Biden Can’t Abandon US Oil Industry
The challenges confronting US democracy in the upcoming presidential election are very real. With a genuine risk of post-election violence, the country’s unbroken history of a peaceful transition of power may have run its course. The challenges facing the victor will also be enormous, running a broad gamut of domestic and foreign policy issues that will remain the same regardless of who wins. Energy security will be near the top of this list, given its dual characteristic as a domestic and foreign policy matter, and the critical role it plays in the economic health of both the US and the world. President Donald Trump and Democratic challenger Joe Biden have taken starkly different stances regarding the oil industry, but, in the current stressed and chaotic environment, neither of them will significantly change the current dominant role of oil and gas in the US economy.
One of the more telling moments in the abbreviated presidential debate season came at the end of the second debate between Trump and Biden, held on Oct. 22, 2020. After sparring over the Paris accord, climate change, renewable energy and fracking, Trump asked Biden directly, “Would you close down the oil industry?” to which Biden answered, “By the way, I have a transition from the old industry, yes.” In what was perhaps the understatement of the night, Trump observed, “Oh, that’s a big statement.”
Biden went on to explain his reasoning — that the “oil industry pollutes, significantly,” and that over time his policies would seek to supplant the oil industry with renewable energy by increasing subsidies for the latter while eliminating them for the former. The president took in the words of his challenger, before noting “In terms of business, that’s the biggest statement … because basically what he’s saying is he is going to destroy the oil industry.”
Politicians often seek to create a stark contrast between their policies and those of their opponents, if for no other reason than the voting public generally sees things in black and white rather than real world shades of grey. At the end of the day, however, actual policy differences are usually minor, with the big picture outcome changing little regardless of who wins an election. Even when politicians appear diametrically opposed, as with Trump and Biden on the role of oil in US energy policy, the rhetorical gap between intent and outcome usually shrinks significantly when partisan campaign promises collide with the harsh limitations of the real world.
While the diametrically opposed views of the oil industry put forward by Trump and Biden appear to present the US voter with a choice on the fate of the oil industry, the fact is that both candidates are prisoner to a global economy still firmly in the grip of the Covid-19 pandemic. The winner of the election will be compelled to adopt policies focused on economic survival and recovery. The next four years will find US policymakers doing their best to keep the current system afloat, shoring up existing infrastructure with limited resources. That leaves little if any scope to delve into the radical and expensive reforms that could drive a meaningful transition away from the fossil fuels and toward renewables.
Big Oil Is Safe for Now
At the heart of the Trump-Biden dispute over oil policy is the issue of subsidies. Trump has sought to continue and expand US subsidies for fossil fuels while reducing subsidies for renewable energy. The Biden plan calls for the opposite: a transfer of subsidies over time away from fossil fuels to renewables. How these subsidies are calculated varies widely depending on who is doing the calculations, but according to the Environmental and Energy Study Institute, a bipartisan Washington, DC-based nonprofit organization dedicated to promoting sustainable societies, “conservative estimates put US direct subsidies to the fossil fuel industry at roughly $20 billion per year; with 20% currently allocated to coal and 80% to natural gas and crude oil.”
The importance of subsidies to the viability of the fossil fuel industry is also a heavily debated topic. But at a time when the US is touting its success in achieving “energy independence” for the first time in 62 years, the ability to sustain this status depends on the continuation of existing fossil fuel subsidies.
A 2017 study conducted by Nature Energy, a monthly peer-reviewed scientific journal, found that “at recent oil prices of US$50 per barrel, tax preferences and other subsidies push nearly half of new, yet-to-be-developed oil investments into profitability, potentially increasing US oil production by 17 billion barrels over the next few decades” and “could make up as much as 20% of US oil production through 2050.” This same study found that this level of oil production would increase the level of US carbon dioxide production by 6 billion tons of CO2, and that by removing tax incentives and other fossil fuel support policies, the US “could both fulfill G20 commitments and yield climate benefits.”
It is important to note that this study and others like it were conducted before the Covid-19 pandemic. The models for a gradual, controlled transition away from fossil fuels to renewable energy simply no longer apply. The global economy is in the grip of a widespread recession brought on by the societal lockdown policies and other measures to limit the spread of the virus.
Global oil demand plummeted in March, creating a crisis for a market already awash in cheap oil brought on by overproduction in the US, Saudi Arabia and Russia. The role played by the Trump administration in ending this crisis is underappreciated by most US citizens. Over the previous year or two, rising US oil production had flooded global markets, forcing Opec and others to cut production in order to maintain prices. By the end of 2019, Saudi Arabia and Russia became unwilling to make further production cuts and opted to defend market share and increase output, setting off a price war which, combined with the pandemic, drove oil prices down to the point that much of US oil production was no longer economically viable.
Many US producers have been driven into bankruptcy this year, but the intervention of Trump prevented the crisis from being much worse. By strong-arming Saudi Arabia and reasoning with Russia, the Trump administration was able to get both nations to significantly reduce oil production and get others to join in, thus stabilizing oil prices, which helped save the oil industry from disaster and limited the collapse of the US economy. During the Oct. 22 debate with Biden, Trump bragged about saving the oil industry “when oil was crashing because of the pandemic. We saved it. Say what you want to bad relationships. We got Saudi Arabia, Mexico and Russia to cut back, way back. We saved our oil industry and now it’s very vibrant again.” Trump belittled Biden’s plans for renewable energy, calling them a “pipe dream.” Instead Trump predicted that “We’re going to have the greatest economy in the world,” noting that “if you want to kill the economy, get rid of your oil industry.”
On this point, Trump is correct, at least for the foreseeable future. In a pre-pandemic world, one might have been able to attempt a policy of subsidy-transition, with the US economy weaning itself off of fossil fuel in favor of renewables. But if roles were reversed and Biden had been president in the spring of 2020, he too would have been compelled to undertake similar policies to Trump to bolster and save US oil producers — not because he is a champion of the oil industry, but rather because economic survival depended upon it.
The next four years will find the next president facing a host of unprecedented challenges, domestically and abroad. Most of these will deal, in one form or another, with economic problems stemming from the Covid-19 pandemic. The US will need to work with its partners to re-energize a global economy dragged down by lockdowns that seem sure to extend into next year as a second wave of the virus builds. Now is not the time for any expensive and risky experiment in transitioning from fossil fuels to renewables.
Instead, the US should pursue a policy similar to China’s ambitious plan to reduce carbon emissions to zero by 2060. Its approach is based upon achieving maximum economic performance by 2030 in order to make a transition to renewables economically feasible. Given the deep partisan divisions in the US, whether the next president is Biden or Trump, he will be struggling to maintain the status quo, making any transformational policies or energy policies impossible. For the next four years, and beyond, the status quo will include continuing the subsidies for fossil fuels.