development to China and Russia, threatening the 
climate, our national security and American economic growth. However, 
on July 23, the U.S. took a massive step towards reclaiming our role as 
the primary exporter of vital clean energy technologies by lifting the 
nuclear financing moratorium at the DFC. Financing nuclear projects 
will open the door for U.S. advanced nuclear technologies to lead the 
development of clean energy for emerging economies.
    Similarly, America needs to work to ensure that restrictions on 
clean energy projects do not exist at international organizations we 
participate in like the World Bank. Finally, the continued 
authorization of the Export Import Bank is key to ensuring the export 
of energy technologies internationally.
5. Near-term bipartisan policy opportunities to change global emissions
    The 115th Congress did not receive appropriate credit for boosting 
low-carbon technologies. The broadly bipartisan agenda enhanced 
critical incentives for carbon capture, renewables and advanced 
nuclear. It invested in the U.S. Department of Energy (DOE) research 
and development (R&D) at record levels, and it reformed regulations to 
accelerate the licensing of both advanced nuclear reactors and 
hydropower. The 45Q tax incentive for carbon capture and storage 
technology is a perfect example--it was supported by a vast bipartisan 
coalition from environmental organizations to organized labor to 
utilities to coal companies. Notably, seven national unions recently 
collectively re-emphasized the importance of including carbon capture 
and nuclear in any national clean energy policy. Lastly, the creation 
of the Development Finance Corporation through the BUILD Act greatly 
improved the prospects for American clean technologies internationally.
    This Congress has a great opportunity before you to pass bipartisan 
clean energy innovation legislation. The very bipartisan Senate 
American Energy Innovation Act (S. 2657) may well pass the floor of the 
Senate this week. The Senate bill starts a suite of moonshots for key 
clean innovation technologies we'll need to decarbonize affordably and 
reliably--including 17 major new technology demonstrations by 2025 of 
grid scale storage technologies, enhanced geothermal systems, fossil 
fuels with carbon capture, and advanced nuclear reactors. This could 
set up a potential conference with a number of the bipartisan measures 
either passed out of or under consideration in the House Science, Space 
and Technology committee and the Energy and Commerce committee, such 
as:
           H.R. 2986, the Better Energy Storage Technology Act, 
        which would facilitate the research, development, and 
        demonstration of next-generation grid-scale energy storage 
        systems.
           H.R. 3306, the Nuclear Energy Leadership Act, which 
        would expand nuclear research, development, demonstration, and 
        commercialization efforts at the Department of Energy.
           H.R. 1760, the Advanced Nuclear Fuel Availability 
        Act, which ensures that advanced fuel is available for the next 
        generation of nuclear reactors.
           H.R. 3607, the Fossil Energy Research and 
        Development Act, which would reauthorize and expand fossil 
        energy related R&D and establish an innovative new ``Climate 
        Solutions Challenges'' prize competition at DOE.
           H.R. 4091, the ARPA-E Reauthorization Act of 2019, 
        which would extend and expand ARPA-E support for transformative 
        energy technologies.
           H.R. 4230, the Clean Industrial Technology Act, 
        which would establish an emissions- reduction technology 
        program to reduce industrial sector greenhouse gas emissions.
           H.R. 5374, the Advanced Geothermal Innovation 
        Leadership Act, which would support R&D in advanced geothermal 
        energy resources.
           H.R. 5428, the Grid Modernization Research and 
        Development Act, which would authorize a broad range of R&D 
        activities to enhance the resilience and readiness of the 
        electric grid for a low-carbon future.
           H.R. 6084, the Water Power Research and Development 
        Act, which would provide a program at DOE for the research, 
        development, demonstration, and commercialization of water 
        power technologies.
           H.R. 3597, the Solar Energy Research and Development 
        Act, which would accelerate the next generation of solar energy 
        technologies by expanding DOE efforts to improve the capacity, 
        efficiency, manufacturing, reliability, and affordability of 
        solar energy.
           H.R. 3609, the Wind Energy Research and Development 
        Act, which would extend and expand the wind energy technology, 
        research, development and testing program at DOE.
    We hope policymakers will work towards a bipartisan solution based 
on the principle of more innovation and less regulation for clean 
technologies before the end of this Congress.
    Major, lasting energy and environmental policy has nearly always 
been bipartisan on passage. We believe climate policy that sustainably 
solves the global challenge cannot be done in a partisan manner. 
Bipartisan cooperation on climate change is the only chance our nation 
has if it is going to play a significant role in the global solution.
    To address a massive global challenge like climate change, we must 
develop every tool to achieve clean, reliable, affordable and 
exportable energy. No country will use a single clean power 
technology--every country will need to find the right mix given its 
national circumstances, resource endowments and pre-existing industry.
    Thank you again for this opportunity, and I look forward to the 
discussion.

    Ms. Castor. Thank you very much.
    Ms. Monast, you are recognized for 5 minutes.

                 STATEMENT OF MS. MAGGIE MONAST

    Ms. Monast. Thank you, Chairwoman Castor, Ranking Member 
Graves, and all the members of this committee, for the 
opportunity to provide testimony today. I am honored to share 
with you my perspective on the role of the financial system in 
supporting climate resilient agriculture.
    I am Director of Working Lands for Environmental Defense 
Fund, an international nonprofit environmental organization. My 
EDF colleague, Nat Keohane, participated on the CFTC's Climate-
Related Market Risk Subcommittee. So I would also like to thank 
Commissioner Behnam for his leadership in that process.
    At EDF, we are proud to collaborate with farmers, farmer 
organizations, land grant universities, and businesses 
throughout the supply chain to ensure a sustainable and 
profitable future for U.S agriculture. Our farmer advisory 
board informs all our agriculture work and was instrumental in 
shaping my research into the agricultural financial system.
    Farmers are on the front lines of climate change. In 2020 
alone, we have seen ample evidence of these impacts, including 
destructive storms in the Midwest, hurricanes along our coasts, 
and wildfires and smoke in the West. I have personally 
witnessed the damage while visiting farmers in my home state of 
North Carolina after multiple hurricanes over the past 5 years. 
Despite these challenges, agriculture has a tremendous ability 
to build resilience and be part of climate solutions. However, 
farmers can't do this alone.
    In my research on the financial value and barriers to 
climate resilient agriculture, it became obvious that the role 
of agricultural lenders cannot be ignored. Like any business, a 
farm's success relies on access to finance. Farmers go to 
agricultural lenders for a variety of lending products, 
including loans for land, equipment, and operating expenses. 
Farmer and lender relationships often span many years, and are 
rooted in a shared community.
    Aside from the farmer, him or herself, the agriculture 
lender has the most holistic view of a farmer's financial 
health. However, climate risk remains a blind spot for lenders, 
which creates vulnerabilities for their businesses and for 
farmer clients. Following severe flooding in the spring of 
2019, the Midwest region's agricultural loan portfolio reported 
the highest level of major or severe repayment problems in 20 
years.
    As climate talks continue, a credit-stress agricultural 
lending system could decrease farmers' access to affordable 
credit and increase their difficulty in recovering from severe 
weather events. For small farmers and farmers of color, this 
runs the risk of further worsening historical inequities and 
access to credit.
    While the broader financial sector has made progress in 
assessing climate risk, agricultural lenders are lagging. The 
longer the agriculture finance sector waits to assess and 
address climate risks, the greater the likely severity of 
economic consequences for lenders and their farmer clients.
    In addition to climate risk assessment, we also need 
financial tools that support farmers in their transition to 
practices that build resilience. EDF and many others have 
analyzed farmer budgets showing how climate resilient farming 
practices, like cover crops, no-till, nutrient management, and 
diverse crop rotation, can deliver positive returns on 
investment over the long term in the form of cost reduction, 
more resilient crop yields, and diversified revenue sources. 
They also can improve water quality, reduce greenhouse gas 
emissions, sequester carbon, and support biodiversity.
    However, farmers also face short-term barriers to 
conservation adoption, including costs, risk, and time. 
Agricultural lenders can create loan products that align with 
the financial needs of farmers to adopt practices that improve 
climate resilience. Ultimately, this will benefit both farmers 
and the overall risk of a lender's portfolio.
    So how do we move forward from here? First, we must do 
better in connecting the data on climate resilient agriculture 
with the information needed by farmers, lenders, and crop 
insurers to make decisions and assess risks. Second, we must 
look carefully at the intersection of farmer equity and climate 
resilience in agriculture and finance. And, third, we must spur 
innovation in this area to further the development of financial 
products to support farmers in building resilience.
    A major shift in the agricultural finance sector's approach 
to climate risk and resilience is overdue.
    Thank you very much for this opportunity to testify, and I 
look forward to answering your questions.
    [The statement of Ms. Monast follows:]

