President-elect Joe Biden enters the White House this week with ambitious plans to tackle climate change and hasten the transition to a low-carbon economy. The economic and political realities of the moment, though, will make it difficult to move too aggressively against an oil and gas industry that continues to supply a majority of the country’s energy.
Biden, a centrist Democrat, has been here before. In 2009, he became Vice President to President Barack Obama, an administration that also prioritized sweeping climate legislation, including a cap-and-trade carbon emissions program.
Those plans, which would have raised the price of gasoline, heating oil and natural gas, quickly gave way to the economic realities of the time. The country was in the midst of the Great Recession, the worst economic downturn since the Great Depression, and battling unemployment rates in the double digits.
It’s no wonder that cap and trade failed to gain support despite Democratic majorities controlling both chambers of Congress at the time. Indeed, an administration that was highly critical of the practice of hydraulic fracturing of shale deposits coming into the White House ended up overseeing a doubling of U.S. crude production during its tenure. The shale revolution went on to make America the world’s largest producer of oil and gas.
The Obama administration eventually had to accept that the booming domestic oil and gas industry was too important to the national economy and employment to dismantle. The shale industry was responsible for roughly 10 percent of the growth in the U.S. economy’s gross domestic product (GDP) from 2010 to 2015, according to a study by the Federal Reserve Bank of Dallas.
The Obama administration also came to realize the geopolitical benefits of being a major producer — so much so that it wiped out a 40-year old ban on exporting U.S. crude oil. Skyrocketing oil and gas production gave Washington more flexibility in setting foreign policy, too, particularly in dealing with the OPEC cartel and Russia.
The economy President-elect Biden inherits on January 20 will look a lot like 2009.
America continues to struggle under the Covid-19 pandemic. While nationwide inoculations are underway, it could be a long road back for the economy, and no one knows for sure what the new normal in a post-Covid world will look like.
The U.S. unemployment rate was 6.7 percent in December, down from a pandemic peak of 14.7 percent but still much higher than the average. The domestic oil and gas industry has been among the worst hit, shedding 107,000 jobs in March-August of last year alone as the pandemic crushed commodity prices. According to consultancy Deloitte, this marked the fastest rate of layoffs in industry history.
Despite the losses, producers are ramping up drilling and fracking activity again in response to recent rising prices, showing that they can make do with less. Now would be a terrible time to impose new costs and restrictions on the still-fragile industry, though.
Biden will likely continue to have ambitious climate policy goals. Bold talk on climate is something of a prerequisite to maintain the progressive coalition that helped get him elected. That includes a vow to spend $2 trillion on clean energy initiatives to build a more sustainable economy that puts America on a path to achieve net-zero emissions economy-wide no later than 2050.
But while the energy policy rhetoric may change significantly under the incoming administration, an outright assault on the oil sector is unlikely. To be sure, there will be a tightening of regulations and restrictions on new leasing, but current gains should be maintained.
It’s true that Biden has a wider window to pursue legislative backing for climate action after Democrats secured the narrowest of majorities in the Senate with the election run-off wins in Georgia. But it will be nearly impossible to pass broad anti-oil measures in a highly polarized Washington, particularly since centrist Democrats from oil- and gas-producing states would oppose such proposals as robustly as Republicans.
For example, Pennsylvania — home to the bulk of the vast, natural gas-rich Marcellus Shale — has one Democratic and one Republican senator. Neither is likely to support policies that restrict upstream development or pipeline infrastructure.
The situation is similar in Ohio and West Virginia, which each have one Democratic senator. In fact, West Virginia Democrat Joe Manchin is the incoming chairman of the Senate Energy and Natural Resources Committee. The largest producing states in the West, Colorado and New Mexico, each have two Democratic senators likely to resist efforts to restrain fossil fuel development even as they embrace the Biden administration’s climate goals.
Biden is likely to find support for a clean electricity standard that leaves room for natural gas and increasing low-carbon energy spending on areas like carbon capture or energy storage. Such moves could be sold as economic stimulants that wouldn’t harm fossil fuels — an important consideration for centrist Democrats representing oil-producing states.
Even these measures will be tough sells in today’s divided political environment. And they will likely drop far down on the domestic agenda that will have Covid-19 and economic recovery at the top for some time.
Biden will take steps to appease climate activists that supported him. He will likely rejoin the Paris Climate Accord, strengthen fuel economy standards, regulate oil industry methane emissions and perhaps ban new oil and gas leasing on federal lands.
But these are executive actions that can be undone by a future president — just as Trump did with Obama’s climate fiats from the White House and Biden is expected to do to Trump’s directives.
Lasting, meaningful energy reform requires legislation, which in turn requires compromise. The pragmatist in Biden may realize quickly that he doesn’t have the votes and that there are more pressing matters for him to deal with anyway, chiefly jumpstarting the economy. Remember, it was House Speaker Nancy Pelosi’s decision to make her caucus take a hard vote on passing health care reform first that scuttled support for cap and trade the last time Democrats controlled both chambers of Commerce.