CARES Act and Fossil Fuels
|This article is part of Global Energy Monitor's coverage of the COVID-19 pandemic.|
Overview of CARES Act
The Coronavirus Aid, Relief, and Economic Security Act, or CARES (S.3548), is a $2 trillion economic aid package that was signed into law on March 27, 2020. CARES is a response to the global economic crisis caused by the COVID-19 pandemic.
Subsidies and Loans for Fossil Fuel Companies
CARES will provide $500 billion in loans and loan guarantees to be distributed under the supervision of U.S. Treasury Secretary Steve Mnuchin and the Treasury Department. Four categories of loans will be available:
- $25 billion for the commercial aviation industry
- $4 billion for aviation cargo carriers
- $17 billion for “...businesses critical to maintaining national security”
- $454 billion to support eligible businesses, states and municipalities
According to an analysis by Friends of the Earth, CARES is broadly worded and creates the possibility that up $471 billion can be used to financially aid fossil fuel companies. Government aid provided through CARES will come with strict conditions limiting stock buybacks and protecting the existing workforce of loan beneficiaries from layoffs. However Secretary Mnuchin has discretion to waive these conditions “...upon a determination that such waiver is necessary to protect the interests of the Federal Government.”
Despite concerted lobby efforts from the U.S. coal industry, including the National Mining Association, it will not be receiving direct assistance under the voted through CARES Act. In the run up to voting on the coronavirus rescue package, the industry requested cuts to fees imposed on production which support two funds: the Black Lung Disability Trust Fund, which provides financial relief to miners inflicted with black lung disease, and the Abandoned Mine Lands Fund, which aids states in reclaiming abandoned mine sites. The National Mining Association went further by requesting a temporary reduction or elimination of the industry’s royalty payments to the U.S. Treasury Department. None of these requests were carried into the final CARES Act. With subsequent coronavirus-related economic relief packages being mooted for the near future, the National Mining Association has said that, despite being left out of this first funding package, it will continue to make the case for government financial support in any subsequent emergency funding initiatives.
With the world's largest asset manager BlackRock having been appointed by the U.S. government to become the buyer of corporate bonds as part of the above-noted US$454 billion effort to bail out companies hit by the coronavirus crisis, it emerged in the first week of April that 17 Republican senators – primarily drawn from U.S. states heavily reliant on coal, oil and gas extraction – have written to Federal Reserve Chairman Jerome Powell and U.S. Treasury Secretary Steve Mnuchin requesting that fossil fuel companies not be excluded from the bailout program being administered by BlackRock. According to Bloomberg, the letter calls for the Federal Reserve to ensure the relief program is “broad and flexible” and asserts that companies in the “energy and transportation sectors” deserve support. The senators seeking to influence the Fed's thinking are also concerned that measures announced by BlackRock in January 2020 to reduce certain types of its investments to the coal industry may lead to coal companies being sidelined from the rescue package.
On April 9 2020, the U.S. Federal Reserve released the terms of the bond buying program which BlackRock will manage. According to the Federal Reserve's press release, "The Primary Market Corporate Credit Facility ("Facility") will serve as a funding backstop for corporate debt issued by eligible issuers." Via the previously announced US$454 billion support line announced under the CARES Act, a US$75 billion equity investment will be granted to a special purpose vehicle (SPV) to allow the SPV to purchase corporate bonds from 'eligible' issuers. The leverage ratio for buying back these bonds is set as up to 10 to 1, which will make the size of the program total as much as US$750 billion.
The CEO of Occidental Petroleum, Vicki Hollub, has urged the company's employees to write to members of the U.S. Congress requesting federal financial aid for the oil industry. In an internal company email seen by Bloomberg, staff are asked to argue for government provision of "liquidity to the energy industry through this period of unprecedented demand destruction and unsustainable pricing until normal economic conditions return."
Funds distributed under the CARES Act are overseen by three committees. Requirements for public reporting of funds distributed through the Treasury Department can be overruled on a case by case basis by Chairman of the Federal Reserve Jerome H. Powell if a recipient requests that the disbursement be kept confidential.
The Pandemic Response Accountability Committee (PRAC) has auditing, reviewing and reporting responsibilities and the ability to refer matters to the Department of Justice for criminal or civil investigation. PRAC has the authority to conduct independent investigations with the power to hold public hearings and issue subpoenas for both documents and testimony to private entities and individuals.