                       Testimony of Maggie Monast

                       Director of Working Lands

                       Environmental Defense Fund

                            October 1, 2020

              House Select Committee on the Climate Crisis

    Thank you, Chairwoman Castor, Ranking Member Graves, and all the 
Members of this Committee for the opportunity to provide testimony. I 
am honored to share with you my perspective on the role of the 
financial system in supporting climate resilient agriculture.
    At EDF, we are proud to collaborate with farmers, farmer 
organizations, land grant universities, and companies throughout the 
supply chain to advance climate resilient agriculture. Our farmer 
advisory board informs all our agriculture work and was instrumental in 
shaping my research into the agricultural financial system.
    To start, it's important to note that, like any business, a farm's 
success relies on access to finance. Farmers go to agricultural lenders 
for a variety of lending products, including real estate loans, 
equipment loans and operating loans. Farmer and lender relationships 
often span many years and are rooted in a shared community. Aside from 
the farmer him- or herself, the agricultural lender has the most 
holistic view of a farm's financial health. If our goal is to decrease 
the risk of financial harm to America's agriculture sector caused by 
climate change, the role of agricultural lenders cannot be ignored.
    U.S. agriculture is financed by a few different categories of 
credit providers. The Farm Credit System is a government-sponsored 
enterprise established to enhance the flow of credit to U.S. 
agriculture. Farm Credit accounts for 41% of farm debt and is the 
largest lender for farm real estate.\1\ Commercial banks are the other 
primary category of agricultural lenders, holding slightly more than 
the Farm Credit System with 42% of total farm debt, and the most farm 
operating loans.\2\ This segment includes large, diversified banks, 
financial divisions of major agriculture companies, as well as many 
regional and community banks. Finally, the Farm Service Agency (FSA), 
part of the U.S. Department of Agriculture, issues direct loans to 
farmers who cannot qualify for other sources of credit and guarantees 
the repayment of loans made by other lenders. FSA represents a small 
portion of overall farm debt, but it is also a lender of first 
opportunity because it targets loans or reserves funds for farmers 
defined as ``socially disadvantaged'' due to their race, gender and/or 
ethnicity.\3\
---------------------------------------------------------------------------
    \1\ Monke, Jim. (2018, March 26). Agricultural Credit: Institutions 
and Issues. Congressional Research Service. Retrieved July 2020 from: 
https://fas.org/sgp/crs/misc/RS21977.pdf.
    \2\ Ibid.
    \3\ Ibid.
---------------------------------------------------------------------------
    A proactive approach to managing climate risk includes both climate 
risk assessment by agricultural lending institutions as well as 
programs designed to support farmer adoption of resilient practices. 
There are substantial opportunities for agricultural lenders to support 
their farmer clients in building climate resilience into their farming 
operation. At scale, this would also reduce overall climate risk to the 
agricultural lending sector. It is the combination of these two 
approaches--assessing and mitigating climate risk at the lending 
institution level, while supporting agriculture to become more 
resilient--that will be required to successfully navigate the 
challenges posed to agriculture and agricultural lending institutions 
by climate change.
Climate Risk and Agriculture Financial Markets
    Farmers are on the front lines of a changing climate. The Fourth 
National Climate Assessment, a congressionally mandated report by the 
U.S. Global Change Research Program, describes how increased 
temperatures, more frequent droughts and extreme precipitation events 
threaten crop productivity across the United States.\4\ In 2020 alone, 
we have seen ample evidence of these impacts, including destructive 
storms in the Midwest, hurricanes along the coast, and wildfires and 
smoke in the West. I have personally witnessed the damage while 
visiting farmers in my home state of North Carolina after several 
hurricanes devastated the Coastal Plain agricultural region in the past 
five years. In addition to intensifying natural disasters, farmers must 
also contend with increased variability in temperature and rainfall, as 
well as changes in natural cycles such as pollination and pest 
suppression.\5\ These challenges, compounded by poor economic 
conditions, trade disruptions, and the Covid-19 pandemic have caused 
the farm economy to experience its worst downturn since 2001.\6\
---------------------------------------------------------------------------
    \4\ USGCRP, 2018: Impacts, Risks, and Adaptation in the United 
States: Fourth National Climate Assessment, Volume II [Reidmiller, 
D.R., C.W. Avery, D.R. Easterling, K.E. Kunkel, K.L.M. Lewis, T.K. 
Maycock, and B.C. Stewart (eds.)]. U.S. Global Change Research Program, 
Washington, DC, USA, 1515 pp. doi: 10.7930/NCA4.2018.
    \5\ Ibid.
    \6\ U.S. Department of Agriculture Economic Research Service. 2020 
Farm Sector Income Forecast. (2020, February 05). Retrieved July 2020, 
from https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-
finances/farm-sector-income-forecast/.
---------------------------------------------------------------------------
    A recent report from the Commodity Futures Trading Commission 
(CFTC) Climate-Related Market Risk Subcommittee and my own research at 
EDF make it clear that climate change poses severe risks to both 
farmers and the financial system that finances and insures agriculture 
in the U.S., including agricultural lending and crop insurance. 
However, there are also opportunities for the agricultural sector to 
incorporate farming practices that build resilience, reduce risk and 
provide multiple environmental benefits. This committee underscored 
those opportunities in its Majority Staff Report, Solving the Climate 
Crisis: The Congressional Action Plan for a Clean Energy Economy and a 
Healthy, Resilient, and Just America. Two building blocks of the report 
focus on agricultural lending and crop insurance, offering a valuable 
path forward for Congress on these topics.
    The report released last month by the Commodity Futures Trading 
Commission (CFTC) Climate-Related Market Risk Subcommittee, which 
included input from my EDF colleague Nat Keohane, deftly links the 
physical risks of climate change to financial market risks across the 
U.S. economy. The report has a significant focus on the agriculture 
sector and describes how climate change poses threats to both farmers 
and their finance providers, including agricultural lenders. Nearly 
half of all agricultural loans are held by lenders with at least one-
quarter of their portfolio concentrated in farm-related areas, such as 
operating loans or real estate loans. Many of these lenders also have 
correlated risks because of loan concentrations in particular 
geographies or related agricultural businesses. Following severe 
flooding in the spring of 2019, lenders in the Midwest reported to the 
Federal Reserve Bank of Chicago that 70% of their borrowers were 
moderately or severely affected by extreme weather events. That year, 
the portion of the region's agricultural loan portfolio reported as 
having ``major'' or ``severe'' repayment problems hit the highest level 
in 20 years.\7\
---------------------------------------------------------------------------
    \7\ Climate-Related Market Risk Subcommittee, Market Risk Advisory 
Committee of the U.S. Commodity Futures Trading Commission. (2020). 
``Managing Climate Risk in the U.S. Financial System.'' Retrieved from: 
https://www.cftc.gov/PressRoom/PressReleases/8234-20.
---------------------------------------------------------------------------
    The CFTC Subcommittee report highlighted the possibility that 
climate-related risks may well produce ``sub-systemic'' shocks, which 
are defined as those that affect financial markets or institutions, or 
a particular sector, asset class or region, but without threatening the 
stability of the financial system as a whole. Agriculture, as a sector 
that is particularly vulnerable to climate change, is at risk of sub-
systemic shocks to its financial institutions. A credit-stressed 
agricultural lending system would decrease farmers' access to 
affordable credit and increase the difficulty in recovering from 
climate-related shocks.\8\
---------------------------------------------------------------------------
    \8\ Ibid.
---------------------------------------------------------------------------
    Crop insurance is an important shock absorber for farmers and their 
lenders, but it is not sufficient to protect farmers, lenders or the 
broader agricultural economy from climate risk over the long-term. The 
U.S. Department of Agriculture's Economic Research Service estimates 
that without farmer adaptation to climate change, the cost of the 
Federal Crop Insurance Program could increase by nearly 40% in the 
second half of this century.\9\ The CFTC Subcommittee report notes that 
a key challenge will be the future capacity of the U.S. government to 
provide actuarially sound crop insurance, based on best available data, 
to support changes in underwriting and pricing attributable to climate 
change and natural variability.\10\ In addition, while insurance 
coverage is currently high for the major field crops and 75% of large 
farms participate in Federal Crop Insurance, only 15% of all U.S. farms 
have crop insurance.\11\ This leaves the majority of U.S. farms and 
their production left unprotected by crop insurance and vulnerable to 
weather shocks. This vulnerability can affect the entire value chain, 
including the lenders that finance it.
---------------------------------------------------------------------------
    \9\ Crane-Droesch, Andrew et al. (2019, July). Climate change and 
agricultural risk management into the 21st century. U.S. Department of 
Agriculture Economic Research Service. Retrieved from: https://
www.ers.usda.gov/webdocs/publications/93547/err-266.pdf?v=9932.1.
    \10\ Climate-Related Market Risk Subcommittee, Market Risk Advisory 
Committee of the U.S. Commodity Futures Trading Commission. (2020).
    \11\ U.S. Department of Agriculture Economic Research Service. 
(2017, December). America's Diverse Family Farms. Retrieved from: 
https://www.ers.usda.gov/webdocs/publications/86198/eib-185.pdf.
---------------------------------------------------------------------------
    There are encouraging signs that the broader financial sector is 
moving to address climate risk. A 2019 survey of 20 banks and seven 
other financial institutions found that more than half of major 
financial institutions now take a strategic approach to climate 
risk.\12\ However, research and interviews I conducted with 
agricultural lending institutions indicate that the U.S. agricultural 
lending sector currenting lags in assessing climate risk and 
incorporating it into risk mitigation strategies--as evidenced by 
lenders citing their largest risks as commodity prices, production 
costs, farmland values and global market issues.\13\ Most agricultural 
lenders do not specifically assess climate risk. The longer the 
agricultural lending sector waits to assess and address climate risks, 
the greater the likely severity of economic consequences--for lenders, 
for farmers and for all Americans who rely on our nation's farmers to 
put food on the table.
---------------------------------------------------------------------------
    \12\ GARP Risk Institute. (2019). Climate Risk Management At 
Financial Firms: A good start, but more work to do. Results from a 
global survey. Retrieved from: https://www.garp.org/newmedia/gri/
climate-risk-management-survey/AGoodStart_052919_PDF.pdf.
    \13\ Board of Governors of the Federal Reserve System. (2011, 
October 26). SR 11-14: Supervisory Expectations for Risk Management of 
Agricultural Credit Risk https://www.federalreserve.gov/supervisionreg/
srletters/sr1114.htm.
---------------------------------------------------------------------------
    The CFTC Subcommittee report makes several recommendations that 
would represent substantial steps forward in assessing climate risk to 
agriculture and its financial institutions. These include recommending 
that the research arms of federal financial regulators undertake 
research on the financial implications of climate-related risks, 
including the potential for and implications of climate-related ``sub-
systemic'' shocks in the agriculture sector. The report also recommends 
that relevant federal regulators assess the exposure to and 
implications of climate-related risks for the portfolios and balance 
sheets of the government-sponsored enterprises (GSEs), such as Farm 
Credit, and strongly encourage the GSEs to adopt and implement 
strategies to monitor and manage those risks. Another key 
recommendation is for regulators to work with financial institutions, 
including agricultural and community banks, to pilot climate risk 
stress testing that will enable stakeholders to better understand 
institutions' exposure to climate-related physical and transition 
risks, as well as to explore climate-related financing 
opportunities.\14\
---------------------------------------------------------------------------
    \14\ Climate-Related Market Risk Subcommittee, Market Risk Advisory 
Committee of the U.S. Commodity Futures Trading Commission. (2020).
---------------------------------------------------------------------------
    The CEO of CoBank, which is part of the Farm Credit System, 
recently wrote that ``Concerns about climate change are now a permanent 
part of the operating environment for rural America.'' \15\ 
Agricultural lenders are critical financial institutions in a sector 
that is already experiencing substantial climate impacts. That fact 
should be reflected in risk assessment and management in order to 
prepare for and mitigate financial impacts to lenders and their farmer 
borrowers.
---------------------------------------------------------------------------
    \15\ CoBank. (2019). Rural Industries and Climate Change. Retrieved 
from: https://www.cobank.com/-/media/files/ked/general/rural-
industries-climate-
change.pdf?la=en&hash=234B62A18E2E279D82C84222C1E62DB343E9F816.
---------------------------------------------------------------------------
Opportunities to Finance Resilient Agriculture
    Two approaches are required to successfully navigate the challenges 
posed to agriculture and agricultural lending institutions by climate 
change: assessing and mitigating climate risk at the lending 
institution level and supporting agriculture to become more resilient. 
EDF published a report in September 2020 that addresses both topics, 
titled Financing Resilient Agriculture: How agricultural lenders can 
reduce climate risk and help farmers build resilience. \16\ The report 
was informed by extensive interviews with agricultural lenders and 
other experts, and included major contributions from the AGree Economic 
and Environmental Risk Coalition, agricultural accounting and 
consulting firm KCoe Isom, The Nature Conservancy and Scott Marlow of 
Long Rows Consulting.
---------------------------------------------------------------------------
    \16\ Monast, Maggie. (2020, September). Financing Resilient 
Agriculture: How agricultural lenders can reduce climate risk and help 
farmers build resilience. Retrieved from: https://edf.org/aglending.
---------------------------------------------------------------------------
    While agriculture faces major risks from climate change, it also 
has the capacity to adapt and build resilience to protect long-term 
productivity and profitability. Many well-known conservation practices 
that improve soil health, such as no-till, cover crops and diverse 
rotations, can build resilience. Healthy soils increase the sponginess 
of the soil, allowing it to absorb water during wet periods and retain 
it during dry periods, improving field trafficability and improving the 
resilience of crop yields.\17\ Along with edge-of-field practices such 
