“Every government intervention creates unintended consequences, which lead to calls for further government interventions,” observed the great Austrian economist Ludwig von Mises. He was being generous by describing interventionism’s nasty side-effects as “unintended.” Some younger interventionists are naïve, and know not what they do, but the older, street-smart captains of progressive politics understand the harms their policies entail. For them, the adverse consequences are features, not bugs. The only downside is the risk of political retribution at the polls.
That’s the predicament in which the Biden administration now finds itself. It is also the theme of “Energy Inflation Was by Design,” a new report by supply-chain consultant Joseph Toomey.
President Biden and congressional Democrats want to replace fossil fuels with a “zero-carbon” energy system. Their biggest win to date is the comically mistitled Inflation Reduction Act (IRA). A Penn-Wharton analysis estimatedthat the IRA would increase federal climate and energy spending by $369 billion over ten years. A recent article in The Atlantic touts a Credit Suisse estimate that actual climate-related federal support could reach $800 billion. That’s because the incentives for electric vehicles and renewable energy are “uncapped tax credits.” Moreover, since federal spending leverages private-sector investment, total economy-wide green-tech spending could increase by as much as $1.7 trillion.
Nor is that all. The Department of Energy (DOE) estimates that the IRA has increased its loan program authorities by up to $350 billion.
No wonder Democrats celebrated the IRA’s enactment. No bigger program to rig energy markets against fossil fuels was ever enacted. The IRA aims to enrich thousands of enterprises, tens of thousands of employees, and millions of shareholders—all dependent on Democrats to keep the gravy train flowing. Hardly an “unintended” consequence.
But voters see and feel the downsides of Biden’s war on fossil fuels: the high costs of gasoline, electricity, and other utilities, which in turn increase the costs of food, rent, and consumer goods. Those effects, moreover, coincide with high general inflation, a cratering stock market, and negative GDP growth in two consecutive quarters. Biden tries to blame Vladimir Putin and Big Oil for America’s energy woes. That is nonsense, and the public isn’t buying it.
Toomey marshals overwhelming evidence that “energy inflation” is a core feature of the president’s climate agenda. And how could it be otherwise? A core progressive article of faith is that fossil fuels are too cheap because market prices do not reflect the “social costs” of carbon dioxide (CO2) and other greenhouse gases (GHGs). Accordingly, no matter how expensive or scarce fossil energy may become for other reasons, taxing or capping fossil-fuel consumption to make it even more costly is hailed as a “climate solution.” Of course, handicapping fossil fuels is also touted as a way to make renewables more “competitive.” As President Obama enthused, cap-and-trade will “finally make renewable energy the profitable kind of energy in America.”
The public, however, has repeatedly spurned proposals to tax or cap the carbon content of fuels or emissions. So, U.S. progressives now concentrate on rigging energy markets via targeted regulations, state-level renewable-energy quotas, and subsidies. As noted, the IRA sets a new standard for anti-fossil-fuel subsidies.
President Biden seeks to cut U.S. carbon emissions by 50-52 percent below 2005 levels by 2030 and achieve a zero-emission electricity sector by 2035. That means that about half of all U.S. fossil-fuel consumption must end in eight years. Few investors want to park their capital in rapidly contracting industries. So, thanks to Biden, the market forecasts that supplies of oil, gas, and coal will decline relative to demand—and prices will rise. The expectation of shrinking supplies and higher future prices puts upward pressure on energy prices today.
An irony noted by Toomey is that by endangering fossil-fuel energy supply, Biden has not only increased fossil-fuel energy prices but also boosted oil and gas company profits and stock values. The short-term enrichment of oil companies may well be an unintended consequence of a long-term agenda to put them out of business. On the other hand, Biden’s boost to oil industry profits is also the setup for further interventions popular with progressive activists and politicians—windfall profits taxes, export bans, and Federal Trade Commission investigations of “anti-consumer behavior.”
Toomey demolishes the Biden administration’s allegation that oil companies are deliberately reducing refinery utilization to constrict supplies and raise prices. In fact, refineries are running at higher utilization rates than ever (about 94 percent).
