This editorial is part of a series published by The Dallas Morning News Opinion section to explore ideas and policies for strengthening energy reliability. Find the full series here: Keeping the Lights On.
If you want gasoline prices to fall, you should produce more oil. If you want people to stop using gasoline, you should produce less oil.
President Joe Biden wants cheaper gasoline and less gasoline used by consumers. If that sounds like a conundrum, it is, and it’s an issue that is pitting the White House’s economic policy against its environmental policy.
The hard reality is that Americans need and want two things that are in tension with each other: affordable (call it cheaper) petroleum products and a cleaner environment.
As long as these two needs are cast against each other, we will struggle to accomplish either.
Biden campaigned on a promise to address climate change by reducing fossil fuel use. And as president, he set the goals of cutting greenhouse gas emissions in half compared to 2005 levels by 2030, and eliminating carbon dioxide emissions from power generation by 2035.
By 2050, White House policy is for the U.S. to be a net-zero emissions economy. That is, reduce the use of fossil fuels over the next three decades until petroleum is no longer needed. And though Biden last week reeled in his strategy to accelerate a shift to renewables among power utilities, his pollution reduction goals and timeline remain.
This environmental policy is in conflict with the Biden administration’s economic policy. According to Politico, White House staff met with oil and gas company executives earlier this month to discuss lowering fuel prices, and the administration asked OPEC to boost exports.
This is recognition that, despite what many on the far left say, climate change is not always the most immediate or most critical problem the country faces. Other issues take precedence from time to time, such as preventing a cycle of inflation and making sure Americans can afford to drive to work, heat and cool their homes, and otherwise function in a modern economy.
The average price Americans pay for regular gasoline rose from $2.06 a gallon this time last year to $3.32 last week, and people on the West Coast are paying $4 a gallon. Crude oil prices have more than doubled in that time period, with West Texas Intermediate up to $82.61 a barrel last week, compared with $40.69 a year ago.
Economists worried about inflation keep a keen eye on oil prices because petroleum is foundational to nearly every aspect of the economy. A rise in oil prices ripples through the economy, boosting prices for any good that needs to be transported to market or is packaged in plastic.
The oil industry has had a rocky time in the pandemic as the country got an object lesson in another way to reduce oil prices: Use less. By staying home during pandemic lock-down consumers cratered demand for oil and oil prices fell. The oil patch economy then went bust, and investors fled. Enticing them back to invest in more drilling to boost supply, and thus cut prices, is tricky, given the White House policy of, ahem, long-term annihilation of fossil fuels.
Still, U.S. oil and gas production is recovering on its own, thanks to demand for the industry’s products. The number of drilling rigs operating last week was 543, according to Baker Hughes, an oilfield services company that tracks rig use. That’s much higher than last year’s count of 261, but still shy of the third week in October 2018, before the pandemic: 1,067.
This gives us hope that the oil markets are doing what they usually do, and responding to price signals by adjusting production. But a government policy to eventually eliminate oil production isn’t likely to calm the markets.
In fact, high fossil fuel prices give renewable energy sources space to grow, supporting the Biden administration’s environmental goals. When electricity prices are high, wind and solar investment is more profitable, wooing investors to develop more renewable generation.
But as recent gasoline price increases show, if consumers don’t have a way to get to work other than to use fossil fuels, they will need gasoline. That means as politicians talk big about renewables, they have to do the hard work of making sure the infrastructure is ready for more wind and solar. Without the proper grid equipment and transmission lines, without electric vehicles and charging stations, without the back-up batteries and power generators, Americans will still need their gasoline cars.
So that’s another hard reality. Despite what the Biden White House wants to do, what’s required is a stable and affordable energy market. As the economy transitions away from fossil fuels, policy makers need to make sure the lights stay on and energy remains affordable. There will be surprises and unintended consequences along the way, issues policy makers failed to consider. Therefore there needs to be an approach that keeps fossil fuels in place for longer than some in the White House seem to believe.
There is a path out of Biden’s inflation vs. climate change conundrum, but it involves the White House stepping back from its instinct to control environmental outcomes through regulation, and instead trusting that markets can serve the broader interests here.
This is perhaps not the best year to laud the Texas electricity market design, after the deadly outages in February, but our regulators did manage to resolve Biden’s specific conundrum by setting up a market that favors low-cost power generation while offering incentives for renewables. The result is an overwhelming amount of renewable generation built much faster than Texas leaders had targeted.
But without the right physical and regulatory infrastructure, swift change can make a system unstable, and leave people scrambling for the old, faithful fossil fuels. In February, many Texans stayed warm by firing up their gasoline or natural-gas home generators, or sitting in their cars, idling with the heat on. That’s not a good economic policy or environmental policy. So it’s critical to get this mix right.
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