as buffers and wetlands, agriculture can also contribute to resilience 
at the watershed scale by holding excess water and reducing the 
magnitude of flooding.\18\ The practices that build soil health also 
have the potential to generate multiple environmental benefits, 
including reduced erosion, improved water quality, reduced water use, 
improved biodiversity, and reduced greenhouse gas emissions and 
improved carbon sequestration.\19\\,\ \20\\,\ \21\\,\ \22\\,\ \23\
---------------------------------------------------------------------------
    \17\ Basche, A.D. and M.S. DeLonge. 2019. Comparing infiltration 
rates in soils managed with conventional and alternative farming 
methods: A meta-analysis. PLOS ONE 14(9):e0215702. doi:10.1371/
journal.pone.0215702.
    \18\ Walters, K.M., Babbar-Sebens, M. (2016). Using climate change 
scenarios to evaluate future effectiveness of potential wetlands in 
mitigating high flows in a Midwestern U.S. watershed. Ecological 
Engineering. pg 80-102. doi: http://dx.doi.org/10.1016/
j.ecoleng.2016.01.014.
    \19\ Hunt, N.D., J.D. Hill and M. Liebman. 2019. Cropping System 
Diversity Effects on Nutrient Discharge, SoilErosion, and Agronomic 
Performance. Environmental Science & Technology 53(3):1344-1352. doi: 
10.1021/acs.est.8b02193.
    \20\ Mhazo, N., P. Chivenge and V. Chaplot. 2016. Tillage impact on 
soil erosion by water: Discrepancies due to climate and soil 
characteristics. Agriculture, Ecosystems & Environment 230:231-241. 
doi: https://doi.org/10.1016/j.agee.2016.04.033.
    \21\ Morton, L.W., J. Hobbs, J.G. Arbuckle and A. Loy. 2015. Upper 
Midwest Climate Variations: Farmer Responses to Excess Water Risks. 
Journal of Environmental Quality 44(3):810-822. doi: 10.2134/
jeq2014.08.0352.
    \22\ Eagle, A.J. and L.P. Olander. 2012. Greenhouse gas mitigation 
with agricultural land management activities in the United States--A 
side-by-side comparison of biophysical potential. Advances in Agronomy 
115:79-179.
    \23\ Kim, N., Zabaloy, M.C., Guan, K., & Villamil, M.B. (2020). Do 
cover crops benefit soil microbiome? A meta-analysis of current 
research. Soil Biology and Biochemistry, 142, 107701.
---------------------------------------------------------------------------
    EDF and many other organizations and universities are collaborating 
with farmers to quantify the financial value of these practices. These 
analyses show that resilient farm management practices support risk 
reduction and farm financial viability by stabilizing crop yields, 
lowering costs of production, diversifying revenue streams and 
preserving the long-term value of the land. Examples include:
           Practices that improve soil health can allow farmers 
        to reduce input costs over time, as biological processes are 
        able to replace some synthetic nutrients, herbicides and 
        pesticides.\24\
---------------------------------------------------------------------------
    \24\ Rob Myers, Alan Weber, and Sami Tellatin. (2019). Cover Crop 
Economics: Opportunities to Improve Your Bottom Line in Row Crops. 
Sustainable Agriculture Research & Education. Retrieved from: https://
www.sare.org/Learning-Center/Bulletins/Cover-Crop-Economics.
---------------------------------------------------------------------------
           No-till has well-documented cost savings in fuel, 
        labor, and equipment due to fewer passes over fields and the 
        ability to invest in less machinery or machinery with lower 
        horsepower.\25\
---------------------------------------------------------------------------
    \25\ Monast, Maggie and KCoe Isom AgKnowledge. (2018). Farm Finance 
and Conservation: How stewardship generates value for farmers, lenders, 
insurers and landowners. Retrieved from: https://edf.org/farm-finance.
---------------------------------------------------------------------------
           Diverse crop rotations and the integration of 
        livestock diversify farm revenue sources and protect farmers 
        from both price and yield swings.\26\
---------------------------------------------------------------------------
    \26\ Roesch-McNally, Gabrielle, Arbuckle, J., and Tyndall, John. 
``Barriers to implementing climate resilient agricultural strategies: 
The case of crop diversification in the U.S. Corn Belt.'' Global 
Environmental Change 48 (2018) 206-215.
---------------------------------------------------------------------------
           Grain farmers who used cover crops for five 
        consecutive years experienced a 3% increase in their corn yield 
        and a 5% increase in soybean yield. In the drought year of 
        2012, farmers reported even greater yield increases when they 
        used cover crops: nearly 10% in corn and 12% in soybeans.\27\
---------------------------------------------------------------------------
    \27\ Rob Myers, Alan Weber, and Sami Tellatin. (2019).
---------------------------------------------------------------------------
    Despite these benefits, farmers still must overcome multiple 
obstacles to adoption. Short-term costs and risks during the transition 
period may be a deterrent, especially in economically challenging 
times.\28\ Common lending practices also create disincentives. Lenders 
often lack information on the farm budget impacts of conservation 
practices and may not be able to assist borrowers in projecting their 
returns. Lenders also typically focus on the short-term repayment of 
the operating loan, which can come at the detriment of long-term 
profitability and financial stability. Finally, loan terms often do not 
align with the transition period needed to adopt conservation practices 
or accord value to them. This disconnect between credit requirements 
and lender practices and the financial transition to farming practices 
that build resilience can prevent farmers from adopting new 
conservation practices.
---------------------------------------------------------------------------
    \28\ Monast, Maggie and KCoe Isom AgKnowledge. (2018).
---------------------------------------------------------------------------
    The agricultural lenders interviewed for the Financing Resilient 
Agriculture report expressed a strong interest in improving their 
understanding of the farm budget impacts of conservation practices. 
Such information can be translated to lender decision-making, lending 
programs and products that better serve farmers who adopt, or want to 
adopt, practices that build resilience. While lenders cannot require 
their clients to adopt specific practices, there are several existing 
examples of lender programs or products that support farmers in 
navigating similar financial barriers or transitions. For example, the 
Farm Credit system has a longstanding history of supporting lending 
programs for young, beginning and small farmers, which often include 
credit enhancements and business counseling to help farmers grow their 
operations.\29\ In addition, Rabobank AgriFinance and Compeer Financial 
recently launched organic transition loans that help bridge the gap 
between a farmer beginning organic practices and when the farm achieves 
organic certification and receives a market premium.\30\\,\ \31\ These 
examples show how lenders can develop new or modified loan programs or 
products that can help farmers navigate transitions to different farm 
management systems. Agricultural lenders could approach farmer 
transitions to more resilient farming practices in the same way.
---------------------------------------------------------------------------
    \29\ Pellett, Nancy. (2007, August 10). Revised Bookletter 040--
Providing Sound and Constructive Credit to Young, Beginning, and Small 
Farmers, Ranchers, and Producers or Harvesters of Aquatic Products. 
Retrieved from: https://ww3.fca.gov/readingrm/Handbook/_layouts/15/
WopiFrame.aspx?sourcedoc=(788991C0-7E8B-43AC-ADB4-
55C500B85A94)&file=BL-040%20REVISED.docx&action=default.
    \30\ Rabo AgriFinance. (2019, October 24). ``Rabo AgriFinance 
Designs Industry's First Organic Transition Loan Offering.'' Retrieved 
from: https://www.raboag.com/news/rabo-agrifinance-designs-industrys-
first-organic-transition-loan-offering-54.
    \31\ Compeer Financial. (2020, February). New Organic Bridge Loan. 
Retrieved from: https://www.compeer.com/Utility/Support/About/Newsroom/
Press-Releases/February-2020/New-Organic-Bridge-Loan.
---------------------------------------------------------------------------
    New lending programs that finance resilient agriculture will 
realign lending structures to better match the needs of farmers who 
adopt practices that improve resilience. Ultimately, this will benefit 
both the farmer and the overall risk of a lender's portfolio. Where 
initial programs and products do not meet current credit standards, 
loan support from partners (e.g. USDA, foundations, food companies, or 
impact investors) can help bridge the gap. The public sector is well 
positioned to de-risk initial programs or collect the data needed to 
allow loans for resilient agricultural practices to stand on their own. 
Ultimately, the objective is to accurately reflect the value of 
resilient agriculture in credit pricing and structures.
Equity Considerations in Financing Resilient Agriculture
    The U.S. Department of Agriculture (USDA) defines socially 
disadvantaged farmers and ranchers (SDFRs) as members of certain racial 
and ethnic minority groups and women. A study of agricultural credit 
services provided to SDFRs conducted by the Government Accountability 
Office in 2019 found that they represented an average of 17% of primary 
producers in the survey, but they accounted for only 8% of total 
agricultural debt.\32\ This demonstrates the challenges that farmers of 
color and women farmers face that restrict their ability to obtain 
private agricultural credit. According to the GAO report, they are more 
likely to operate smaller, lower-revenue farms; have weaker credit 
histories; or lack clear title to their agricultural land, which can 
make it difficult for them to qualify for loans. Farmers of color and 
advocacy groups also report unfair treatment and discrimination in 
lending.\33\
---------------------------------------------------------------------------
    \32\ U.S. Government Accountability Office. (July 2019). 
Agricultural Lending: Information on Credit and Outreach to Socially 
Disadvantaged Farmers and Ranchers is Limited. Retrieved July 2020 from 
https://www.gao.gov/assets/710/700218.pdf.
    \33\ Ibid.
---------------------------------------------------------------------------
    There is a critical intersection between considerations of equity 
and resilience in agriculture and agricultural credit. Due to the 
history of discrimination in access to credit, risk management and 
other services,\34\ the economic impacts of climate change on 
agriculture are likely to fall disproportionately on farmers of color 
and small farmers. There are many opportunities to improve both the 
resilience and equity of agriculture through inclusion of the expertise 
of organizations led by farmers of color, women farmers and small 
farmers. Strengthening support for farmers of color, women farmers and 
small farmers within the agriculture sector can establish paths toward 
long-term prosperity while helping to secure the future of resilient 
food systems.\35\
---------------------------------------------------------------------------
    \34\ Tyler, Shakara S. and Moore, Eddie A. (2013). ``Plight of 
Black Farmers in the Context of USDA Farm Loan Programs: A Research 
Agenda for the Future,'' Professional Agricultural Workers Journal: 
Vol. 1: No. 1, 6. Available at: http://tuspubs.tuskegee.edu/pawj/vol1/
iss1/6.
    \35\ Union of Concerned Scientists and HEAL Food Alliance. (2020). 
Leveling the Fields: Creating Farming Opportunities for Black People, 
Indigenous People, and Other People of Color. Retrieved July 2020 from: 
https://www.ucsusa.org/sites/default/files/2020-06/leveling-the-
fields.pdf.
---------------------------------------------------------------------------
The Path Forward
    Given the increasing severity and frequency of weather events 
projected to continue affecting farmers across the country, a major 
shift in the agricultural lending sector's approach to climate risk and 
resilience is overdue. As farmers' closest financial partners, 
agricultural lenders have a critical role to play in supporting 
climate-resilient agriculture. This role is highlighted in the House 
Select Committee on the Climate Crisis' Majority Staff Report, Solving 
the Climate Crisis: The Congressional Action Plan for a Clean Energy 
Economy and a Healthy, Resilient, and Just America through the building 
block to ``Provide Lending, Credit, and Land Valuation Incentives for 
Improving and Maintaining Soil Health and Carbon Sequestration.'' \36\
---------------------------------------------------------------------------
    \36\ House Select Committee on the Climate Crisis. (2020, June). 
Solving the Climate Crisis: The Congressional Action Plan for a Clean 
Energy Economy and a Healthy, Resilient, and Just America. Page 340. 
Retrieved from: https://climatecrisis.house.gov/sites/
climatecrisis.house.gov/files/Climate%20Crisis%20Action%20Plan.pdf.
---------------------------------------------------------------------------
    We agree with the report's recommendation for Congress to 
incentivize data collection to demonstrate the reduced risk and 
profitability benefits of conservation practices. While many studies 
analyze farmer budgets and other relevant data sources, there is a 
critical need to expand such analysis and connect it to the type of 
information required by agricultural lenders and crop insurers for 
decision-making and risk analysis. An important caution in this area is 
to avoid relying entirely on data sources that exclude small farmers or 
farmers of color. For example, farm management software is much more 
commonly available to and used by large-scale farmers; small farmers 
and farmers of color are not as likely to utilize this technology.\37\
---------------------------------------------------------------------------
    \37\ McDonald, J., Korb, P., Hoppe, R. (2013, August). Farm Size 
and the Organization of U.S. Crop Farming. U.S. Department of 
Agriculture Economic Research Service. Retrieved from: https://
www.ers.usda.gov/webdocs/publications/45108/39359_err152.pdf.
---------------------------------------------------------------------------
    The path forward to demonstrate the reduced risk and profitability 
benefits of resilient agriculture will require methods to assess the 
financial performance and resilience of farms of all types and sizes, 
and an openness to learn from a variety of different operations. This 
will also require clear protections for all farmers in terms of how 
their data will be used and secured. Opportunities to support and 
simplify farm recordkeeping for farms of all sizes would help overall 
farm management as well as the assessment of farming practices that 
build resilience.
    This committee's recommendations related to the Federal Crop 
Insurance Program are also noteworthy. Crop insurance is a trusted risk 
management tool used by many farmers; it is also complex and potential 
changes require careful consideration. Congress has the opportunity to 
work cooperatively with farmers, the U.S. Department of Agriculture's 
Risk Management Agency, and the crop insurance industry to 
systematically assess how climate change is likely to impact farmers 
and how crop insurance can mitigate those risks by incentivizing 
resilience in agriculture.
    Thank you again for the opportunity to testify today and to address 
this important issue. Farmers are already experiencing the impacts of 
climate change, and these risks flow through to the financial system 
that finances and insures agriculture. To address these risks, greater 
efforts must be made both in climate risk assessment and in fostering 
resilient agricultural practices and production systems. Agriculture 
financial institutions have a critical role to play in supporting this 
transition, one that will ultimately benefit farmers, the financial 
system, and the U.S. economy. EDF looks forward to continuing to work 
with you on efforts to build resilience in agriculture.

