Why are politicians so fascinated with backwards climate policy?
Yet this simple concept has again eluded policymakers. Last month, the Biden administration has called on the Organization of the Petroleum Exporting Countries (OPEC) and its cooperating partners (OPEC+) to increase their oil output in an effort to reduce gasoline prices—which rose from $2.42/gallon in January to $3.26/gallon in August—in the United States. On its own, such a request is warranted, as the economic impacts of high energy prices harm Americans just as surely as the economic impacts of climate change, but where this policy runs afoul is that it comes in the same year when the Biden administration implemented a moratorium on oil and gas leases on public lands in the United States, which was only recently lifted after court challenges.
This is not the first time that climate hawk politicians have, perversely, called for increasing global oil production. In 2018, Sens. Maria Cantwell, Robert Menendez, Charles Schumer and Edward Markey—all notable proponents of public climate policy—called on President Donald Trump to pressure OPEC to increase oil output.
The problem with this approach to climate policy, where the United States cuts oil production and then calls on foreign producers to fill the gap, is that it can lead to ironically worse environmental outcomes. A barrel of oil is not the same regardless of where it is produced, and the sulfur content, production-related emissions and product destination create variability in the life-cycle emissions associated with oil production. A barrel of light oil produced in Nigeria, for example, has 25 percent higher lifecycle emissions than a barrel of light oil produced in Wyoming. From a climate perspective, it makes little sense to curb domestic production, and then request a foreign producer that has less stringent environmental standards to increase their production, resulting in a loss of both environmental benefits and economic productivity.
In the multiple pushes from even climate hawk politicians to constrain oil prices, the fallacy of central planning biases are exposed. Contrary to hope, there are indeed tradeoffs from using government to try to force behavioral transitions that are inconsistent with the economics of the day. Simply, trying to force energy producers to abandon fossil fuels, or consumers to transition to clean energy, is not a costless exercise, as politicians like to claim.
But revealed in the hypocrisy of politicians suppressing oil production domestically and then requesting increases in production globally is the importance of true innovation, and the role of the free market in delivering it. The Biden administration was making the request of OPEC+ because oil consumption is still high in the United States, at about 20 percent of the world’s total petroleum products, and as such prices still have an economic impact. Affirming the importance of price signals is also an affirmation of the free market, and climate progress necessitates that clean energy alternatives be able to reach a price below incumbent, fossil fuel competitors. The issue with gasoline prices is that, as of yet, there are few opportunities for affordable alternatives, and solutions like electric vehicles are often limited to high income households with access to home charging or a second vehicle.
Instead of a reactionary “keep it in the ground” approach, the administration would do well to focus on expanding opportunities for innovation that may either reduce emissions from oil consumption (enhanced oil recovery, for example), alternative replacement fuels (drop in replacement fuels) or alternative vehicle types (electric vehicles and hybrids). In the president’s request of OPEC+, we see that attempts to constrain energy supplies as a means to climate progress are not going to work, because suppliers outside of the U.S. jurisdiction will eagerly—and sometimes even be invited to—fill the breach, as hydrocarbon energy supplies remain plentiful globally.
The good intentions of addressing climate change do not absolve us of the need to weigh the costs, benefits and economic viability of proposed policies. Hopefully, more future focus on innovation can be a more fruitful approach to reducing both the economic and environmental costs of U.S. oil consumption.
Image credit: Delphotostock