In the face of sky-high energy prices, there are a plethora of policy options on the table for President Biden to alleviate costs for consumers. Rather than pursue any of these commonsense solutions, Biden’s “Letter to Energy CEOs” was merely a strongly-worded letter to oil executives.
In his letter, the president accused oil companies of profiteering and instructed them to boost production. Biden wrote: “At a time of war – historically high refinery profit margins being passed directly onto American families are not acceptable.” The letter continued, saying that companies “must take immediate actions to increase the supply of gasoline, diesel, and other refined products.”
How are oil companies, whose refineries are at close to maximum capacity, supposed to do that? The letter doesn’t say. Rather than blame oil and gas companies for profiteering, President Biden should empower the private sector by reducing harmful regulations that hinder America’s energy supply.
There is little that can be done to immediately increase the availability of gas, largely due to the supply of energy, especially oil, being inelastic. It can take years for new refineries, pipelines, and other essential infrastructure to be constructed, meaning that, beyond a certain level of production, there is very little oil companies can do to boost the quantity supplied of oil in the short run. Furthermore, global events, such as the loss of access to the Russian reserves and the increasing demand for energy in places such as India show that the problem of static supply and increasing demand are by no means purely a domestic problem.
With that said, policymakers can take some concrete steps to stop the bleeding— and make supply shocks like this less damaging in the future.
President Biden should first waive antiquated policies, like Jones Act requirements for shipping, which can reduce some costs for consumers. Furthermore, the administration should stabilize the regulatory environment for energy production and provide certainty that the rug will not be pulled out underneath the companies making investments in expanding supplies.
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Currently, the process for obtaining drilling leases varies greatly, due to ongoing litigation between the Department of the Interior (DOI), industry groups, and environmental organizations, creating additional compliance costs and instability. Effectively oil companies are paying more to navigate a more complex legal environment. Importantly, the leasing process can change from administration to administration, creating an uncertain regulatory environment for investors and companies. For example, the radically different approaches of Presidents Obama, Trump, and Biden towards the Keystone XL pipeline caused the waste of two billion dollars which would not have been lost under a stable regulatory system— whether or not it allowed Keystone to be constructed. And because this complexity results from rapid shifts in policy, rather than from a static strict policy, these shifts benefit neither the consumer nor the environment.
To help maintain this stable regulatory landscape, the administration should encourage its political allies in the environmental movement to be more circumspect in suing the government over drilling leases. The National Environmental Protection Act (NEPA) allows environmentalist groups to unnecessarily delay development projects; such as lease 257, which spent a year tangled up in court because environmental groups didn’t like its environmental impact analysis methodology.
Even while energy prices are a result of global markets, the administration needs to turn to our allies and domestic producers to increase oil production, not hostile regimes such as Venezuela. Not only will this be a boon to the economy, but it will also be a key step to curbing global greenhouse gas emissions. While all fossil fuel extraction poses environmental risks, not all fossil fuels are created equal. Iranian extraction, for instance, produces 85% more methane emissions per unit of energy than U.S. extraction. Russian natural gas is similarly dirty, resulting in a “mere” 41% more emissions per energy unit than U.S. natural gas.
This American climate advantage is both due to the superior quality of much of America’s oil reserves, and because drilling in the U.S. utilizes superior methodology, such as less gas flaring and more groundwater recovery than other countries.
Additionally, these foreign extractors have atrocious environmental records. Venezuela’s government-owned oil company, for example, saw nearly 50,000 oil spills from 2010 to 2016, turning the once vibrant lake Maracaibo from a thriving ecosystem to a polluted wasteland. The fact is — when it comes to energy production, America does it cleaner.
While these steps will help alleviate the current crisis, Biden should also work to protect America against the next oil supply shock. That means diversifying our energy supply by empowering the private sector to invest in next-generation technologies such as electric vehicles or hydrogen fuel cells.
While this is already happening, the reality is that the average cost of an electric car is $56,000– far too expensive for ordinary Americans to afford– but Biden can work to bring down these costs. One immediate step would be to reduce tariffs that increase the costs for all vehicles. Moreover, the main cost driver for these vehicles is rare earth metals (REMs) which are needed to make the batteries. Through bipartisan solutions, which House Republicans have already introduced, policymakers can ease restrictions on domestic mining and create collaborative partnerships with allies to bolster America’s REM supply chain. This would in turn allow market forces and consumer choice to create a future where everyday Americans can afford electric vehicles.
Global energy markets and mixed signals from the Biden administration have created this crisis. Through modernizing regulations to bolster energy today, and creating the policy foundation for investments in innovation and diversification for tomorrow, President Biden and Congress can facilitate a cleaner and more secure energy future. Instead of Biden’s “Letter to Energy CEOs,” the president should get to work on meaningful policy reforms to help the economy and the environment.
Jackson Paul is a junior at UT Austin, Editor in Chief of the Texas Horn, and a policy intern at the American Conservation Coalition. You can find him on twitter @CJacksonPaulTX.