    Ms. Castor. Thank you very much.
    Now, we will go to members for questions. I will recognize 
myself for the first 5 minutes.
    Dr. Syroka, you testified that the World Bank has been 
helping countries use catastrophe bonds to manage their 
disaster risks for more than 10 years. I think I saw something 
like this in action in Florida following a devastating 
hurricane season where they developed a backstop catastrophe 
fund.
    What steps should Congress take to ensure that cat bonds 
and other innovative solutions are available as an option to 
help U.S. communities, especially those that are vulnerable to 
climate risks? And if you could also address the fact, we don't 
want these to be used to incentivize intense development in 
risky areas either. So what is your view?
    Dr. Syroka. Thank you, Madam Chair. Indeed, these 
instruments are being used around the world, in emerging 
economies in particular, to help economies and communities 
rebound after disasters. The World Bank has been instrumental 
in helping countries tap our market.
    My testimony has several recommendations for Congress to 
consider to be--to enable the same kind of innovation that we 
have seen abroad to happen here in the United States in public-
private partnerships that can--as you--to your point, help 
communities deal with the risks they face.
    One of the first recommendations we have would be to ease--
lower the barriers of access to this market for communities and 
other public entities that would like to tap the market but 
find it operationally difficult or resource prohibitive to go 
offshore to enter into such transactions. And in fact, even 
discuss such transactions. That is an impediment, we believe, 
to more innovation in this space here in the United States.
    The other recommendation we have is, of course, it is why I 
have been talking about the financing parts of these things, a 
lot of expertise and technical assistance is required for 
communities, municipalities, utilities, transportation 
providers, entities that want to tap this market space to 
create programs that they would like to finance using these 
funds.
    There were some great recommendations on technical 
assistance that the Federal Government could consider giving in 
the staff majority report of the Select Committee, which could 
go a long way to help communities understand how they can 
leverage the technologies available there to manage the risks 
they face. And anything that Congress can do to help Federal 
agencies in particular identify, and then quantify, and then 
consider working with the private sector to manage their risks 
could go a long way of encouraging this process to begin.
    You did have a question about incentivizing. Obviously, I 
mentioned in my testimony that our market helps to put a price 
on weather risk and, therefore, on--consequently, on climate 
risk. The way that works at the highest level is, of course, 
imagine a community development or property or infrastructure 
that is well managed; all things being equal, a property that 
is poorly managed shouldn't receive as competitively priced 
insurance range. For instance, an ILS is the best management 
property simply because when a disaster strikes, they will 
experience bigger losses. That is invested in the space. When 
we look at security, these are things we consider in our 
underwriting and investment process, and that is how that 
pricing signal is transmitted.
    Ms. Castor. So for local communities, that means building 
standards, building codes, land use policies?
    Dr. Syroka. Absolutely it would be.
    Ms. Castor. Okay.
    Dr. Syroka. And we--that would begin to establish that 
feedback loop. That is precisely to your point, Madam Chair, 
establishes incentives for better risk management in the long 
run. Having that price of risk allows communities, for example, 
to make more optimal decisions on how the various options they 
have, mitigation, do nothing, ensure the options they have 
before them, they can make optimal decisions on how they 
allocate their limited resources to deal with the problem.
    Ms. Castor. Thank you very much.
    Ms. Monast, you have testified about the importance of 
adopting conservation practices that improve soil health and 
build resilience, and similar to our solving the climate 
crisis, the majority staff report. But EDF has recent reports 
that also identifies barriers to financing resilient 
agriculture. What else should Congress be aware of here as we 
move forward?
    Ms. Monast. I think two things that Congress should be 
aware of, one was noted in your report, the opportunity for 
data collection and coordination to link practices that build 
climate resilience with farm profitability. That would be 
really important for the decisionmaking of farmers, lenders, 
and insurers. And the other policies to spur innovation, to 
spur new products or programs that can help farmers get through 
the transition to more resilient practices.
    Ms. Castor. Great. Thank you very much. We are going to 
work more on this together.
    Ranking Member Graves, you are recognized for 5 minutes.
    Oh, I guess he is not here.
    Okay. We will go to Rep. Bonamici, you are recognized for 5 
minutes.
    Ms. Bonamici. Thank you, Chair Castor. And thank you all 
for your testimony.
    Last summer, I had a chance to visit a place called 46 
North Farm. It is in beautiful classic county in the Pacific 
Northwest outside of Astoria, Oregon. So the farmers there 
don't irrigate their crops. Even during the dry season, they 
work to conserve soil moisture through a variety of management 
strategies, like the use of cover crops that help them access 
water and nutrients in the soil later in the growing season. So 
dry farming practices. They have allowed 46 North to restore a 
significant portion of the land which was previously heavily 
degraded. This is a pretty successful model that could and 
should be scaled up across the country.
    But, Ms. Monast, following up on the chairwoman's question, 
in your testimony, you noted that common lending practices can 
create disincentives for adopting resilient agricultural 
practices like no-till, cover crops, and diverse rotation. So 
can you talk a little bit about what those disincentives are, 
and how Congress can decrease the financial risk for adopting 
climate smart agricultural practices?
    Ms. Monast. Yes. Thank you, Congresswoman. So some of the 
disincentives and common lending practices are, one, just 
lenders not having information on the financial attributes of 
the types of farms that you mention, which often differ from 
conventional farmland. Two is other short-term focus often, 
especially with yearly operating loans that are used with many 
farms, both by repayment and on long-term profitability and 
resilience. And another is that loan terms often don't align 
with that financial transition to help the farmer through.
    As for what Congress can do, I would, you know, point back 
to my previous answer about helping with the data, first of 
all. And, second, focusing on spurring innovation and helping 
to foster those types of products that could better assist the 
kinds of farms that you mention.
    Ms. Bonamici. Great. Thank you so much.
    Moving on to Dr. Syroka. I hope I am pronouncing your name 
correctly. Could you talk about how innovative finance 
practices could support rapid and resilient recovery from 
natural disasters? For example, the wildfires that we are 
seeing currently in Oregon and across the West today. How could 
innovative finance practices help with the recovery, Dr. 
Syroka?
    Dr. Syroka. Thanks for the question. And first off, 
obviously, there are communities today that are suffering 
throughout this country because of wildfires, the hurricanes 
that hit. I pretty much am aware that my testimony today can't 
do anything to help those families that are already suffering, 
and our condolences go to them. I talk about catastrophe risk 
in my testimony, but it is a catastrophe when anyone loses a 
house or a business. But, hopefully, some of the 
recommendations we have can help future disasters as they 
affect communities not have the big economic consequences that 
we are seeing today.
    I think most people agree that traditional disaster relief 
approaches are not as timely and equitable as they could be. 
And often in this situation, the most weakest link in the 
chain, the most vulnerable communities are the ones left 
dealing with the risk alone while resources are mobilized to 
help them. And we know that can take days, weeks, months. And 
in that time, suboptimal decisions are made that can impact an 
individual, a family, a business for a long time in terms of 
their economic advancement and productivity.
    Obviously, if communities knew that if Y happens, they will 
get X and they will do Z, as you say here in America, then 
there is a lot more information that they can rely on to make 
better decisions in the face of crisis. That takes many 
elements, and one of those is force contingency financing, like 
the tools that I mentioned in my testimony. So when a disaster 
strikes, you know the financing is there to help to implement 
your Y and your Z. And that is another critical point though, 
you do need the Y and the Z to really unlock the promise that 
insurance and timely and reliable financing can give you.
    So as I mention in my testimony, disaster--broader disaster 
risk management plans where these tools are embedded in them to 
make sure the financing flows in a timely fashion can 
potentially unlock more desired effects in terms of helping 
communities rebound. If there are plans in place to minimize 
economic negative consequences and even better--build back 
better, and more resiliently to protect communities and the 
economy from future disasters.
    So we have a role to play in facilitating those disaster 
resiliency plans.
    Ms. Bonamici. Thank you so much. And we have a community 
out in Oregon, for example, on the coast that took close to a 
decade to be able to come up with the funding to move their 
schools out of a tsunami inundation zone. And when you think 
about how risky that could have been had there been an 
earthquake, a nearshore tsunami, it would have been disastrous. 
So there is a lot that we can attribute to it. Thank you, 
Doctor.
    I yield back the balance of my time.
    Ms. Castor. Perfect.
    Rep. Levin, you are recognized for 5 minutes.
    Mr. Levin. Thank you, Chair Castor. I appreciate it very 
much.
    Ms. Monast, I wanted to follow up, I am very interested in 
regenerative agriculture. In fact, I saw a movie, a new movie 
on Netflix about it, which even had some scenes filmed in my 
district. So I wanted to ask you about it.
    Clearly, an important piece of mitigating the climate 
crisis, reducing emissions, sequestering more carbon, and 
increasing biodiversity. And in your testimony, you mentioned 
practices associated with it, such as no-till, cover crops, 
diverse rotations, as we have discussed, to build resilience 
and improve soil health.
    So if my colleagues across the aisle were here--I don't 
think any of them are. I think we see Mr. Graves' white board, 
but I don't think he is actually there. But if they were here, 
what would you want to tell them about regenerative agriculture 
and, specifically, what role it would have in making farms more 
resilient to the financial risks associated with the climate 
crisis?
    Ms. Monast. I haven't seen that movie, but my mom thought 
it was fantastic.
    So I think the benefit of this work in agriculture is it 
really is bipartisan and appeals to all sides. These practices 
have multiple benefits, both to the environment and also 
financially for farmers. We have a 20-farmer advisory board--
bipartisan--that advises us on our work. And they really have 
seen that once you get through this initial transition period, 
there are multiple benefits to their soil and to their 
finances. So I think that is the most important thing to focus 
on, and then the enabling environment to allow more farmers to 
build their resilience.
    Mr. Levin. Thank you for that. I highly recommend everybody 
see the movie.
    Ms. Syroka, I wanted to ask you, in your fourth 
recommendation to the committee you say, quote, ``Congress 
should consider legislation to encourage Federal agencies to 
work with the private sector to better manage and transfer 
climate risk,'' end quote. And as I mentioned during our first 
panel, Representative Casten has a great bill to require public 
companies to disclose how they will be impacted by the climate 
crisis and hopefully creating an environment of transparency 
for investors.
    Disclosure is absolutely essential to ensuring investors 
and companies make informed decisions on those investments. 
However, in your recommendation, you specifically mention 
management and transfer of climate risk.
    Ms. Syroka, what policies would you recommend to help 
companies manage and transfer this risk?
    Dr. Syroka. Thank you, Congressman. I mean, the first step 
in managing any risk is to identify it and to quantify it. And 
we have had much discussion earlier on today about policies 
that can help companies do that. But also I believe these are 
steps that should be done within Federal agencies and 
government agencies too. Many--actually, there was some great 
recommendations in the staff--Select Committee's majority staff 
report on encouraging entities, states, and municipalities, 
communities to look at innovative risk transfer to seek or to 
provide technical assistance to these entities so they can 
quantify and identify their risks. There were also other 
recommendations to do risk data availability.
    Those are all the critical steps that are required for 
companies to--for companies to entities to be able to 
understand their risks and then make the optimal decisions in 
how they should be managed. And risk transfer is one of those 
options, but there could also be decisions to mitigate or to 
manage the risk as it is to the extent it cannot be mitigated 
or transferred.
    So I think all the recommendations have been--many of those 
key recommendations have already been made in the staff 
majority's report that I had the pleasure of reading before 
this testimony.
    Mr. Levin. Terrific.
    I want to thank you both for taking the time to speak with 
us. And thanks to all three of you for all the good work that 
you are doing.
    And I yield back.
    Ms. Castor. Okay. Are there any Republican members here on 
standby?
    All right. If not, then, we will go to Rep. Casten, you are 
recognized for 5 minutes.
    Mr. Casten. Thank you, Madam Chair. Thanks to our 
witnesses.
    Ms. Syroka, in your written testimony, you made reference--
and I don't have it right in front of me, so I hope that I am 
getting this right--that there are financial products that 
could allow insurers to hedge risk and then pass that risk that 
insures the hedge risk, and then pass that along to the global 
bond market. Is there a concern that could create some other 
systemic risks either to those bond holders or to, you know, 
borrowers that have completely unrelated lines of debt but are 
drawing on similar liquidity pools?
    Dr. Syroka. That is a great question, and I understand the 
concerns that you may have, given the global financial crisis 
and previous shocks to the financial system. I would say the 
bonds that you are referring to, Congressman, are insurance-
linked securities. My company is an insurance-linked securities 
manager. These bonds are fully funded, i.e., the money required 
to--the maximum these bonds could possibly default has already 
placed its collateral against the risks they are underwriting.
    Investors around the world usually invest through 
specialized agencies, managers like us. And our job is to try 
and identify the risks to these securities, which are very 
specific catastrophe risks. Often, as I mentioned in my 
testimony, insurance industry loss events that stress balance 
sheets the most. And our job is to make sure our investors are 
adequately rewarded for setting capital against those risks.
    I think we can all agree, I think many people understand 
there is a lot of capital in the world seeking a productive 
home, and our market is providing a real economic function by 
supporting the insurance markets here in the United States. 
That is why insurers are tapping our markets, as are 
reinsurers, those are companies that insure insurance 
companies, because they see risks increasing, yet they want to 
continue to provide coverage.
    And our markets and these bonds that we discussed 
essentially allow them to transfer risks from their balance 
sheets, the ones that provided the most concentrated risks from 
the balance sheets so that we can continue writing coverage to 
those areas that need it most. But I should say--[inaudible] 
fully collateralized and not subject to similar blowup risks 
you may experience in other markets.
    Mr. Casten. Well, I am delighted to hear about the 
collateralization. When we have had some folks in the insurance 
sector before us in the past sessions, what several of them 
have noted is that, for the most part, their policies don't 
extend much beyond a year or two. So where does that risk 
reside in the financial system?
    You know, if I am insuring a 30-year mortgage on a coastal 
property, I know I am going to rewrite the policy every year. 
Within the financial sector, where does that risk sit?
    Dr. Syroka. It currently sits with the investors in the 
mortgages. You know, you are right, insurance companies reprice 
every year, in general. They won't have to reprice, though. 
Insurance is a permanent feature of our economy. But those 
prices may well move.
    Our role as a market is to provide--to relieve the pressure 
from the insurance system of these increasing risks because 
they are creating protection gaps and gaps in coverage. And 
they are the ones particular that stress those balance sheets 
the most. So, yes, our market is fully collateralized, and in 
fact, many of the securities in our markets are more than 1 
year; they can be 3 years, up to 5 years, so in terms of 
locking capacity.
    Mr. Casten. If I could--and I am sorry for being quick, but 
I know we are tight on time. My concern is that we have got 
these risks that are going exponential and the holders, our 
brains, tend to think linearly too often.
    Dr. Syroka. Absolutely. And that is why we need to consider 
a new type of finance to deal with these exponentially growing 
risks, and that is tapping into the deeper pockets of the 
capital markets that can manage those risks more effectively 
than rated and regulated balance sheets.
    Mr. Casten. So I have introduced the Climate Change 
Financial Risk Act with Senator Schatz that is specifically to 
direct the Fed to essentially recognize climate as a systemic 
risk. Because I was concerned that there is a--in spite of the 
good work you are doing, there is a gap in markets that time-
dating, and it is going to end up being held ultimately by the 
equity, I suppose, which gets wiped out.
    I have more questions, but with 30 seconds left, I think I 
am out of time, so I will yield back, Madam Chair, rather than 
trying to rush something through. Thank you.
    Ms. Castor. All right. Rep. Huffman, you are recognized for 
5 minutes.
    Mr. Huffman. Thank you, Madam Chair.
    Mr. Powell, thanks for your testimony. I want to thank you 
first for acknowledging that the climate threat is real and 
that we need to address it. And I also appreciate your 
suggestion that we need to address it in a way that keeps us 
globally competitive and doesn't cede influence and leverage to 
some of our geopolitical rivals around the world.
    I think the only thing you and I might disagree with in 
that conversation is that I am guessing you may believe that 
some fossil fuel technologies would qualify as clean energy as 
we try to outcompete our global rivals in that effort, and I 
don't think so. But we can talk a little more about that.
    I am interested in exploring this trope that we hear a lot, 
unfortunately, from some of our colleagues across the aisle. 
Yesterday, for example, in the Natural Resources Committee, 
Congressman Levin had a bill to simply take away some of the 
sweetheart terms that for decades would give the oil and gas 
and coal companies on public lands that give them--make them 
pay a fraction of what they would pay for leases and royalty 
payments on private land or on State land. Simply taking away 
some of these subsidies.
    And whenever we talk about doing something the fossil fuel 
industry doesn't like, we hear this trope that, oh, we are 
going to lose our energy independence and we will have to go on 
bended knee to Putin and the Saudis. Never mind the irony that 
our president is already on bended knee to Putin and the 
Saudis, but the answer to that is more likely in his tax 
returns than in our energy policy.
    But back to what actually creates influence for regimes 
like Russia. Wouldn't it be devastating to Russia's global 
influence if we were to lead the world toward clean energy and 
dramatically reduce dependence on the one thing Russia has, 
fossil fuel?
    Mr. Powell. Well, first, thank you for the question, 
Congressman. Thank you as well for your leadership on these 
issues, including a sponsorship of the SEDA Act and the ARPA-E 
Renewal bill, very important innovation legislation. So thank 
you for all that.
    Just quickly on the point about fossil fuels. I do think it 
is more productive to keep the conversation focused on 
emissions rather than on the fuels. So if we can advance the 
technology in a way that removes the emissions for our fuel 
