Fed withdraws from global climate coalition—angry?

The climate policy landscape has shifted significantly in recent weeks, with agencies, governments and businesses beginning to back away from the ambitious but economically problematic climate commitments they made over the past decade. Two major developments highlighted this retreat: the Fed's withdrawal from the Network of Central Banks and Supervisors to Green the Financial System (NGFS) and BlackRock's withdrawal from its Net Zero Asset Management program (NZAM) and subsequent suspension of activities. These high-profile decisions, and similar initiatives around the world, demonstrate growing awareness of the economic damage caused by costly, ineffective and excessive climate policies.

Fed: Not the climate police

The Federal Reserve's announcement to withdraw from the NGFS, an alliance of central banks formed in 2017 to address climate-related risks in the financial system, caused an uproar in the climate advocacy community. Citing its limited statutory authority, the Fed has made clear that it is not responsible for setting climate policy. Chairman Powell has emphasized this point many times and said that climate issues belong to Congress, not the central bank.

The NGFS claims to have a lofty goal of integrating climate risks into monetary policy, and it has become increasingly politicized. Its shift to a broader mandate — essentially promoting a green agenda based on sound economic principles — conflicts with the Fed’s responsibility to maintain monetary stability. The withdrawal comes amid broader skepticism in the United States about climate-focused regulations, particularly in the financial sector, whose potential to disrupt industry and raise costs is well-documented.

Financial giant BlackRock exits climate stage

The recent exit of BlackRock, the world's largest asset manager, from New Zealand Asset Management (NZAM), leading to the company's collapse, has further exacerbated the wave of institutional exits. The alliance aims to align financial investment with the nebulous goal of achieving net-zero carbon emissions. However, BlackRock's exit reflects a broader reality: These climate initiatives are not only politically fraught, but also deeply inconsistent with financial performance and client interests.

BlackRock has faced growing criticism, particularly from Republican-led states in the US, for prioritizing environmental, social and governance (ESG) initiatives over fiduciary responsibilities. Florida, Texas and other states accuse BlackRock of undermining the traditional energy industry and taking resources away from economically viable businesses. Tennessee recently hammered BlackRock in court. These pressures have created a domino effect, with other agencies reconsidering their commitment to the Net Zero Alliance

Businesses abandon ambitious climate pledges

The retreat is not limited to financial institutions. In the corporate world, companies such as BP and Shell have quietly scaled back green initiatives, prioritizing short-term profitability over unrealistic carbon reduction targets. BP recently divested its offshore wind projects, while Shell has slashed renewable energy investments. Both companies are signaling a return to traditional energy sources because of a fundamental flaw in climate policy: a failure to acknowledge economic realities and prioritize energy security and profitability over the climate narrative. Renewable energy remains heavily reliant on subsidies, while oil and gas continue to drive the global economy despite decades of demonization. Attempting to phase out fossil fuels prematurely without viable alternatives has proven disastrous, with the European energy crisis being a clear example.

The cost of climate ambition: A reckoning for governments

The global retreat from climate commitments signals a long overdue recognition of the real costs of these policies. Countries that enthusiastically embraced net zero targets are now grappling with rising energy prices, faltering economies and public discontent. Germany was once hailed as a pioneer in green energy, but it faces soaring electricity costs and industrial flight as energy-intensive industries move to cheaper locations. Likewise, the UK government's climate policies have caused anger among businesses and households as the cost of living rises.

The United States is not immune to these effects. A report from the Congressional Budget Office estimates that clean energy subsidies enacted under the Inflation Reduction Act will cost $825 billion over the next decade — a significant amount for a policy that is unlikely to achieve meaningful reductions in global temperatures. An amazing price tag. These costs disproportionately impact working-class families, who bear the brunt of rising energy bills and inflation.

Central to this shift is the recognition that climate policy has turned into a costly virtue-signaling exercise. They require huge economic sacrifices with only a small impact on global temperatures. Worse, these policies tend to exacerbate existing challenges such as energy insecurity, supply chain disruptions and inflation.

In addition, the politicization of climate science and policy has exacerbated resistance. Institutions and governments are increasingly questioning the wisdom of aligning themselves with initiatives that prioritize ideological goals over economic and practical considerations. As the Fed's withdrawal from the NGFS illustrates, organizations with specific missions cannot be distracted by climate-related ambitions outside their purview.

The way forward: A pragmatic approach to energy and policy

The collapse of these large climate coalitions provides an opportunity to reassess priorities. The global economy needs energy policies based on reality, not utopian ideals. Policymakers should abandon blanket mandates and instead focus on ensuring energy reliability, affordability and innovation.

Ultimately, the retreat from climate policy highlights an uncomfortable truth: These measures are costly, ineffective, and increasingly unsustainable. The financial and business communities are waking up to this reality, and the general public is not far behind. As more institutions pull back from the climate bandwagon, there is hope that this marks the beginning of a more rational, economically sound approach to energy and environmental challenges.

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