Biden’s conundrum: High energy prices are unpopular but could aid climate agenda
WASHINGTON — It’s a simple doctrine of the oil business. When gasoline prices go up, motorists drive less, eventually buying more efficient vehicles that can stretch that gallon of gasoline or in the case of electric cars, eliminate it. Either way, the result is lower consumption of petroleum-based fuels.
So if you were a president trying to reduce greenhouse gas emissions, high gasoline prices, like the nation is experiencing at the moment, should be desirable. You get reduced oil consumption without messy fights in Congress over carbon taxes or regulations on emissions.
So, why is President Joe Biden spending so much political capital trying to lower energy prices? Not only has he reached out to the OPEC+ cartel to ask them to increase production, he also sent a letter to the Federal Trade Commission this week asking it to investigate “anticonsumer behavior” by oil companies.
The move drew condemnation from industry officials and experts saying Biden was ignoring basic economics. An energy analyst at one financial services firm questioned why Biden was so upset when high gasoline prices would likely lead to higher adoption rates of electric vehicles.
“It’s an amusing case study of how day to day politics competes or contradicts the stated premise of decarbonization,” said Pavel Molchanov of Raymond James. “There’s an adherent tension between these two things. Drivers want cheap fuel, but the urgency of energy transition requires the cost of fossil fuels to go up.”
That is true. But it’s also the case that whenever fuel prices go up, more oil and gas wells are drilled, creating additional fossil fuel infrastructure that will likely be around for decades to come.
And with scientists warning that greenhouse gas emissions need to drop sharply in the next decade and go to virtually zero by 2050, Biden might well worry that high prices could perpetuate the same fossil fuel cycle that has driven up emissions.
Already there are more than 500 drilling rigs operating in the United States, a more than 50 percent increase from 12 months, according to the energy service firm Baker Hughes.
Whether this is the signal of another oil boom in the making is anyone’s guess.
But Jeffrey Frankel, a professor at Harvard University who served on former President Bill Clinton’s Council of Economic Advisers, wrote in a recent essay how investment was down in the sector compared to past cycles, a possible sign this was the industry’s last boom.
“Today’s higher fossil-fuel prices have so far provided a weaker-than-expected stimulus to private investment in the sector,” Frankel wrote. “This suggests firms may have reached a tipping point in how seriously they take the need to combat global warming. They know a green-energy transition is coming.”
Under such a scenario, Biden could rest easy that oil and gas executives will simply use increased profits to boost dividends to shareholders and bump up their own salaries, instead of pumping that money into new, expensive oil and gas projects.
Even were that true — a big question mark — climate is far from the only thing on the president’s mind. And the fact remains that high energy prices are not a recipe for political success for a sitting president.
With limited power to affect energy prices, presidents do what they can around the margins to give the appearance of action. Molkanov, the energy analyst, likened Biden’s accusations of corruption within the oil sector to Brazilian President Jair Bolsonaro’s decision to pull back on free market reforms and fire the head of the national oil company Petrobras when truck drivers there went on strike in 2018 protesting high diesel prices.
“We’ve seen this movie before,” Molchanov said.