sources, why wouldn't we continue to use the technology, if, if 
it is----
    Mr. Huffman. Okay. Let's come back to that. Let's come back 
to that because I do have a follow-up about that.
    Mr. Powell. So--and then on your point, sir, so absolutely, 
we need to be focused on developing everything we can that can 
combat Russian and Chinese influence around the world. Both 
countries are using their energy exports very effectively as 
tools of strategic diplomacy. You know, Russia, as you know, 
through the Gazprom system, attempts to build influence in 
Europe to its very leaky gas pipeline system, right----
    Mr. Huffman. Right.
    Mr. Powell [continuing]. Which is much, much--so, you know. 
U.S. LNG exports, for example, into Southern Europe, even with 
all of the energy penalties of the LNG, still have 40 percent 
lower life cycle emissions than pipe gas into Western Europe 
through the Gazprom system. So we can combat that through 
today's technology with LNG. We can combat that through 
tomorrow's technology with LNG combined with CCS power plants, 
or with hydrogen and ammonia production. And, of course, we can 
also combat that with, you know, advanced storage technology or 
advanced nuclear technology.
    Russia, of course, also has significant, probably global 
and leading nuclear exports. That is kind of their virtual 
pipeline network around the country--or around the world in how 
they exert influence. And that is another area where we need to 
push it back.
    Mr. Huffman. Okay. All right. Well, thank you for that.
    So here is the disconnect that I don't quite understand. If 
this is about preventing countries around the world from 
getting hooked on the fuels that some of our geopolitical 
rivals would continue to sell them, why would we not want every 
country around the world to go solar and wind and geothermal 
and embrace the technologies that, first of all, are cheaper 
than these fossil technologies these days, but, second, they 
won't have to be dependent on any other country? Once that 
technology is in place, they are not going to be under anyone's 
thumb. Why wouldn't that be devastating to Russia and to China?
    Mr. Powell. Well, it certainly would be devastating to 
Russia and China if we were to remove their influence from the 
energy markets. Here is the reality, though, today. We have to 
look at the cost of the energy systems that these countries are 
building. And so while the production costs of wind and solar, 
and in some sense, geothermal and hydropower today can be quite 
low, the system costs of building a whole system that produces 
that technology--produces energy from that technology 24/7, 365 
are actually not quite competitive today with a system relying 
purely on subcritical coal.
    So, for example, Pakistan right now, extremely cost-
sensitive, is building a system that is mostly subcritical 
coal, and some wind and solar on top of it. Which is probably 
for them, they don't really care about--well, they are at a 
point in their development trajectory where they are not 
prioritizing low-emission energy. For them, it is the lowest 
cost system that they can put in place. And that is what we 
need to change.
    Mr. Huffman. Right.
    Mr. Powell. We need to have the technology, a flexible 
technology which can replace that subcritical coal power that 
is providing a baseload of flexibility. And perhaps that is a 
grid-scale solar system, perhaps that is a hydrogen power plant 
that uses renewable energy, perhaps that is a hydrogen power 
plant that uses nuclear to produce the clean hydrogen. So there 
are all kinds of options we should be pursuing.
    Mr. Huffman. I appreciate the conversation.
    And I yield back.
    Mr. Powell. Thank you.
    Ms. Castor. Sure thing.
    All right. Congresswoman Brownley, you are recognized for 5 
minutes.
    Ms. Brownley. Thank you, Madam Chair. And for some reason I 
can't find the clock on my screen, so I will try not to exceed 
my time.
    But, Ms. Monast, I wanted to thank you first for being 
here. And I also want to thank you for your help in my office 
where you have been helping us put together a bill that would 
initiate a study into the unique challenges faced by farmers 
who lease or rent lands in terms of being able to participate 
in conservation practices.
    Could you just share a little bit about some of those 
challenges, you know, for our farmers who are wanting to do the 
right thing but are renting or leasing land?
    Ms. Monast. Yes, Congresswoman. And thank you also for your 
collaboration and for your staff's great interest in this 
topic.
    So a high percentage of farmland in the U.S. is rented. I 
think it hovers around 50 percent nationally, but it varies 
depending on where you are, and it can be as high as 70 percent 
in some states. And if you think about it, that kind of splits 
the incentives that we are talking about, because if we are 
talking about building back the soils, managing the long-term 
value of the land, that sits with the landowner, but the person 
who does the farming is the farm operator. And they are often 
the person who incurs the cost, especially if they are on an 
annual cash rent lease.
    So what I hope we are able to explore in collaborating with 
your office is figuring out how to rejoin those incentives so 
that the landowners' interest is better matched with the 
farmers.
    Ms. Brownley. What does a typical lease look like for a 
farmer in terms of longevity in land?
    Ms. Monast. Well, leases can be structured in any number of 
ways, but the predominant formula that I am aware of is annual 
cash rent. Which, you know, it is because it is simple and 
easy, but that also means that the farm operator essentially 
doesn't have a stake in the long-term value of the land.
    Ms. Brownley. Right, right, right. I just, that is 
surprising to me, actually, that if you think of, you know, 
roughly 50 percent and they are on annual lease--anyway, I 
appreciate that.
    I wanted to ask Ms. Syroka a question also. This is--what 
you do is all relatively new to me, but I was just actually 
curious to know that it sounds like the ILS market is, you 
know, has emerged over the last 30 years. It sounds like you 
see it as something that is--can grow exponentially towards in 
the future. But does there come a point where there are--these 
kinds of securities are--get to a place where they are no 
longer attractive to investors because disasters are just 
happening, you know, one on top of another and happening 
regularly? It sounded like you just said earlier that the more 
disasters, the better the market. But can you hit a point of no 
return, I guess, is the question?
    Dr. Syroka. That is a great question. I believe we are a 
long way from that point of no return. And let me explain. The 
reason--the primary reason why investors are attracted to our 
asset class, obviously I mentioned the ESG elements of it in my 
testimony, but, fundamentally, our asset class brings very 
important diversification to their portfolios. Investors 
already highly expose the equity markets to the bond markets. 
They are always seeking alternative investments that can bring 
them some kind of diversity--diversification, and even better, 
in the long run, of course, expected return.
    So far, our market is about 0.1 percent approximately of 
the global bond markets. It is nearly a hundred billion dollars 
in size. It can grow. It can grow quite a long way before it--
the issues you discussed become material for our investors.
    Obviously, I had mentioned in my testimony how the pricing 
can provide a very important signal to those bringing risk to 
the markets in terms how much that cost--that risk costs. And 
our job as an investment manager is to make sure as a 
fiduciary, our investors, are fairly compensated by that risk. 
But the appetite is certainly there.
    And I should say, you know, as--while climate risk in terms 
of temperature obviously is increasing, the reality on the 
ground is there are many different risks, for many different 
businesses, for many different regions in different parts in 
the world. There are opportunities to create portfolios of 
risks for our investors. It is not a one-way bet against 
temperature. There are many things--there are many different 
ways in which people will need to tap our markets in the 
future.
    So, in summary, I think we are a long way before we get to 
that point of no return. And in the meantime, our asset class 
already provides a very important role for market, U.S. market, 
the U.S. insurance markets and stability. And indeed, as risks 
continue to outpace supply, we believe it will grow. And there 
is definitely interest from the investor community to support 
that growth.
    Ms. Brownley. Thank you so much.
    And, Ms. Monast, I want to say just thank you again for 
working with our office on this bill. We really do appreciate 
it.
    And with that, I will yield back, Madam Chair.
    Ms. Castor. Terrific.
    I understand that the ranking member may be on his way 
back. So I will go to Rep. Casten, if you would like to ask 
your question you needed more than 30 seconds for.
    Mr. Casten. Oh, you are very kind. I wanted--this will 
surprise all of you, I wanted to nerd out a little bit with Mr. 
Powell.
    Rich, nice to see you again.
    Mr. Powell. Nice to see you too.
    Mr. Casten. I want to really thank you for raising this 
comment that I think we talk about too little, about removing 
barriers to clean energy. We always talk about creating new 
incentives; we don't talk nearly enough about removing 
barriers. You know, the IMF has said that we have got $650 
billion a year in subsidies to the fossil fuel energy industry, 
which is about the--our defense budget. That is why I recently 
introduced the End Oil and Gas Subsidies Act, to eliminate just 
11 specific provisions in our Tax Code.
    But the point I want to raise with you is that you said a 
couple of times that the energy system costs are what matter, 
and they are not competitive with subcritical coal. There is a 
certain efficient markets hypothesis that is buried in there.
    Would you not agree that in a capital intensive commodity 
industry, that the party who owns the existing capital asset is 
sitting on a massive barrier to entry that keeps--makes it 
harder for other people to enter to sort of participate in an 
efficient market?
    Mr. Powell. Yes.
    Mr. Casten. And would you not also agree that the costs of 
capital--not capital construction, but the weighted average 
cost of capital, equity, and debt--is an awful lot different if 
you are a state-subsidized electric monopoly than if you are a 
scrappy, independent clean energy producer?
    Mr. Powell. Sure. I mean, a regulated entity will have 
closer to public finance, right? And this is also, of course, 
the problem in a lot of the developing world, where you have 
state-owned enterprises like the Chinese sort of state-owned 
coal production and energy generation utilities that are just--
you know, they employ 10 million people, and they are 
completely----
    Mr. Casten. Sure.
    Mr. Powell [continuing]. 1 in 10--1 in 100 work in that 
industry, right?
    Mr. Casten. Sure. And----
    Mr. Powell. And it does lead them to make some decisions 
which are probably not, on their face, economically rational or 
at least not electricity price minimizing, but they might be 
economic value maximizing for that entire economy or value 
chain in China, which, you know, might be why they are making 
those decisions.
    Mr. Casten. So I spent, as you know, 20 years in the energy 
industry. And, you know, I remember what a shock it was when 
regulators actually brokered the idea that Public Service of 
New Hampshire might be allowed to go bankrupt. That was a 
complete shock to the way that utilities thought about it. And, 
of course, in South Africa, you know, when Eskom was facing 
that, it didn't happen.
    So, given that, when you say that clean energy is not 
competitive on an energy system cost perspective with 
subcritical coal, I have a hard time squaring that logic, 
because there ain't nobody building subcritical coal plants 
except for state-subsidized massive utilities. And the kind of 
systems that Mr. Huffman was talking about are essentially 
being built by scrappy, independent producers--you know, people 
putting a solar panel on their home, you know, private 
companies.
    So I think there is a danger when we talk about what is 
competitive. We can stipulate that, if we had a clean sheet of 
paper, technology X, if we built everything from scratch, would 
have a fundamentally lower cost, independent of the cost of 
capital, and then have a totally different question if we said, 
well, what about the incumbent, who already has the existing 
asset, who can squeeze margins a little bit and keep your cost 
of capital down, and effectively has a guarantee against going 
bankrupt. That is going to keep us from getting to the optimal.
    So how should we be thinking in a more honest way about--
how do we make sure that we build a true lowest-cost energy 
system?
    Because between you and me, and I know from our prior 
conversations, the lowest-cost energy system is also the 
cleanest energy system, but there are these massive 
institutional barriers to getting there because of the power of 
incumbency and the distorting power of market subsidization of 
all the subsidies.
    Mr. Powell. So I do think it matters a lot on where you are 
in the world, what the lowest-cost energy system would be. So 
if you are, for example, in Pakistan and you have abundant 
thermal coal that you can either access domestically or in that 
whole, kind of, seaborne, you know, Indian Ocean thermal coal 
region, where you have South Africa, India, and Indonesia all 
competing for ultra low-cost thermal coal shipments, and then 
if you are building--if you were trying to rapidly electrify a 
population, you know, we are not only looking at the costs of 
building the wind and the solar, the geothermal and the hydro; 
we are also looking at the transmission costs, the interconnect 
costs, the backup costs required to level out and firm up that 
power.
    There is actually quite a bit in there, right, in addition 
to just the unit costs for adding the additional wind farm--and 
you know as well as I do, there are two wind projects in upper 
MISO that had to cancel. The wind projects themselves were 
incredibly cost effective, but the new transmission required to 
access that regional transmission organization would have been 
twice the cost of the new wind farms, right? And so----
    Mr. Casten. So I have chewed up my time, and, as I feared, 
this is----
    Mr. Powell. Okay.
    Mr. Casten [continuing]. Going to be too long. But I guess 
I would just make the comment that there isn't an energy market 
in the world that is actually subject to truly competitive 
market forces.
    Mr. Powell. I will agree with that.
    Mr. Casten. And if we don't acknowledge that in the first 
instance, then we get into this, ``well, is something 
competitive on the margin'' that sounds like we are talking 
about capitalist economics but we are not, and we just need to 
be careful of the words.
    I yield back. Thank you so much.
    Ms. Castor. All right. Outstanding.
    Ranking Member Graves, you are recognized for 5 minutes.
    Mr. Graves. Thank you, Madam Chair.
    Madam Chair, in between witnesses or members earlier, you 
mentioned the climate resolution that you had invited us to 
cosponsor. And I do appreciate that.
    Our concern with the resolution is that it actually 
supports or it embraces an agreement that would result in a net 
increase in global emissions. We would support one that would 
result in a decrease in emissions. We think that is better for 
long-term stability and certainty related to risk, which we are 
discussing at this hearing today.
    And so I would be happy to talk with you and all members of 
the committee about a resolution that would actually result in 
global emissions going down, not one that would agree with the 
concept of global emissions going up, as the one referenced 
earlier.
    Mr. Powell, Vanguard recently released an ESG fund that is 
designed to oppose nuclear projects. Don't want to pretend to 
be an expert on nuclear, necessarily, but I do know that nearly 
20 percent of our electricity portfolio is provided through 
nuclear energy. It is an emissions-free energy source.
    Just 2 weeks ago, the Nuclear Regulatory Commission 
approved designs of a small scale nuclear reactor. I don't know 
that I fully appreciate the thought behind that, and just 
wondering if you could shed any light or if you had any 
thoughts there.
    Mr. Powell. Well, first, thanks very much, Congressman 
Graves. Thanks for your leadership on these issues, for your 
introduction of BUILDER last week. To Representative Casten's 
point, it is extremely important to take the regulatory burdens 
out of the way of building new clean energy as rapidly as 
possible, so a very, very important step. Thank you for that.
    This pains me to say as a Vanguard customer, as perhaps 
other folks on this are, but, you know, they have continued 
this troubling push in the ESG market of putting a ban on 
nuclear investments, right alongside--and this is ridiculous--
right alongside, literally, a ban on pornography, tobacco, and 
firearms sales. And so they are sort of lumping, you know, 
nuclear energy in with a bunch of, you know, call them ``sin 
goods,'' if you will, which is, you know, I have to say, I 
mean, quite an outdated notion at this point and, if you are 
climate focused, like I am, you know, I think, pretty bankrupt, 
right?
    So, if you are then looking at saying, well, any company 
that either has very significant nuclear assets, like some of 
the cleanest electric utilities both in the United States and 
around the world, or a new company that is trying to scale up a 
new nuclear reactor technology, that you would then be, you 
know, X'ed out of any ESG financing is a pretty troubling 
notion.
    And it is something that we and many others, I think, have 
pointed to and said--you know, look, the broader framework of 
ESG, all for it. You know, companies taking into account the 
physical risks of climate change, you know, all for it. But 
these very outdated notions which cut against climate change 
and a solution to this problem, that seems just very 
counterproductive.
    Mr. Graves. Because if we lost 20 percent of our portfolio, 
you are likely going to have that filled with emitting sources 
of electricity, and so you would result in greater emissions. I 
don't think you could deploy renewable technologies fast 
enough. And, of course, you would have the affordability issues 
as well. And I know that I heard Mr. Casten expressing concern 
about some of the market distortions from subsidies and things 
along those lines.
    Hey, one other question, Mr. Powell. So, you know, we have 
an abundance of conventional energy in the United States. There 
is no question we do. We have all discussed many times in this 
committee this issue of the exportability of climate change 
solutions, energy solutions.
    Can you talk a little bit about just this resource rich 
conventional fuel sources we have in the United States and the 
role of affordable CCS technologies and how that works in, sort 
of, a global strategy toward energy and climate change?
    Mr. Powell. Sure. Thanks for the question.
    I mean, I think it is fair to say at this point that we 
have nearly infinite natural gas in this country, right, and 
practically infinite coal as well. And so, again, we are very 
focused on the emissions from various sources, not the 
underlying fuel source. And so, if we can find a way to take 
advantage of that extremely low-cost natural gas, for example, 
and use that as a way to displace global emissions, we think 
that that is a very, you know, very straightforward way that 
will continue to build on our energy abundance, continue to 
build our geopolitical opportunity and strategic, sort of, 
dominance in this sector.
    And so, whether that is, you know, using today's 
technologies, exporting liquefied natural gas to the rest of 
the world; eventually putting up CCS gas plants on the other 
end of that so that, when they import the natural gas, they can 
then make clean electricity on site; doing what has been 
proposed in Louisiana with the zero-emission LNG facility that 
would use on-site NET Power units to liquefy that natural gas 
in a zero-emission way, potentially, you know, producing large 
amounts of hydrogen, clean hydrogen, using natural gas steam 
methane reformers with CCS on them. Today, that is the cleanest 
or the cheapest way to make zero-emission hydrogen globally, 
would be the, quote/unquote, ``blue hydrogen'' route.
    So, as long as that is the cost-competitive way to move 
forward on flexible, zero-emission energy systems, I see no 
reason that we wouldn't, you know, continue to leverage that 
abundance we have here.
    Mr. Graves. Thank you.
    Madam Chair, thank you.
    I just--look, I know that the clean-energy future and 
emissions reductions is a goal we all share. I just think we 
have to be really thoughtful about the international 
implications and the affordability and exportability of the 
solution.
    So I thank you and yield back.
    Ms. Castor. I hope we share that vision for the clean 
energy future, because the escalating cost and impacts of the 
climate crisis are upon us.
    But I want to thank our witnesses today--Dr. Syroka, Ms. 
Monast, Mr. Powell--thank our committee members.
    Your testimony was very illuminating.
    So, at this point, I will adjourn the hearing. The hearing 
is adjourned. Thank you.
    [Whereupon, at 3:45 p.m., the committee was adjourned.]

