Climate activists are having a rough year. President Biden’s green-energy plans are gathering dust amid soaring oil and gasoline prices and a shortfall of old-fashioned fossil fuels. The Supreme Court has rolled back the power of the executive branch to regulate carbon emissions. With inflation, crime and other worries dominating headlines, voter concern about climate change has dropped since the 2020 elections.
There’s another way of looking at these developments, though. There’s been progress toward addressing climate change during the last several years, but also a lot of happy talk detached from reality. With Biden pushing harder to do something, and markets beginning to price in a sustained decline in carbon energy, a blueprint is emerging for what it will really take to wean the U.S. and global economies off fossil fuels and reduce carbon emissions by meaningful amounts. Four lessons:
We need a credible transition plan. Biden and many climate activists want to “phase out” fossil fuels. Sounds pragmatic and sensible. What’s been missing, however, is any calibration of how to meet the ongoing need for fossil fuels before there’s enough wind, solar and other sources of renewable energy to replace them. Phasing out carbon while phasing in renewables doesn’t mean there will be a smooth pathway from one to other, and in fact we are now getting our first taste of what happens when phase-in and phase-out are out of sync.
There are several causes for skyrocketing oil and gasoline prices this year, but perhaps the most important is the industry’s own decision to begin controlling or reducing capacity for drilling and for the refining process that turns raw crude into products like gasoline and diesel. Some in the industry blame Biden’s hostile rhetoric for this, but it’s much bigger than that. Oil and gas capacity reductions began in 2020, when Donald Trump was president, because years of overproduction in the U.S. energy sector had produced a decade of weak returns culminating in a total wipeout when the COVID pandemic hit. The five biggest U.S. oil refiners lost $43 billion that year and closed some of their worst-performing facilities. Energy shareholders and investors took such a beating that they now demand returns quicker than ever and all but forbid CEOs from directing cash flow toward new investments.
The fossil-fuel industry will be around for a long time, but nobody considers it a growth industry anymore, which is a drastic change from just a few years ago. That’s not because of Biden. It’s because governments everywhere recognize the imperative to reduce carbon emissions, adopt new energy sources, and put a lid on global warming. Activist investors are pushing to defund oil and gas companies. Huge money managers such as BlackRock are pushing many of the firms they invest in to decarbonize. Fossil fuel CEOs view their jobs as maintaining profitability in an industry that's flat or declining—not as making big new investments that will lose money once nobody needs fossil fuels anymore.
It's contradictory for Biden or any climate activist to call for the long-term “elimination” of fossil fuels, but also plead for temporary capacity increases when prices get too high. That’s the same as saying private-sector investors should be willing to lose money in the future to help lower prices for consumers today. That’s not the role private-sector investors play in the U.S. economy. And if the private market can’t meet an important public need, that’s where the government is supposed to step in.
For all the talk, there’s been very little U.S. government action on climate change, so far. The Green New Deal was a fanciful plan, not a law Congress ever passed. Biden’s plan for hundreds of billions in green-energy investments didn't pass either. If it had, it would not have done anything about the current high prices of gasoline, diesel, and household energy, because it focused on long-term changes that wouldn’t make a difference for years.
Should the federal government get involved in fossil fuel production to assure there’s a bridge from today’s energy to tomorrow’s? Energy historian Gregory Brew has suggested Biden establish a government-owned “National Refining Company” that would bring additional oil and oil products to market when supplies are scarce, with no regard for profitability. When renewables make it obsolete, the government could convert it to others uses or simply shut it down. The climate lobby would probably howl about any government effort to generate—gasp!—fossil fuels. But the harm to their cause could be a lot worse if high energy costs persist and voters turn against clean energy because they think it’s costing them a lot of money. As for anybody who objects to government intervention in private markets—please suggest a better idea.
Meaningful action will require new laws. President Obama tried to impose sweeping climate reforms through government action because Congress wouldn’t do it through legislation. Courts struck down some of those actions, and Trump reversed others when he came into office. Biden tried to restore some of the Obama-era rules, and the Supreme Court ruled against that move on June 30. The High Court, now dominated by Republicans, has taken an extremist turn, yet executive action is generally a last resort when there aren’t enough votes in Congress. The best way to enact lasting change is through laws passed by Congress that courts won’t be inclined to overturn.
There must be some bipartisan support. Democrats came close to passing Biden’s climate provisions last year, but the defection of just one Democratic senator, Joe Manchin of West Virginia, sank the bill, given that Dems have just a one-vote majority in the Senate. Many Democrats blame Manchin, who’s close to West Virginia’s coal industry, but the real problem is the partisan nature of the whole battle. Some Republicans may never support climate-change action, but there’s also growing acknowledgement among moderate Republicans for the need to act on global warming. Compromise legislation that promotes green energy without punishing or vilifying oil and gas producers might be possible. Such legislation might even include a bridging framework meant to assure abundant fossil fuels in the short term. If Congress can pass gun-control legislation, as it just did, why not a climate bill?
This will be difficult and take a long time. Biden describes his green-energy plan as a “transition,” which suggests seamless change, like flipping a TV channel. But the shift from fossil fuels to green energy could also be abrupt and disorienting, like jumping from one moving car to another. We’re only at the beginning, where progress has been easiest: gradual electric-vehicle adoption, voluntary corporate disclosures, proposed legislation. As the shift speeds up or the imperative to change grows more urgent, energy availability could morph from something we’ve learned to take for granted to a scarce good at the center of political upheaval.
Climate activists don’t mind if fossil fuel gets more expensive, because that makes green energy cheaper, by comparison. But green energy is nowhere near interchangeable with fossil fuels, yet, and in the meanwhile consumers who have no alternative to gasoline or heating oil suffer. Carbon dinosaurs sloganize about the lack of energy when the sun isn’t shining or the wind isn’t blowing, but they’re also in denial about an industry that is changing whether they want it to or not. What high energy prices are teaching us now is that the bridge from carbon to green crosses a chasm we really don’t want to fall into, but will if each side keeps bashing the other.