Americans for Free Markets Applauds the Texas Senate for Acknowledging Potential Need for Reform
Last Thursday, the Texas Senate State Affairs Committee held an important interim hearing on ‘Responsible Investing,’ during which the Committee was charged with examining, among other topics, the implementation of Senate Bill 13 in 2021 – which prohibits local governments, schools, and other public entities in Texas from contracting with certain companies that they perceive to be “boycotting” energy companies.
Specifically, the Committee was charged with understanding how frequently the “boycott” list is updated, understanding how a company can come off the list if they cease to boycott energy companies, and making recommendations to ensure the ongoing accuracy of the list.
Additional scrutiny is welcome as the current law’s ambiguity leaves more questions than answers regarding the list itself. For example, several of the alleged ‘boycotters’ of the fossil fuel industry that Texas has targeted since the law was passed in 2021 have simultaneously been named the ‘largest financiers of fossil fuels’ for devoting trillions of dollars to the oil and gas industry, much to the chagrin of environmentalist groups like the Sierra Club. However, a bank cannot be a leading financier and simultaneously a ‘boycotter’ of the fossil fuel industry – such a suggestion simply doesn’t pass a basic logic test.
Following the hearing, John Wittman, AFFM’s Executive Director, said:
“The fact that Texas State Senators are taking another look at implementation of this law is not only encouraging, but also represents a tacit acknowledgment that the state must set clear guidelines before preventing companies – including many of the world’s largest financial institutions – from doing business with local governments, schools and other public entities in the Lone Star State.”
He added:
“Texas is known for embracing pro-business, pro-free market, and pro-competition policies – all of which have been foundational in supporting the state’s rise to become the 8th largest economy in the world. Any law that threatens to limit competition in a particular market is also an inherent threat to that progress.”
What They’re Saying
As one Houston-based midstream oil and gas executive pointed out in a recent column in the Odessa American, broad enforcement of this law has already ensnared a local school district that was performing its duty to get the best financing deal on a taxpayer-approved bond:
“Take, for example, UBS Group, which won a bid to finance an $18.6 million bond for Normangee ISD in 2022. However, before the deal could be finalized, the Attorney General’s office determined that UBS was prohibited from underwriting the bond because it ‘boycotted’ fossil fuel companies.
“This would certainly be news to environmental groups like the Rainforest Action Network and Sierra Club, whose recent report on fossil fuel financing identified UBS among its ‘Dirty Dozen – The Worst Banks Since the Paris Agreement,’ having financed more than $210 billion in fossil fuel projects over the last 8 years.
“If Texas leaders truly want to send a message that firms who ‘boycott’ the oil and gas industry are not welcome in Texas, there needs to be clarity on what ‘boycott’ means, as the current standard appears to ignore empirical evidence that the banks on the state’s blacklist are, in fact, the world’s largest financiers of fossil fuels.”
John W. Diamond, Director of the Center for Public Finance at Rice University’s Baker Institute for Public Policy, pointed out that Texas lawmakers have a duty to address this discrepancy when they reconvene next year, citing the staggering economic impact to taxpayers and the Texas economy due to reduced competition:
“This inconsistent set of facts begs our state leaders to provide clarity — especially since the economic impact of these laws could be significant for Texas, according to several recent analyses.
“Earlier this year, the Perryman Group published a study finding that overall losses to the Texas economy amounted to more than $760 million in gross product in one year after implementation of ‘Fair Access’ laws in Texas.
“This follows earlier economic impact studies that identified an additional $500 million in interest costs for local governments due to fewer financing options in Texas.”
With Texas revisiting implementation of this law, we hope they will embrace the state’s small-government, pro-free market values that have led to its meteoric economic growth in recent decades. As the Dallas Morning News editorial board wrote earlier this year:
“…as bad as these anti-conservative, big-government impulses are, they only get worse when you consider the effect they could have on Texas taxpayers.
“The fair access law targets banks that lend money to local governments. The state statute is so vague…that companies don’t know how they might run afoul of the anti-ESG crusade.
“Is joining an association focused on climate enough to get a company blackballed even if it invests heavily in oil and gas? Is underwriting a wind farm a problem?“If major banks decide that doing business in Texas isn’t worth the hassle, what does that mean for municipalities and school districts looking to borrow money? You don’t need a degree in economics to understand that a lower supply of lenders means greater pricing power for those left in the market.”
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