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Biden set an energy trap for himself

Yahoo Finance 3/24/2022 Rick Newman

President Biden has good intentions on climate change. His plan to halve carbon emissions by 2030 is on the scale energy and climate experts say is necessary to prevent the worst damage a warming planet could cause. He favors aggression action without the massive overshoot far-left schemes such as the “Green New Deal” would entail. That fits with his desire to make big changes that have at least some bipartisan support and can survive political turnover in Washington.

Yet Biden now finds himself snared in an energy trap he constructed himself. He has lobbied for the phase-out of fossil fuels that are now in short supply, causing gasoline and home-heating costs to surge. But the renewable energy he favors isn’t yet abundant enough to substitute for scarce fossil fuels. Biden hasn’t actually changed much in the energy industry, so far, yet voters hearing his anti-carbon rhetoric conclude he’s responsible for rising costs that are denting family budgets. It’s like he’s asking Americans to cross a bridge from old forms of energy to new, even though the span isn’t complete yet and the road is rough going.

Soaring gas prices and other types of inflation clearly threaten Biden’s presidency and Democrats’ grip on power in Washington. Biden’s approval rating has drifted down to 42%, from a high of 55% shortly after he took office in 2021. Recent polling shows about 40% of voters blame Biden for high gas prices, which have risen from an average of about $2.50 per gallon when he took office to $4.25 now. The most immediate threat for Biden is that voters will punish his fellow Democrats in this year’s midterm elections, and return both houses of Congress to Republican control.

Biden's green energy efforts haven't gotten far

A bitter irony for Biden is that he has accomplished very few of his green energy priorities, even though some voters think he has remade the U.S. energy industry. Some of Biden’s biggest climate priorities require Congressional action, including broad new tax breaks for green-energy production, the elimination of federal tax breaks for oil and gas companies and subsidies for electric vehicles. Those provisions were part of the “build back better” legislation that died last year. Biden has rebranded his program as “build a better America,” yet in his March 1 State of the Union speech, he barely mentioned his climate goals, a sign that even Biden may now find them out of reach. The odds of Congress passing any of these provisions this year now looks remote.

Biden has tried to enact other green-energy policies through executive action. As with President Trump before him, some of these moves will stand and make a difference, while others will lose court challenges or fall far short of what the president intends. The Biden administration, for instance, rejoined the Paris climate accord and appointed climate activists to the top jobs at many agencies. It raised fuel-efficiency standards and ran the biggest-ever offshore wind-power lease. Those types of moves could have lasting effect.

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The recent effort by the Securities and Exchange Commission to force more corporate accounting of carbon use is more dubious. Biden’s SEC is trying to standardize public reporting on climate-related costs, and institutionalize reporting on climate issues as if it’s a normal financial risk shareholders ought to know about. But there are myriad questions about whether the SEC’s proposed rule is practicable and even within the SEC’s jurisdiction. The SEC could change the rule by the time it finalizes it later this year, but whatever the outcome, a legalpalooza seems certain.

U.S. President Joe Biden speaks at a meeting during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain, November 2, 2021. REUTERS/Yves Herman © Provided by Yahoo! Finance U.S. President Joe Biden speaks at a meeting during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain, November 2, 2021. REUTERS/Yves Herman

Biden also canceled the Keystone XL pipeline on his first day in office in 2021, and his administration paused new oil and gas leases on public land earlier this year, pending litigation relating to the cost of damage caused by carbon emissions. All told, it seems like Biden has done quite a lot to shackle the fossil-fuel industry and shift to renewables.

Biden blamed for rising gas prices

Energy experts, however, say Biden’s executive actions have had very little effect on actual energy production in the United States. 

“Biden administration policies haven’t really done anything to reduce U.S. oil production,” Raoul LeBlanc, vice president of the energy practice at S&P Global, told Yahoo Finance. “They may do so in the future. But right now, that’s not the root of the reason U.S. oil and gas production is not ramping up.”

Economic and market forces are mostly responsible for rising gas prices under Biden. From 2015 through 2020, U.S. oil firms overproduced, putting profits aside for the sake of growth. Gas prices dropped below $2 per gallon, which was great for motorists. But many energy firms lost money. Some went bankrupt, and investors began to back away. The business model has since shifted. Drillers now focus on short-term profits and returns to shareholders, while resisting capacity expansion. The Russian invasion of Ukraine made the problem worse, threatening supply from the world’s third-largest oil producer. But the market had already tightened substantially by then.

Some new U.S. production is coming online, and that should bring prices down eventually. But drillers are no longer willing to subsidize low gas prices by overproducing and losing money. That leaves Biden in a maddening bind. If he huddles at the White House with energy CEOs or proposes any federal incentive to stimulate fossil-fuel production, it will contradict his green-energy policies and enrage progressive Democrats Biden has worked hard to appease. But if he refuses to engage with the American fossil-fuel industry, it will reinforce the notion that he prioritizes green power over affordable energy and is indifferent to the financial pain of high gas prices.

The consequences go beyond the political. Green-energy advocates are generally correct when they say more renewable energy would make the United States more self-sufficient and less vulnerable to foreign energy disruptions. That’s because wind, solar and hydro power are harder to transport than oil and gas, and more likely to be used solely for regional or national needs. So a fossil-fuel crisis actually raises the incentive to develop renewables.

Many consumers see something different, however, because the push for green-energy transformation comes at the same time the fossil fuel we rely on now is spiking in price. The transmission from one to the other is not smooth, and it’s easy for fossil-fuel defenders and Biden critics to demagogue and create more of a causal connection than there is. That, in turn, could turn more people against renewables, because they think it will raise costs. It also damages the credibility of renewable advocates who say green energy will lower costs, which could happen eventually—but is definitely not happening right now.

The best hope for Biden is that energy markets straighten themselves out, with more supply gradually lowering prices and easing the pain for consumers. Even that lucky outcome, however, could leave Biden as the president who began the pivot to green energy, but tripped because it’s a much trickier move than he anticipated. He’ll leave a lot of work for future presidents to complete.

Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.

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