                 United States House of Representatives

                 Select Committee on the Climate Crisis

                       Hearing on October 1, 2020

    ``Creating a Climate Resilient America: Strengthening the U.S. 
         Financial System and Expanding Economic Opportunity''

                        Questions for the Record

                      The Honorable Rostin Behnam

                              Commissioner

                  Commodity Futures Trading Commission

                       the honorable kathy castor
    1. What are the costs to consumers, including public health 
implications, associated with business-as-usual electricity and energy 
policy? How do we maximize the benefits and minimize the costs of a 
transition to a clean energy economy?

    The costs to consumers and the general public resulting from 
business-as-usual electricity and energy policy and the attendant 
climate change are significant. Managing Climate Risk in the U.S. 
Financial System (the ``Report'') \1\ describes negative impacts across 
the economy, including on agriculture and ecosystem services, 
infrastructure, and commercial and residential real estate.\2\ With 
respect to general economic impact, the report notes:

    \1\ Managing Climate Risk in the U.S. Financial System, Report to 
the CFTC's Market Risk Advisory Committee by the Climate-Related Market 
Risk Subcommittee (Sept. 2020), https://www.cftc.gov/About/
AdvisoryCommittees/MarketRiskAdvisory/MRAC_Reports.html (the 
``Report'').
    \2\ Id. at 13-19.

          [T]he latest research suggests that, by the end of this 
        century, the negative impacts on the United States from climate 
        change will amount to about 1.2 percent of annual gross 
        domestic product (GDP) for every 1 degree Celsius increase 
        (Hsiang, et al., 2017). This is roughly the equivalent of 
        wiping out nearly half of average annual GDP growth rates in 
        recent years. There is great uncertainty about how those losses 
        may be distributed across the United States and within any 
        given sector or asset class. But the research suggests that the 
        South, Central and mid-Atlantic regions likely will be more 
        heavily impacted than northern regions.\3\
---------------------------------------------------------------------------
    \3\ Id. at 13.

---------------------------------------------------------------------------
    In particular, the Report explores health implications in depth:

          Human health is significantly exposed to climate-related 
        physical risks. Health impacts from climate change include 
        extreme heat exposure; degraded air quality; infectious, water- 
        and vector-borne diseases; food contamination and declining 
        access to nutritious foods; chronic physical and mental stress; 
        and, physical injuries and mental distress from extreme events 
        (Ebi, et al., 2018). Many of these health impacts and 
        corresponding financial costs have been shown to 
        disproportionately burden low-wage workers and historically 
        marginalized populations (Schmeltz, et al., 2016; Wondmagegn, 
        et al., 2019). Thus, mitigating climate change would reduce 
        economic burdens that amplify economic inequality. For 
        instance, a decline in the use of fossil fuels will improve air 
        quality, which would have a disproportionately positive impact 
        in certain marginalized communities (Bullock, et al., 2018).
          These impacts could also reduce labor capacity and 
        productivity, which in turn could reduce the capacity of 
        workers and employers to pay for healthcare services. Most 
        critically, extreme heat is anticipated to greatly impact human 
        health and lead to greater rates of premature mortality. From 
        extreme heat alone, annual damages from premature death in 2090 
        were projected to be between $60 billion (2015) and $140 
        billion (EPA, 2017). States in the Southeast and Great Plains 
        could see declines in labor capacity approaching 3 percent 
        (Dunne, et al., 2013; Houser, et al., 2015); some locations in 
        Florida and Texas could see a total loss in annual labor hours 
        of 6 percent or more (Gordon, 2014; EPA, 2017). Six percent is 
        the equivalent of losing two weeks of income a year. By 2090, 
        total impacts from extreme heat attributed to climate change 
        could result in more than 2 billion lost labor hours, 
        corresponding to $160 billion (2015) in lost wages (Graff Zivin 
        and Neidell, 2014; Hsiang, et al., 2017; EPA, 2017). Indeed, 
        companies that rely on outdoor and manual labor may face 
        physical risks from declining labor productivity and higher 
        costs associated with workers' compensation, health insurance, 
        and general liability insurance. They may also face pressure to 
        increase wages to attract workers for such physically demanding 
        employment (Day, et al., 2019) . . . .
          Finally, as the COVID-19 pandemic has made clear, healthcare 
        and public health systems in the United States have limited 
        excess capacity to treat patients during extreme events (Bein, 
        et al., 2019). Such events could include, for example, events 
        stemming from infectious diseases and tropical cyclones 
        attributable, in part, to climate change (Wu, et al., 2016). 
        Public health infrastructure in the United States and around 
        the world has been affected by significant reductions of public 
        investment in recent decades (Masters, et al., 2017). Unless 
        this trend is reversed, the U.S. healthcare system may not be 
        able to cope with the burdens from climate-related physical 
        risk. For instance, healthcare facilities, networks and 
        enterprises could face financial challenges associated with the 
        exposure of highly vulnerable and aging populations subject to 
        increasing climate-attributed stresses, such as extreme heat 
        and infectious disease, and shocks, such as stronger hurricanes 
        and wildfires (Desai, et al., 2019).\4\

    \4\ Id. at 17-18.

    To maximize the benefits and minimize the costs of a transition to 
a clean energy economy, we must act swiftly but thoughtfully. The 
---------------------------------------------------------------------------
Report asserts that:

          [T]he longer governments wait to adequately cut emissions, 
        the more rapidly physical and transition risks are likely to 
        increase in parallel. The physical impacts of climate change 
        will intensify while the magnitude of the response needed to 
        arrest further warming grows. The public and private sectors 
        must simultaneously advance both climate mitigation and 
        adaptation to effectively manage both physical and transition 
        risks.\5\

    \5\ Id. at 22.

    2. Please comment on the expected economic impact that would result 
from dramatic action to reduce carbon emissions, relative to the 
alternative of not mitigating carbon emissions. For example, what is 
the expected effect on GDP growth associated with achieving global net-
zero emissions by mid-century, relative to the alternative of 
---------------------------------------------------------------------------
unmitigated global emissions, such as the IPCC RCP8.5 scenario?

    The Report notes that dramatically reducing carbon emissions to 
limit warming to ``well below'' 2 degrees Celsius would ``. . . boost 
total global GDP by 2.5 percent, or 5.3 percent when considering the 
avoided climate-related damages relative to the reference case 
(maintenance of current plans and policies).'' \6\

    \6\ Id. at 104.

    3. In your testimony, you discussed the CFTC MRAC report calls for 
better understanding, quantification, disclosure, and management of 
climate-related risks by financial institutions and other market 
participants. What steps should Congress take to enable the development 
of common metrics and methodologies to support climate risk reporting 
---------------------------------------------------------------------------
and disclosure?

    To enable the development of common metrics and methodologies, the 
Report suggests that:

          Financial regulators, in coordination with the private 
        sector, should support the development of U.S.-appropriate 
        standardized and consistent classification systems or 
        taxonomies for physical and transition risks, exposure, 
        sensitivity, vulnerability, adaptation, and resilience, 
        spanning asset classes and sectors, in order to define core 
        terms supporting the comparison of climate risk data and 
        associated financial products and services. To develop this 
        guidance, the United States should study the establishment of a 
        Standards Developing Organization (SDO) composed of public and 
        private sector members. Recognizing that this guidance will be 
        specific to the United States, this effort should include 
        international engagement in order to ensure coordination across 
        global definitions to the extent practicable.\7\

    \7\ Id. at 70.

    4. In addition to directly addressing climate-related risks to 
financial sector stability, what steps can Congress take to blunt the 
impact of climate-related financial shocks to households and businesses 
with the fewest resources to respond, especially in communities that 
have been historically marginalized and experienced environmental 
---------------------------------------------------------------------------
injustice?

    As I stated in my testimony, the Report recognizes that climate 
change already has placed disproportionate burdens on low-to-moderate 
income households and historically marginalized communities. As a 
result, all of the recommendations and the frame of the entire Report 
consider impacts on low-to-moderate income households and marginalized 
communities. Any policy prescription must not exacerbate existing 
inequitable burdens of climate change. This is absolutely critical in 
ensuring that any future policy does not make the problem worse. One 
approach to blunt the impact of climate-related financial shocks to 
these communities is found in recommendations 8.1 and 8.2 of the 
Report. These recommendations lean heavily on the opportunities that 
emerge from smart climate policy, and from congressional and regulatory 
action to spur investment, innovation and economic productivity.

          Recommendation 8.1: The United States should consider 
        integration of climate risk into fiscal policy, particularly 
        for economic stimulus activities covering infrastructure, 
        disaster relief, or other federal rebuilding. Current and 
        ongoing fiscal policy decisions have implications for climate 
        risk across the financial system.
          Recommendation 8.2: The United States should consolidate and 
        expand government efforts, including loan authorities and co-
        investment programs, that are focused on addressing market 
        failures by catalyzing private sector climate-related 
        investment. This effort could centralize existing clean energy 
        and climate resilience loan authorities and co-investment 
        programs into a coordinated federal umbrella.\8\

    \8\ Id. at 116.

