An Artificial Energy Crisis
President Joe Biden said this week that “It’s simply not true that my administration or policies are holding back domestic energy production.” He went on to cite onshore production statistics, comparing them to President Donald Trump’s first year in office, and stating that thousands of approved permits remain unused by the energy industry.
This is an intriguing statement for a president who has made such strong statements in the past about energy, climate, and industry. While the president spoke carefully that his “administration or policies” are not “holding back” production, at least three questions arise: (1) what are his administration and policies doing, (2) what about things he or his administration has said or done outside of policy, and (3) what does it mean to “hold back” – does that mean legally restraining or creating the conditions that result in the energy industry holding back.
To answer these questions, it is instructive to revisit a brief history of statements, actions, and priorities from the past two years, starting with then candidate Joe Biden and leading into this week.
A Timeline of Energy Actions
Back in 2019, candidate Biden touted the “revolutionary changes” he would bring and spoke of the need to “take drastic action right now” for a “clean energy revolution.” He went on to say that “we will hold polluters accountable for the damage they’ve caused” and referred to “dirty fossil fuel projects.” His pledge was not only to invest in clean energy, but divest from fossil fuels to reach net zero emissions.
Later that year on the campaign trail, Biden spoke forcefully one-on-one to a voter saying, “I want you to look at my eyes. I guarantee you. I guarantee you. We’re going to end fossil fuel.”
In March of 2020, during a presidential primary debate, candidate Biden stated that in pursuit of his climate agenda, he would commit to “…no more subsidies for the fossil fuel industry. No more drilling on federal lands. No more drilling, including offshore. No ability for the oil industry to continue to drill. Period. Ends.”
Before the election, this could all be chalked up to political rhetoric. Afterwards, these statements became baked into the market and the calculus of every energy producer. They also inform the intent behind actions taken once in office.
On his first day in office, President Biden canceled the permit for the Keystone XL pipeline, stating “Leaving the Keystone XL pipeline permit in place would not be consistent with my Administration’s economic and climate imperatives.” Another executive order the same day placed a moratorium on arctic drilling and other leasing programs, pending further environmental and legal reviews. The same executive order instructed a hike in the social cost of carbon – the per-metric-ton figure used in cost/benefit reviews of regulatory actions – resulting in an increase from around $7 under President Trump to $51 for the Biden Administration.
The next week, through an executive order, Biden suspended oil and gas exploration on public land and water, restricting any new leases and ordering a review of existing leases. By the summer, the Biden administration suspended leases in Alaska’s Arctic National Wildlife Refuge (ANWR), following through with the review required in his earlier executive actions. A federal judge issued an injunction to negate the federal lands moratorium in June, which required the government to continue holding auctions and provided relief to producers to still purchase leases. Yet prolonged uncertainty remained for months, leaving the future of leases dependent on the results of court rulings and further administrative review by a department led by an outspoken fossil fuel critic who has called for ceasing development on federal land (“I am wholeheartedly against fracking and drilling on public lands”). More to the point, it was the intent of the Biden administration to end federal leases and restrict production, but they were prevented from doing so by the a federal judge. In fact, for months following the federal judge’s order, the administration continued to slow-walk reviews and prevent auctions for public land.
In November, 13 state Attorneys General had to file a lawsuit against the Administration to proceed with leases in the Gulf of Mexico. A week later, the Interior Department finally released its review and recommendations, 10 months after the executive order directed the review, which had been holding federal leases in limbo. Included in its recommendations were limiting leases to fewer portions of federal land, raising federal royalty rates, and raising bond payments for energy producers.
On the other side of the issue, the Biden administration did continue to approve permits throughout 2021, much to the chagrin of environmental groups. However, lease sales are required by law and approving permits is merely a step in that process, but it does not guarantee production. Many leases do not pan out, permits can be canceled, and virtually every permit is challenged in court by activist groups.
While exploring the question of the “administration or policies” there are also broader issues to consider. For instance, that the president is the head of a political party that controls the entire executive branch, both chambers of Congress, and has a share of the judiciary, before accounting for media, academic, and cultural institutions. His Climate Envoy, John Kerry has even been on a circuit pressuring major financial institutions to divest from fossil fuels. All of these play a part, and this is one space that the policies of the administration may not technically hold back producers, but the rhetoric and informal actions signal to other party leaders and institutions that receive the message to create their own pressure.