The Special Inspector General for Pandemic Recovery (SIGPR) is established within the Treasury Department and is responsible for conducting, supervising and coordinating "audits and investigations of the making, purchase, management and sale of loans, loan guarantees, and other investments" by the secretary of the Treasury under any program established under the CARES Act. The special inspector general will have authority to conduct investigations and issue reports, and will also be able to refer matters to the DOJ for criminal or civil investigation. Shortly after signing the CARES Act President Trump suggested that he had the authority to gag the Special Inspector General and prevent him or her from sharing information with Congress. Trump also stated that he did not need to comply with the Act's provision that he consult with members of Congress in appointing members of the Pandemic Response Accountability Committee.
On March 30, 2020, the Inspector General for the Department of Defense Glen Fine was appointed as SIGPR. On April 7, 2020, President Trump fired Fine from his position at the Department of Defense which disqualified him from serving as SIGPR and left the CARES Act to be administered without oversight by an inspector general.
The Congressional Oversight Committee will consist of five members of Congress selected by majority and minority leadership from both the House and Senate and have authority to conduct oversight of the implementation of the stimulus package by the Treasury and the Federal Reserve. The oversight commission will have the authority to hold hearings, take testimony, receive evidence and issue reports.
As of April 20, 2020 there had been delays in implementing every part of the Act's oversight mechanisms. The post of SIGPR remained vacant pending confirmation of Trump's appointee Brian Miller. The Congressional Oversight Committee had only one of its five members. PRAC was not operation because it had not been authorized by Congress, which did not plan to reconvene until early May 2020.
U.S. House Speaker Nancy Pelosi (D-CA) proposed that CARES loans made available for the aviation industry come with a requirement that the industry begin cutting its carbon emissions in 2025 and cut them in half by 2050. Pelosi's proposals were not included in the CARES Act passed by the U.S. Senate and signed by President Trump.
Strategic Petroleum Reserve
On March 19, 2020, the Department of Energy (DOE) asked that a $3 billion disbursement be made to the DOE from the CARES Act so that DOE could comply with a March 13, 2020 directive from President Trump to fill the Strategic Petroleum Reserve to capacity and, in the process, provide financial assistance to oil companies. DOE's request was not included in the CARES Act as passed.
Articles and resources
- Paul Kane, Mike DeBonis and Erica Werner, Trump signs $2 trillion coronavirus bill into law as companies and households brace for more economic pain, Washington Post, Mar. 27, 2020
- Luke Ross, NO BAILOUT FOR FRACKING, Friends of the Earth, March 26, 2020
- Coal industry loses its first fight for federal coronavirus relief funds, Lexington Herald Leader, March 26, 2020
- Republican Senators Want to Help Coal Get U.S. Bailout Money, Bloomberg, Apr. 8, 2020
- Primary Market Corporate Credit Facility, U.S. Federal Reserve press release, Apr. 9, 2020
- Rachel Adams-Heard, Kevin Crowley Occidental Seeking Federal Lifeline For U.S. Oil Industry, Bloomberg, Apr. 9, 2020
- Multiple Layers of Oversight in the CARES Act: The Appetite for Accountability Will Long Outlast the Current Crisis, Cooley, Mar. 27, 2020
- Peter Whoriskey and Heather LongWho’s getting these hundreds of billions in the government aid? For now, the public may be in the dark., Washington Post, Apr. 13, 2020
- 'Unacceptable': Dems Fume After Trump Announces Plan to Refuse Congressional Oversight of Corporate Bailout Funds, Common Dreams, Mar. 28, 2020
- Andrew Everston, DoD’s top watchdog will lead pandemic response oversight, Federal Times, Mar. 30, 2020
- Benjamin Wittes, Why Is Trump’s Inspector General Purge Not a National Scandal?, Lawfare, Apr. 8, 2020
- Jennifer Haberkorn, Oversight of $2 trillion coronavirus relief act hasn't gotten off the ground, Los Angeles Times, Apr. 20, 2020
- Ari Natter and Ryan Beene, Pelosi Stimulus Requires Airlines Receiving Aid to Cut Emissions, Bloomberg News, Mar. 23, 2020
- Emily Holden, $2tn US coronavirus relief comes without climate stipulations, The Guardian, Mar. 26, 2020
- How Will the CARES Act Impact Energy and Infrastructure?, Kirkland & Ellis, Mar. 27, 2020
- Department of Energy Announces Purchase of Crude Oil for the Strategic Petroleum Reserves, Kirkland & Ellis, Mar. 19, 2020