President Joe Biden’s prioritization of the shift from fossil fuels to renewable energy has drawn a lot of attention since his first day in office when he killed the Keystone XL pipeline. Not all of this attention has been flattering, with the oil and gas industry quick to voice its concerns about the course the White House is taking in energy.
And then Biden asked OPEC+ for more oil.
The now-notorious call by the U.S. president on the world’s largest oil producers this summer was actually his second one since taking office. In both cases, the reason was to keep prices at the pump low enough to keep people content. Which, the Houston Chronicle’s Chris Tomlinson said in a recent column, is akin to running on ice.
“Anyone who says we can switch to clean energy without raising the price for fossil fuels is a fraud, or in this case, a politician,” Tomlinson wrote, noting one of the many simple but often painful truths that politicians in power often face: you can make all the green energy promises in the world, but if you let the price of gasoline rise beyond a certain level, you start losing voters, and for a politician, this is much worse than carbon emissions.
The link between gasoline prices and a president’s chances for re-election—or his party’s success in next year’s midterms—becomes even more important than usual during times of economic turmoil, and although the U.S. economy has been booming this year, a slowdown has already begun, inflation worries are running high, and a shortage of everything continues to plague virtually all industries.
What the Chron’s Tomlinson calls “antipodal energy policy” is an interesting conundrum: trying to reconcile the interests of the environmentalist lobby while keeping regular Americans calm with low gasoline prices. It is also a conundrum that has no solution. One or more parties will lose because this is an either-or situation. You cannot have an energy transition to renewables without making fossil fuels more expensive—or letting the market make them more expensive—and you cannot keep gas at the pump cheap without environmental consequences caused by its wide use.
The Wall Street Journal’s Ted Nordhaus and Morgan D. Bazilian called this a “welcome hypocrisy” in a recent analysis, noting it was an inevitability. It is also not specific to the U.S.—people are sensitive to gas prices across the world even if, at the same time, many of them are as sensitive to climate change issues. Eventually, sensitivity to prices tends to trump environmental sensitivity.
“In the U.S., strong majorities of the public say that they support action to address climate change, but that support generally collapses when pollsters place a price tag on those actions,” Nordhaus and Bazilian wrote, recalling the Yellow Vest protests in France a couple of years ago when the government tried to levy a carbon tax on fuels and eventually dropped the idea.
This juggling act Biden is currently performing in the U.S. along with many of his counterparts across the world highlights perhaps the biggest problem with the energy transition: the price tag.
In his column, the Chron’s Tomlinson notes that for all his talk about energy transition, Biden has yet to make oil producers pay for the pollution that their products generate. If he did, they would immediately pass these additional costs to the consumers. And this, in turn, would mean an 18-percent price hike at the pump. And it would cost the president his approval rating.
The WSJ’s Nordhaus and Bazilian recall how attempts by the Democrats to put a price on pollution via a federal BTU tax in 1994 and a cap-and-trade program in 2010 may have well cost them their congressional majority in the elections that followed these proposals. The BTU (British thermal units) tax would have made all fossil fuels more expensive. So would have the cap-and-trade scheme, which is effectively a way to create a market for emissions, as the EU has done. And Americans, like people in every other country, do not want to pay a lot for gasoline, even if it pollutes the air they breathe.
This running on ice on the part of politicians who, on the face of it, appear to want to both eat their cake and have it, too, highlights the challenges that the energy transition is facing. Even in Europe, where people already pay more for gasoline than Americans, there is a certain threshold beyond which they would start getting disgruntled with the energy policies of their governments. Disgruntlement often leads to protests, and politicians dislike protests. The juggling act continues with questionable success.
Perhaps the gas price problem could become less prominent if the EV revolution lives up to its promise. However, EVs also use energy, and this energy also has a price. As demand increases, with more EVs on the road, electricity will inevitably become more expensive. That’s when the Bidens of the world will have a real problem on their hands.
By Irina Slav for Oilprice.com
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