In November, the president ratcheted up the pressure himself by sending a letter to the FTC Chairwoman Lina Kahn alleging “mounting evidence of anti-consumer behavior by oil-and-gas companies.” He then instructed the FTC to “bring all of the Commission’s tools to bear if you uncover any wrongdoing.” This followed Congressional hearings in October alleging the same, in which Democrats actually sought to pressure oil and gas producers to decrease their output.
This year – and in fact on the one-year anniversary of the Biden executive order halting new leases on federal lands – a federal judge blocked the sale for leases of nearly two million acres in the Gulf of Mexico. While this was a judicial action, outside of the administration, its impact on energy producers is the same. It adds another signal that production will be costly, regulated, and sometimes blocked altogether.
Then, just last month, the Biden administration indefinitely halted new leases on public lands altogether. This was a reaction to another federal court striking down the elevated social cost of carbon used by the administration.
Since his first day in office, President Biden has taken actions that limit domestic energy production. First through executive orders, then through agency reviews, and through all of it, with rhetoric and political priorities that signaled uncertainty and risk for oil and gas producers, who require labor, capital, and long-term planning.
While all of these actions, statements, and political conditions did come from the administration and its policies, there is another side of the coin. Since his campaign-trail promises, Biden has been almost singularly focused on clean energy. It is possible that the president believes what he said, that rather than holding producers back, his policies are designed to leave them on their own, adrift to fight for themselves while the government pursues other actions. Therein lies a major reason for the current energy crisis – it was created artificially, and it is being sustained because the administration is refusing to act in any way that aids fossil fuels.
What The Admin Is Saying
In November 2021, in a now infamous Bloomberg Politics video interview, Biden Energy Secretary Jennifer Granholm laughs and even states “that is hilarious” in response to the question “What is the Granholm plan to increase oil production in America?” Her point was that she does not have that power, but her joking tone and attempt at levity belie that she has not tried. In fact, when pressed further, after the interviewer’s acknowledgement that oil is a global market, he asked again for the Biden administration’s plan for upping U.S. production into that global market. Secretary Granholm responded, “The Biden plan is to diversify and make sure that we move in a direction of clean energy.”
Said another way: the plan is limited oil and gas production.
A validation of this plan came just this week, as Biden administration officials ranging from the Vice President to the Transportation Secretary and even Administrator of the Environmental Protection Agency hailed clean energy as the solution to the energy crisis.
National Economic Council Director, Brian Deese: “The only viable path to energy independence for the American economy is to reduce the energy intensity of our economy over all and ultimately to reduce it to zero and get ourselves to where we are no longer reliant on fossil fuels.” He added that the pain experienced today “should only reinforce our efforts to move there more quickly.” This view seeks to ride the wave of energy costs toward renewables, not address the root cause of rising costs.
Transportation Secretary, Pete Buttigieg: “Clean transportation can bring significant cost savings for the American people … so that people from rural to suburban to suburban can all benefit from the gas savings of driving an EV.” As a direct response to all-time record high gas prices (before inflation adjustment), the administration views electric vehicles as the answer, rather than driving down energy prices.
When asked about re-approving the Keystone pipeline, Secretary Buttigieg said, “we also need to make sure that we are not galloping after permanent solutions to immediate short term problems.” This view demonstrates the administration’s belief that pipelines further entrench a fossil fuel economy, so instead of a “permanent” pipeline, we need short-term imports of oil while we invest in renewables domestically.
Vice President, Kamala Harris: “Imagine a future where the freight trucks that deliver bread and milk to our grocery store shelves and the busses the children to school and parents to work. Imagine all the heavy duty vehicles that keep our supply lines strong and allow our economy to grow. Imagine that they produced zero emissions.” Once again, electric vehicles are an end-run around higher gas prices, rather than address the prices themselves.
EPA Administrator, Michael Regan: “We’re pressing the accelerator to reach a zero-emissions future sooner than most people thought.”
All the electric vehicle and clean energy talk sounds aspirational and positive, but in context, they are being prematurely advanced and a transition is being forced. While the rationale makes some sense – take away bad actor’s ability to manipulate global energy markets – the foundation has not been build, and we can take away that ability by producing at high levels domestically.
Moreover, we need gasoline and diesel trucks today to carry goods to our stores – the answer to the current energy crisis is not to keep letting fuel prices skyrocket and transition as fast as possible to electric vehicles. Because this is not merely a gas price issue.
