Even in an age of energy transition, the gas pump remains as important as the voting booth to a U.S. president’s political fortunes.
President Joe Biden proved it this week. Facing growing anger in the heartland over gasoline prices soaring above US$3.20 a gallon at the height of the summer driving season, his administration appealed to the Organization of the Petroleum Exporting Countries and its compatriots to crank open the crude taps.
In doing so, he took flak from environmentalists, who say he’s turning his back on his climate agenda, and U.S. pro-oil types and Alberta’s government, which exhumed the corpse of the Keystone XL pipeline. Mr. Biden formally rejected the Canada-U.S. oil conduit in January.
It shows the transition is going to be long, rocky and very uncomfortable for leaders who want to fight climate change but don’t want to be remembered for bringing back runaway inflation.
Since the start of his election campaign, Mr. Biden has trumpeted his plans for the United States to take a leadership role in the marathon to decarbonize the global economy. This after his predecessor, Donald Trump, reneged on the Paris Agreement, weakened automobile fuel economy standards and pushed for a rebirth of the coal industry.
Now, though, worries about inflation have jumped to the fore, as Americans have taken to the open road after being caged up by pandemic restrictions. Pump prices on average have risen 40 per cent since the start of the year, helping to push consumer prices to a 13-year high.
By appealing to OPEC to inject more crude into the market, Mr. Biden aims to cool prices and lower the political heat. It’s not nearly as bad as the swelter felt by Richard Nixon in 1973 and Jimmy Carter six years later, both amid oil crises, but there are faint echoes.
Mr. Biden’s timing was poor. His entreaty to Saudi Arabia and its allies came on the same week that the United Nations’ Intergovernmental Panel on Climate Change published its starkest report yet on how humans are contributing to climate change. Its scientists said action on slashing emissions must be taken immediately to counteract the most destructive forces.
A rash of heat waves, droughts, wildfires and floods around the world has only added an apocalyptic tinge to the message.
”Manipulating the global oil supply isn’t just a handy way for the Biden administration to keep gas prices low – it has real consequences for the climate and the ongoing fight to transition to a truly clean energy system,” wrote Colin Rees, senior campaigner for Oil Change International, in response to the plea to OPEC.
The greens say high gas prices are necessary to help nudge motorists into realizing that electric vehicles are a viable alternative to those powered by internal combustion engines. The President himself signed an executive order this month that aims to make half of all new passenger vehicles sold in 2030 electric-powered. This year, EV sales are expected to double – to about 3.5 per cent of all sales.
On the other side of the political spectrum, Alberta Premier Jason Kenney’s government and Republicans from oil producing states seized on Mr. Biden’s rejection of the Keystone XL pipeline. In summary: Why go cap in hand to the oil world’s potentates when you had the opportunity to get all the crude you want from your northern pals and the shale fields of Texas?
“The Biden administration pleading with OPEC to increase oil production to rescue the United States from high fuel prices months after cancelling the Keystone XL pipeline smacks of hypocrisy,” Alberta Energy Minister Sonya Savage said in a statement.
It’s a political talking point for a government that gambled and lost on the project going forward, essentially taking an equity stake while wagering that Mr. Trump would win a second term. The bet cost Alberta taxpayers $1.3-billion, and Mr. Kenney and his minister don’t want to pass up an opportunity to shift the blame.
From an oil market perspective, even if it hadn’t been cancelled, the pipeline would not have been completed by now. In fact, there’s no guarantee it wouldn’t still be mired in another court battle at the U.S. state level.
What’s more, Canadian oil producers are already by far the biggest suppliers of foreign oil to the U.S. and have no spare production capacity to offer. After years of stock market underperformance, they are concentrating on paying back weary shareholders with dividends and stock repurchases rather than plowing cash into increasing output. It’s a similar issue with U.S. shale oil producers, many of whom had their finances pulverized during the pandemic.
Hence, the Biden administration appeals to the oil cartel to loosen up a crude market that threatens to stall the recovery. Even as America plays catch-up on the environment, it looks like the short-term political and economic risks will keep a speed limit on its road to decarbonization.
Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. Email him at email@example.com.
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