    If carefully crafted with the recognition that climate change has 
posed inequitable burdens, fiscal policy and government programs 
correcting market failures can blunt the impact of climate-related 
financial shocks. More importantly, these steps can spur economic 
growth, job creation, and resilience in the very communities that have 
been historically marginalized and have suffered environmental 
injustice.

                        Questions for the Record

                             Joanna Syroka

             Senior Underwriter and Director of New Markets

                     Fermat Capital Management, LLC

                       the honorable kathy castor
    1. In your testimony, you described how insurance-linked securities 
(ILS), including catastrophe bonds, could be harnessed to accelerate 
resilient recovery from disasters. Could you please elaborate on some 
specific ways that state, local, and other public entities could 
further tap into these ILS resources, and how the U.S. federal 
government could be a helpful partner to make this happen?

    As noted in my testimony, ILS have played an important role in 
stabilizing the national insurance market and lowering property 
insurance costs for individuals and businesses in the United States. 
However, the ILS technology and the inherent benefits of the ILS 
marketplace can be applied more broadly and innovatively than they have 
been to date in the country.
    As illustrated by examples from overseas, ILS can be applied to 
areas where insurance doesn't currently exist and to help local and 
national governments accelerate disaster recovery for their economy and 
for affected communities. While the functions of ILS and traditional 
insurance markets are similar, they differ in one key aspect: while 
traditional insurance tends to target individual policyholders, ILS 
focus on if an event will occur and once it does, payouts can be 
distributed in any way that is necessary for an effective, predictable 
and early response. This opens up a world of new possibilities where 
fully collateralized contingency funds can be rapidly deployed to areas 
and communities in need following a catastrophe. To unlock the full 
value of such contingency funding, it should be paired with contingency 
plans that outline how funds will be programed to facilitate a 
resilient recovery, that not only protects livelihoods in the immediate 
aftermath but that will also help those affected build back better for 
the future.
    Investment in early, predictable responses to communities in 
disaster-prone regions is expected to be more cost-effective than a 
slow and late response that allows a crisis to become acute, and 
evidence from the ground increasingly supports this. For example, in 
Mexico, FONDEN was established in the late 1990s by the Mexican 
government to manage the risk created by natural disasters and to 
support emergency relief operations and the rapid rehabilitation of 
federal and state infrastructure affected by these adverse events. The 
majority of FONDEN funds are spent on the reconstruction of low-income 
housing and public infrastructure after disasters. Facilitated by the 
World Bank, since 2009 FONDEN has been a regular sponsor of catastrophe 
bonds to help finance these response efforts. After nearly a decade and 
a half of operation, results indicate that, in the year following the 
disaster, municipalities with access to rapidly disbursed FONDEN 
disaster funds grew between 2% to 4% more than those without FONDEN.[1] 
Overall, with conservative benefit-cost ratios in the range of 1.5 to 
3, the evidence shows that FONDEN, including the cost of the 
catastrophe bonds it has sponsored, has provided cost-effective 
protection from the public service disruptions caused by natural 
disasters. Other studies have shown similar net positive multiples that 
speak to the overall net positive economic benefit of responding early 
rather than late through insurance-like mechanisms.[2]
    Many applications, pairing contingency planning with insurance-like 
mechanisms to provide contingency financing, can be conceived of in the 
United States at the state, local and public entity level to address 
the needs of vulnerable communities using the data and information 
available today. The U.S. federal government can do much to facilitate 
and encourage such innovation. As mentioned in my written testimony, 
technical assistance for entities that wish to design such new programs 
is a key way in which the federal government can provide support. The 
expertise to create deployable public-private partnerships that can 
effectively leverage the ILS market for the purposes of accelerated 
resilient recovery from disasters exists within the re/insurance and 
ILS markets--including within FEMA that has experience with catastrophe 
bond issuance--and, critically, within public entities and 
international organizations around the world that have pioneered such 
approaches and understand how programs should be designed to unlock the 
promise of timely and reliable disaster funding. Identifying ways in 
which funds of existing or new federal programs could be used to pay 
for such technical expertise, and encouraging their use for such a 
purpose, would be an important step towards transforming the idea of 
effective and timely disaster response using modern financing tools 
into an operational reality here in the United States. The Select 
Committee's majority staff report, ``Solving the Climate Crisis: The 
Congressional Action Plan for a Clean Energy Economy and a Healthy, 
Resilient, and Just America'', has many pertinent recommendations on 
how federal hazard mitigation programs, recovery programs and 
incentives can be aligned and leveraged to this effect.[3]
    While much can be done now with the data that already exists, 
consistent, reliable, high-quality and actionable climate data and 
real-time earth observations are always important to developing better 
risk management and mitigation solutions, including ILS applications 
that respond more quickly and in a more targeted manner to needs. As 
such, the recommendations on actionable climate risk information in the 
Select Committee's majority staff report, ``Solving the Climate Crisis: 
The Congressional Action Plan for a Clean Energy Economy and a Healthy, 
Resilient, and Just America'', are also an important way in which the 
federal government can support innovation to harness the potential of 
ILS markets to accelerate resilient recovery from disasters.[4]

    2. In your testimony, you noted that investors are actively seeking 
Environmental, Social, and Governance (ESG) investment opportunities. 
Could you please describe some of the obstacles to meaningful ESG 
investing, including disagreement over standards and concerns over 
``greenwashing'' ? What are some actions that could be taken to 
overcome these obstacles to ESG?

    At Fermat we believe the ILS asset class is inherently aligned with 
positive ESG principles, which makes it somewhat different to other, 
more traditional assets classes such as equities and bonds where 
investors are either owners of, or lenders to, companies. As a result, 
we have experienced an uptick in investor interest in the asset class 
in recent years and seen an increased number of ESG-related requests 
for information.
    As an investment manager, we obviously value accurate, pertinent 
and informative disclosures. At Fermat, we prioritize the analysis of 
the risk disclosures in ILS submissions in our underwriting and 
investment process. As one of the main risks underpinning investments 
in the ILS sector is weather risk, quantifying physical climate-related 
risks to ILS is a core component of the ILS underwriting and investment 
process. For this reason, environmental considerations--the E of ESG--
are closely linked with ILS. For example, every U.S. hurricane 
catastrophe bond indicates the risk of the bond both with and without 
the impact of factors such as elevated sea surface temperature to 
assess the possible effects of climate change on hurricane activity.[5] 
These types of analyses and different views allow investors to evaluate 
the sensitivity of specific ILS transactions and their portfolios to 
potential climate-related changes to hurricane activity. Risk 
disclosures, that provide transparent and appropriate data, risk 
modelling and sensitivity analyses helpful for establishing a 
reasonable bound on the risk of an ILS investment for the risk period 
in question, are welcome in our market. Looking forward, as our market 
grows, such high-quality disclosures will be even more important. They 
will help investors overcome climate change concerns with respect to 
deploying more capital to the sector and they will help the market 
establish an appropriate price--and provide that critical market 
indication--to ILS sponsors for the risks they cede.
    Weather-related risk disclosures in general are standard in the ILS 
market, as ILS investments specifically target these risks, helping ILS 
sponsors manage the consequences of risk events when they occur. Such 
disclosures, however, are not standard in other financial markets. 
Given the increasing interest in the impact of weather and climate 
change on organizations and their operations, there is much know-how 
within our market that can be applied to quantifying such risks for 
companies, and other private and public entities. As more organizations 
begin to identify, quantify and then disclose their weather and climate 
risks, we believe the ILS market is also well positioned to help these 
entities manage their financial impact.
    Speaking more broadly, as an investment manager we observe that 
many other investment managers are committed to ESG principles and 
increasingly perceive them as imperative inputs into their investment 
decision-making process. They are very aware of the risk of 
``greenwashing'' and actively seek to avoid such investments and the 
negative reputational risk associated with them. We believe the main 
obstacle for ESG-oriented investors, therefore, is further transparency 
from companies on ESG issues.

                               references
    [1] Source: de Janvry, A., et al., ``Insuring Growth: The Impact of 
Disaster Funds on Economic Reconstruction in Mexico'', June 2016, World 
Bank, Washington DC. Available online at: https://
openknowledge.worldbank.org/bitstream/handle/10986/24631/
Insuring0growt0nstruction0in0Mexico.pdf?sequence=1&isAllowed=y.
    [2] Clarke, D. J., and R. Vargas Hill, ``Cost-Benefit Analysis of 
the African Risk Capacity Facility'', Discussion Paper 01292, September 
2013, International Food Policy Research Institute, Washington DC. 
Available online at: https://ebrary.ifpri.org/digital/collection/
p15738coll2/id/127813.
    [3] In particular, see the Reduce Climate Disaster Risk and Costs 
(p390) and Accelerate Resilient Disaster Recovery (p401) sections of 
the Select Committee's majority staff report, ``Solving the Climate 
Crisis: The Congressional Action Plan for a Clean Energy Economy and a 
Healthy, Resilient, and Just America''. Available online at: https://
climatecrisis.house.gov/report.
    [4] See the Develop and Deploy Actional Climate Risk Information 
section (p374) of the Select Committee's majority staff report, 
``Solving the Climate Crisis: The Congressional Action Plan for a Clean 
Energy Economy and a Healthy, Resilient, and Just America''. Available 
online at: https://climatecrisis.house.gov/report.
    [5] The IPCC's most recent AR5 report states it is very likely that 
anthropogenic forcings have made a substantial contribution to 
increases in global upper ocean heat content, and hence SSTs, observed 
since the 1970s. Source: ``Fifth Assessment Report of the United 
Nations Intergovernmental Panel on Climate Change'', 2014, 
Intergovernmental Panel on Climate Change. Available online at: https:/
/www.ipcc.ch/assessment-report/ar5/.

                        Questions for the Record

                             Maggie Monast

                       Director of Working Lands

                       Environmental Defense Fund

                       the honorable kathy castor
    1. In your testimony, you noted the importance of adopting 
conservation practices that improve soil health and build resilience. 
EDF's recent report also identifies barriers to financing resilient 
agriculture. What are the barriers to loan products that are aligned 
with resilient farming practices? What would a loan product that 
supports resilience look like?