Gas prices make transportation more expensive. That makes everything being transported more expensive. Soon, grocery store prices will inflate further. Building materials and finished goods will be more expensive to bring to market. Infrastructure building and maintenance costs will rise. Oil and gas are needed now to keep these things from spiraling out of control.
Moreover, oil and gas are bedrock supply chain components in themselves, separate from their essential energy function. They serve as feedstocks and raw materials for most of the goods used by every citizen on a daily basis. And they contribute to food, fabrics, plastics, fertilizer, medicines, and more. This energy crisis will spiral into food insecurity, transportation insecurity, infrastructure decay, and more if left unaddressed.
It seems that the administration’s goal is “pressing the accelerator” on electric vehicles and renewable energy while limiting fossil fuels and stranding producers to let the market deliver fuel at whatever cost it can bear. Can the private sector overcome these hurdles and respond to market forces?
Why Not Just Drill
Returning to domestic energy production, the question is often asked why energy corporations do not simply drill and produce more. White House Press Secretary, Jen Psaki and National Economic Council Deputy Director, Bharat Ramamurti both recently pointed out that there are 9,000 approved permits that are not being used by the oil industry. In her interview last fall, Secretary Granholm even said somewhat flippantly, “If 80 plus dollars a barrel doesn’t incentivize oil companies to get off the sidelines, I’m not sure what will.”
As is often the case, there is more at play here than the price of oil – and supply and demand are often not the full picture. The federal government has asserted its position plainly that it wants to see a transition away from fossil fuels. The president has taken actions to limited oil and gas production, executive agencies have prolonged environmental reviews, halted permits for federal land, and taken to the courts to stifle energy projects. Outside of direct federal action, activists lawsuits constantly badger exploration, production, and transportation projects.
Federal policy, in addition to inflammatory rhetoric, have led to government and corporate divestment from fossil fuel companies. This has caused energy companies to lose access to cash flow and assets and understandably led them to act cautiously before investing in new leases with unproven reserves.
Broader economic factors also diminish drilling activity, like a slim pool of experienced labor ready to work in the oil patch, or restrictions in supply of critical materials like steel for casings, pipe, and parts. Added is the consolidation and draw down of production from diminished demand during COVID-19. To ramp up takes considerable effort. Consider the manpower, materials, and logistics to operate a single new rig. In reality, “It is extremely capital and time-intensive to extract hydrocarbons.” On top of this, millions of dollars go into exploration, and not every geologic formation is economically viable, meaning many approved permits are not worth pursuing.
It is also important context that at any given time, the industry has unused permits as it prioritizes which to pursue or abandons economically unviable areas, despite being approved to drill there. Industry leaders have even pointed out that the energy sector is currently developing more leases than at any point in the last two decades, meaning there is a far lower share of unused leases or permits than usual, and as of the latest available data, over 4,600 permits are currently pending approval. Once approved, operators are still subject to on-site inspections, and further environmental review, before final approval or approval with modification to produce.
Energy companies – painted publicly as villains by corporate media, activist, and the very federal authority that regulates them – have to juggle the economics, logistics, and uncertainty that comes with energy production. They may sink millions of dollars into a project that ends up not being viable on its own, or they may have permits pulled out from under them, or the project stalled in court, or all three of these and more. Even for successful leases, they now face higher royalty fees and other costs.
In other words, 9,000 unused permits do not exist in a vacuum. They exist under the threat of the administration, environmentalist litigation, supply chain restrictions, labor force participation issues, cancelation of leases and permits, and uncertain market forces. These conditions have been largely created by the current administration, and can be alleviated with new leases, protection guarantees for certain permits, incentives to produce – including on federal lands and waters, and approval of pipelines to carry these to market while importing from our friendly neighbor, Canada.
The actions and rhetoric of the Biden administration have not only sought to advance clean energy and an electrified future, but has done so artificially, prematurely, and to the detriment of the fossil fuel industry. Unfortunately, the entire economy relies on the fossil fuel industry, and seeking far away unscalable solutions to immediate dire economic conditions will result in more inflation, more pain, and devastation for many low-income households and communities.
Written by Benjamin Dierker, Director of Public Policy
The Alliance for Innovation and Infrastructure (Aii) is an independent, national research and educational organization. An innovative think tank, Aii explores the intersection of economics, law, and public policy in the areas of climate, damage prevention, energy, infrastructure, innovation, technology, and transportation.