President Joe Biden and his administration hardly planned for everything that happened this year. In fairness, no administration could have planned for it: soaring oil and gas demand, tight supply, rising prices fueling inflation that has quickly gone from nothing to worry about to the biggest worry for many.
Yet that's not the worst of it for the Biden administration. The president came into office with the pledge to set the United States on a course towards a lower-carbon energy future. This would have been a challenging task even under the best of circumstances, the U.S. being one of the biggest polluters in the world. With the energy crunch, the task becomes almost impossible.
It is no wonder, then, that when Biden started calling on OPEC to boost crude oil production, nervous about rising gas prices at American filling stations, he instantly attracted accusations of hypocrisy. After all, he was pushing an energy transition agenda, he was clearly not in favor of boosting domestic oil production, and one of the first executive orders he signed was the one that killed the Keystone XL pipeline.
The White House's climate envoy, John Kerry, got asked about Biden's energy policy at the COP26 summit in Glasgow last week. How could the president urge OPEC to pump more oil while campaigning for the phase-out of fossil fuels, the media asked Kerry.
"He's asking them to boost production in the immediate moment," Kerry said in response, as quoted by the Wall Street Journal. "And as the transition cuts in, there won't be that need as you deploy the solar panels, as you deploy the transmission lines, as you build out the grid."
Kerry's statement is in line with Biden's own defense of his latest moves in the energy area.
"On the surface, it seems like an irony," Biden said earlier this month, referring to his call on OPEC+ to add more oil production while heading for COP26 to discuss the reduction of global emissions. "But the truth of the matter is ... everyone knows that idea that we're going to be able to move to renewable energy overnight ... it's just not rational."
Recognizing that the renewable energy transition will not—cannot—happen overnight is a commendable demonstration of pragmatism. It is also a recognition of the fact that people need energy right now, and they must get it from any available source. That the sources at this moment are mostly fossil fuels is an unfortunate fact of life that we simply have to accept and continue working to reduce the demand for these fossil fuels.
This seems to be the line the Biden administration is following, and even its critics would likely agree that it is a pragmatic one. The thing is, however, that pragmatism and hypocrisy are not mutually exclusive. Biden's energy policy has already sparked protests from climate activists, calling for an end to U.S. fossil fuel exports and a ban on fracking. Interestingly enough, a group of congressmen also recently called on the White House to ban oil exports but for a different reason: the legislators argued a ban on exports would ensure a more adequate supply for the domestic market.
President Biden is in a tight spot when it comes to energy. When he took office, the plan was to steer the U.S. towards a lower-carbon future using the Democrats' majority in Congress. In reality, the majority is so flimsy that passing any climate-related legislation has been a challenge that has involved a lot of compromises. And then came the energy crunch, which nobody expected. Suddenly, the U.S. needed more of all fossil fuels.
It is an ironic twist that the first year of Biden's presidency is also the first year in which coal consumption in the country is set for a rise since 2014. And it will be a substantial rise: the Energy Information Administration has forecast the U.S. will consume 20 percent more coal than last year.
Yet using coal to generate electricity more affordably is a pragmatic move even if it leads to a rise in U.S. emissions. The rise, the administration would probably argue, will be a temporary problem, and once the crunch is over, we'll go back to our low-carbon agenda.
Yet this is where the bigger problem flashes a fin. The current energy crunch is not only a result of supply shortages. It is also a result of rising energy demand. U.S. producers appear to be unwilling to ramp up production of crude oil to levels that would lower prices at the pump. Gas producers are having a field day exporting a record amount of their product to Asia, where buyers are looking for a bargain—and U.S. gas is a bargain.
If demand continues to grow at the current pace, switching from pragmatism to energy transition will continue to be a challenge. Over the short term, the challenge will be especially tough: inflation is driving up the prices of renewables, too, and threatening a lot of planned capacity addition projects with cancellation because of surging material and component costs.
By Irina Slav for Oilprice.com
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