    Environmental Defense Fund (EDF) and multiple other organizations 
are working to quantify the farm budget impacts of conservation 
practices that build resilience. When evaluated as a multi-year 
investment, resilient agricultural practices such as no-till, cover 
crops, and extended crop rotations can generate significant financial 
benefits to farming operations in the form of cost savings, resilient 
crop yields, and diverse income streams. While some costs increase, in 
many cases they can be offset by other cost savings and yield 
benefits.\i\ When farmers are able to attract additional revenue, the 
financial case is even stronger. However, despite the long-term 
benefits, the transition period may deter many farmers from adopting 
these practices--especially in economically challenging times.
    The financial challenges farmers face in the transition to adopting 
more resilient practices are made more difficult due to the fact that 
farm loan products do not explicitly incorporate the value of resilient 
agriculture or support farmers through the transition.\ii\ There are 
several ways in which current loan offerings do not align with the 
financial attributes of resilient farming practices, and therefore 
create challenges for farmer clients that use or are considering 
adopting more resilient practices:
           Information gaps: First, there is less data 
        available to lenders on the return proposition of resilient 
        practices than conventional farming practices, and many lenders 
        are unaware of the data that does exist. This information gap 
        disadvantages both farmers and lenders in developing reasonable 
        projections of the financial impacts of the transition to 
        resilient practices. Continued efforts to create locally 
        relevant analyses of the finances of farms that use resilient 
        practices can help fill that gap, as can lender efforts to 
        educate themselves on the information that is available.
           Short-term focus: The annual nature of many crop 
        cycles and associated business practices, including annual 
        operating loans, compels farmers and their financial partners 
        to focus on short-term cash flow rather than longer-term 
        profitability and value.\iii\ This has the potential to create 
        significant blind spots. For example, soil degradation or 
        mining for nutrients can produce high yields in the short term, 
        but over the long term such practices undermine crop 
        productivity and the value of the land asset.\iv\ Similarly, 
        excess water consumption for irrigation can lead to future 
        water scarcity and the risk of crop failure.\v\ Last, extended 
        crop rotations may also cause variability in revenue in the 
        short term, but greater stability over the long term.\vi\ With 
        risk and loan assessment conducted on a single-year basis, 
        short-term risk is given more weight than long-term 
        stability.\vii\ If success is only defined as the farmer's 
        ability to repay his or her annual operating loan, farmers and 
        lenders will miss opportunities to reduce risk and maximize 
        long-term profitability.
           Loan terms do not value resilience: While farmers 
        who use crop insurance are able to access significantly better 
        loan terms, farmers who utilize a production-system risk 
        reduction strategy receive little or no benefits.\viii\ In 
        addition, lenders do not provide short-term accommodations in 
        loan terms for farmers who are transitioning to more resilient 
        practices. Some lenders contend that if farmers increase their 
        financial health and stability by using resilient practices, 
        ultimately their lending terms will improve along with the 
        farm's improved financial performance. However, this is a 
        lagging indicator and does not support farmers in navigating 
        the transition so that they can arrive at the better outcome. 
        Farmers face an additional barrier to conservation adoption 
        when they cannot partner with their lenders to plan for the 
        transition period and take a multi-year view of conservation 
        investments.
    Agricultural lenders in the U.S. do not currently collect financial 
data specific to resilient practices, incorporate the risk-reduction 
potential of resilient farming practices into their risk ratings, or 
design programs or products to support farmers in managing the 
transition to practices that improve resilience. Some in the lending 
sector may ask why such changes are needed, when many farmers currently 
finance their conservation expenses with existing loan products. While 
this is true, it is also true that existing products were developed 
with conventional farming practices in mind and are not designed to 
support farmers in overcoming the unique financial characteristics of 
the adoption of resilient farming practices. As such, this places the 
onus of navigating the existing loan products and structures on the 
farmer who desires to increase resilience. This disconnect creates a 
structural disincentive to change, and contributes to persistently low 
conservation adoption levels. Ultimately, this results in sub-optimal 
outcomes both for farmers and for lenders seeking the best risk-
adjusted return.
    On the other hand, there are market opportunities for lenders who 
engage with their farmer clients who are interested in resilient 
practices and seek to meet their needs. There are several examples of 
existing lender initiatives and programs that can inform efforts to 
develop programming or products that support farmer adoption of 
resilient farming practices. These include programs for Young, 
Beginning and Small Farmers \ix\ and recently launched organic 
transition loans.\x\
    Loan products that support resilience should be designed using the 
following five lessons, identified by EDF through extensive interviews 
with agricultural lenders and other experts:
           Lesson 1: Understand the financial benefits of and 
        barriers to resilient agricultural practices. Lenders should 
        understand the benefits of resilient agriculture so that they 
        can effectively serve their current borrowers and don't let 
        unfamiliarity with conservation practices discourage farmers or 
        increase barriers to lending. Lenders should also improve their 
        understanding of the return profile of transitions to resilient 
        agriculture, including the benefits, barriers, and the 
        transition timeframe in order to identify farmer needs or 
        market gaps that could be addressed with new or modified loan 
        products. Agricultural lenders do not currently collect 
        information from farmer clients that gives them the level of 
        detail needed to assess this, but organizations working to 
        quantify the financial impact of conservation adoption on farm 
        budgets can provide useful information on the type and 
        magnitude of potential costs, savings and crop yield impacts. 
        Lenders can collaborate with those organizations to provide 
        feedback on the type of information needed to inform their 
        decision-making.
           Lesson 2: Design loan structures and requirements to 
        correspond with the financial characteristics of the resilient 
        practice(s). Lenders may select a subset of resilient farming 
        practices particularly suited to their region or desired by 
        local farmers. Based on their understanding of the financial 
        shift that is taking place (e.g. any upfront costs or yield 
        impacts, how cost savings and yield benefits occur over time), 
        they should consider how to shift the requirements of the loan 
        to accommodate those expected changes. For example, lenders 
        could consider modifying the length of the loan or utilizing a 
        longer planning horizon with streamlined loan renewals, 
        relaxing some credit standards in the first few years of the 
        transition, or reducing the interest rate to encourage farmer 
        uptake.
           Lesson 3: Loan support may be needed to launch 
        initial products and should be used to prove the financial 
        case. If it is difficult to make a loan product acceptable for 
        the lender and meet the needs of the farmer at the outset due 
        to insufficient data on the return proposition, then loan 
        support can be used to bridge the gap. Loan support is when a 
        partner (corporate partner, investor, philanthropic or public 
        source) provides additional financial risk-sharing to make the 
        overall loan package work for both the lender and the farmer. 
        An important role for loan support is to create examples and 
        track records to build on, and to support data collection in a 
        product pilot phase in order to prove the financial hypothesis 
        for the product to stand on its own. Loan support can take many 
        different forms, including production contracts, loan 
        guarantees, subordinated debt, and more.
           Lesson 4: Collect data on financial and 
        environmental performance to show results, fine-tune loans and 
        adjust credit rating processes. While external financial 
        support may be necessary to launch new or modified loan 
        programs for resilient agriculture, such support should be 
        utilized to test a loan product that can ultimately stand on 
        its own from a financial standpoint. For this to occur, data 
        collection on both the financial and environmental performance 
        of the farm and the loan is essential. This is another area 
        where collaboration can prove useful to the lender, whether it 
        is with an environmental or agricultural organization that can 
        advise on appropriate environmental metrics, or an agriculture 
        technology provider that can assist in data collection and 
        analysis. This data can enable a positive feedback loop for 
        continuous improvement, both for individual farmers as well as 
        the lenders' overall view of its portfolio and products. As 
        lenders build a knowledgebase from empirical data around 
        resilient practices and results, they can modify credit rating 
        processes to incorporate this data. Ultimately, the objective 
        is to accurately demonstrate the value of resilient farming 
        practices and integrate these results into lender policies and 
        pricing for farmers who implement practices that build 
        resilience in their operations.
           Lesson 5: Consider other forms of support farmers 
        may need to ensure successful practice adoption--and avoid 
        creating new burdens. Additional support could take the form of 
        financial arrangements, such as grain offtake agreements or 
        cost-share for conservation expenses, or educational support, 
        such as agronomic advice on how to incorporate new practices 
        into farms' existing management systems. Some of these forms of 
        support can be offered by lenders, while others may need to be 
        part of a broader program with partners. For example, while 
        some degree of trial and error will nearly always be required 
        to integrate new practices to a farming operation, technical 
        assistance and education can support farmers in moving up the 
        learning curve. In addition, creating a financial plan for the 
        transition can help both parties set realistic expectations and 
        then continue to check in on whether changes to the farm's 
        finances are occurring as planned. Finally, for a new or 
        modified lending product to be used, it should avoid creating 
        burdensome new requirements for farmers and should have terms 
        that are competitive with other offerings in the market.
    More information on these barriers and opportunities can be found 
in EDF's report, Financing Resilient Agriculture: How agricultural 
lenders can reduce climate risk and help farmers build resilience.

    2. Your testimony noted the gaps in information and data as a 
barrier to financing resilient agriculture. What should Congress do to 
bridge data gaps, and how can federal agencies like USDA do a better 
job coordinating their data collection and delivery to guide climate-
smart finance in the agricultural sector?

    We agree with the House Select Committee on the Climate Crisis' 
Majority Staff Report, Solving the Climate Crisis, on its 
recommendation for Congress to incentivize standardized data collection 
to demonstrate the reduced risk and profitability benefits of 
conservation practices. While many studies analyze farmer budgets and 
other relevant data sources, there is a critical need to expand such 
analysis and connect it to the type of information required by 
agricultural lenders and crop insurers for decision-making and risk 
analysis. For example, farm-level data on conservation practice 
adoption, costs and profitability, crop yields and weather risk are all 
needed to better understand the financial benefits and barriers of 
resilient agriculture. However, numerous disparate systems (e.g., on-
farm equipment vs. satellites) generate these data in non-standardized 
formats (e.g., survey, census, transactional records, market prices). 
Further, the data are managed by different government agencies, 
universities, and private firms, who each have their own standards, 
definitions, and privacy guidelines. In many cases, researchers need 
permission and a pathway to access, interpret, and integrate disparate 
data from multiple systems.\xi\
    Environmental Defense Fund is a member of the AGree Economic and 
Environmental Risk Coalition, which includes researchers, academics, 
producers, former officers of the U.S. Department of Agriculture 
(USDA), and non-profit environmental and agricultural 
organizations.\xii\ The AGree Coalition has found that increased 
integration and analysis of USDA's vast resource of agricultural data 
is a proven strategy for delivering key research insights needed to 
advance innovation in the food and agriculture sector. USDA has several 
opportunities to act to improve data innovation and research, both 
internally at the agency and externally with partners, but has not 
moved quickly without Congressional direction and support.
    USDA has started this work by creating a system of internal data 
dashboards for USDA Mission Areas. This shared, internal USDA platform 
makes data available across office leadership to inform decision-
making. This system has increased USDA's capacity to generate important 
insights, developed through analysis of robust data sets, across the 
agency. We ask that Congress support USDA to continue this work and 
extend it to all Mission Areas across the agency. Congress should 
encourage USDA to expand the scope of these data dashboards to 
incorporate more types of data for the purposes of research, in 
addition to organizational decision-making.
    USDA can also support new and innovative research by land-grant 
universities using the agricultural data it collects. Section 1619 of 
the 2008 Farm Bill allows the sharing of USDA agricultural data with 
land grant institutions for the purposes of technical assistance. 
Congress should direct USDA to immediately begin establishing 
agreements with researchers to answer key research questions related to 
the agency's production and environmental goals. This expanded research 
capacity will help to create the strong scientific basis to drive 
innovation forward. These innovations in data sharing and analysis can 
be executed in a way that prioritizes data security and protects 
producers' personally identifiable information.
    There are also opportunities to spur public-private collaboration 
in data interoperability--including data standardization and 
aggregation at scale, and crosscutting analyses that can deliver 
insights that each disparate set of data cannot on its own. For 
example, data collected by agricultural technology companies can be 
integrated with public data sources to enhance the decision-making of 
farmers, agricultural lenders, crop insurers, policymakers, and other 
key stakeholders. This broader data set could be analyzed by a publicly 
available analytics platform that could generate the same insights that 
private software providers offer behind pay walls.
    An important point of caution in this area is to avoid relying 
entirely on data sources that exclude small farmers and farmers of 
color. For example, farm management software solutions are more 
commonly available to and used by large-scale farmers; small farmers 
and farmers of color are not as likely to utilize this 
technology.\xiii\ The path forward to demonstrate the reduced risk and 
profitability benefits of resilient agriculture will require methods to 
assess the financial performance and resilience of farms of all types 
and sizes, and an openness to learn from a variety of different 
operations. An important role for Congress and the Administration is to 
support the advancement of data-driven decision-making capabilities 
that are critical to understanding and planning for climate resilient 
agriculture, in ways that are inclusive of the needs and expertise of 
small farmers and farmers of color.
    There is a well-recognized need to establish and quantify risk and 
conservation practices at scale and incorporate them into policy, 
insurance, lending, and conservation programs.\xiv\ The advances in 
data coordination and analysis described above would represent 
important progress towards equipping researchers, government agencies 
and the private sector to do so.
                               references
    \i\ Monast, Maggie and KCoe Isom AgKnowledge. (2018). Farm Finance 
and Conservation: How stewardship generates value for farmers, lenders, 
insurers and landowners. Retrieved from: https://edf.org/farm-finance.
    \ii\ Monast, Maggie. (2020). Financing Resilient Agriculture: How 
agricultural lenders can reduce climate risk and help farmers build 
resilience. Retrieved from: https://edf.org/aglending.
    \iii\ Personal communication, agricultural lender PD, October 2019.
    \iv\ Eswaran, H., R. Lal and P.F. Reich. 2001. Land degradation: an 
overview. In: Bridges, E.M., I.D. Hannam, L.R. Oldeman, F.W.T. Pening 
de Vries, S.J. Scherr, and S. Sompatpanit (eds.). Responses to Land 
Degradation. Proc. 2nd. International Conference on Land Degradation 
and Desertification, Khon Kaen, Thailand. Oxford Press, New Delhi, 
India. Accessed at: https://www.nrcs.usda.gov/wps/portal/nrcs/detail/
soils/use/?cid=nrcs142p2_054028.
    \v\ Council for Agricultural Science and Technology (CAST). (2019). 
Aquifer Depletion and Potential Impacts on Long-term Irrigated 
Agricultural Productivity. Issue Paper 63. CAST, Ames, Iowa. Retrieved 
from https://www.cast-science.org/wp-content/uploads/2019/02/CAST-IP63-
Aquifer-Depletion.pdf.
    \vi\ Bowles et al. Long-Term Evidence Shows that Crop-Rotation 
Diversification Increases Agricultural Resilience to Adverse Growing 
Conditions in North America. One Earth 2, 284-293, March 20, 2020.
    \vii\ Personal communication, Scott Marlow, Long Rows Consulting. 
July 2020.
    \viii\ Woodard, J. & Marlow, S. (2017, April). Crop Insurance, 
Credit, and Conservation. The AGree Economic and Environmental Risk 
Coalition. Retrieved From: https://foodandagpolicy.org/wp-content/
uploads/sites/4/2019/09/2017-April-Crop-Insurance-Credit-and-
Conservation.pdf.
    \ix\ Pellett, Nancy. (2007, August 10). Revised Bookletter 040--
Providing Sound and Constructive Credit to Young, Beginning, and Small 
Farmers, Ranchers, and Producers or Harvesters of Aquatic Products. 
Retrieved from: https://ww3.fca.gov/readingrm/Handbook/_layouts/15/
WopiFrame.aspx?sourcedoc=(788991C0-7E8B-43AC-ADB4-
55C500B85A94)&file=BL-040%20REVISED.docx&action=default.
    \x\ Rabo AgriFinance. (2019, October 24). ``Rabo AgriFinance 
Designs Industry's First Organic Transition Loan Offering.'' Retrieved 
from: https://www.raboag.com/news/rabo-agrifinance-designs-industrys-
first-organic-transition-loan-offering-54.
    \xi\ Woodard, J. et al. (2019). Harnessing the Power of Data to 
Improve Agricultural Policy and Conservation Outcomes. Choices, 34(3), 
1-7. Retrieved from: https://foodandagpolicy.org/wp-content/uploads/
sites/4/2019/10/cmsarticle_706.pdf.
    \xii\ AGree Economic and Environmental Risk Coalition. Retrieved 
from: https://foodandagpolicy.org/.
    \xiii\ McDonald, J., Korb, P., Hoppe, R. (2013, August). Farm Size 
and the Organization of U.S. Crop Farming. U.S. Department of 
Agriculture Economic Research Service. Retrieved from: https://
www.ers.usda.gov/webdocs/publications/45108/39359_err152.pdf.
    \xiv\ Woodward et al. 2019.