Nine large refineries have shut down in recent years, reducing overall capacity by more than 1.2 million barrels per day. Toomey examines each case. One refinery was too old and blew up in June 2019. The others fell victim to activist and Biden administration pressure for so-called climate-aligned investments, the Biden EPA’s punitive renewable-fuel standards (RFS) policies, and the administration’s scheming with California to phase out sales of gasoline-powered vehicles. Thus, to the extent that reduced refining capacity contributes to high motor-fuel prices, it is another orchestrated result of Biden administration policy.
Toomey also points out that the Biden EPA’s decision in April 2022 to rescind RFS blending exemptions for 70 small refiners, making blending obligations retroactive back to 2016, will “impose enormous burdens” on small refiners. Those companies produce nearly 30 percent of America’s gasoline and diesel supply. Rescinding the blending exemptions will raise their costs, and some may be forced out of business. This policy, too, will put upward pressure on fuel prices.
A big factor jeopardizing future fossil-energy supplies is the Security and Exchange Commission’s (SEC) proposalto align financial markets with ESG (environmental, social, and governance) standards. Such standards supposedly protect shareholders from climate-related risks. More likely, they will destroy shareholder value by choking off fossil-fuel companies’ access to capital and credit. The predictable long-term result is to reduce the availability and affordability of fossil energy.
Toomey has some choice words about the SEC’s proposal to require publicly traded companies to report their “material” Scope 3 emissions. Scope 3 refers to the “indirect” GHG emissions to which a company contributes by doing business with other firms in its “value chain.” The proposal effectively makes the reporting company responsible for monitoring and managing other firms’ emissions, regardless of whether those firms are publicly traded or whether they have the resources to hire carbon accountants and engineers. Such outsourcing of climate-centric central planning will accomplish nothing except to “impose onerous, financially damaging, compliance costs,” Toomey warns.
Because people are policy, Biden’s appointment or nomination of anti-fossil-fuel zealots is itself a factor increasing fossil-fuel companies’ risks and cost of doing business. Prominent examples that Toomey notes include:
Climate Envoy John Kerry, who urged Putin not to let the invasion of Ukraine distract him from the fight against climate change;
Climate Czar Gina McCarthy, who gave us the unlawful Clean Power Plan;
Soviet-trained Saule Omarova (nominated for Comptroller of the Currency), who advocates central planning of capital markets and was filmed saying that she wants fossil-fuel companies to go bankrupt, the better to fight climate change; and
Sarah Bloom Raskin (nominated for Federal Reserve Vice Chair), who published a recent New York Times op-edtitled: “Why Is the Fed Spending So Much Money on a Dying Industry? It should not be directing money to further entrench the carbon economy.”
As a presidential candidate, Joe Biden promised to “get rid of fossil fuels,” assuring one activist, “I guarantee you. We’re going to end fossil fuel.”
Toomey reviews several Biden initiatives that back up such threats. The major ones, besides the government-wide, IRA-funded effort to channel “the flow of capital toward climate-aligned investments and away from high-carbon investments,” include:
Cancelling the Keystone XL Pipeline on Inauguration Day;
Suspending new oil and gas leases on federal lands;
Reviving social-cost-of-carbon sophistry;
Halting petroleum-development activity in Alaska’s National Arctic Wildlife Refuge;
Rejoining the Paris Climate Accords without asking for the Senate’s advice and consent;
Considering a non-attainment designation for ozone pollution that could curb drilling in the Permian Basin, which accounts for 43 percent of U.S. oil production; and
Imposing stricter methane standards for oil and gas production.
To provide historical context for the fiscal side of Biden’s climate agenda, Toomey discusses the Obama DOE loan program established by the American Recovery and Reinvestment (“Stimulus”) Act. The best-known program beneficiary was solar-panel manufacturer Solyndra, which filed for bankruptcy protection in 2011 despite receiving $535 million in DOE loan guarantees. Some readers may also recall a list of seven such “Stimulosers.”
In his remarks for the September 2009 Solyndra groundbreaking ceremony, then-Vice President Biden boasted that DOE’s support would create “1,000 permanent new jobs,” “jobs of the future,” “jobs that cannot be exported.” Energy secretary Steven Chu agreed: “And here’s the best part, none of these jobs can be outsourced.” Then, almost two years later to the day, the jobs vanished.
A February 2021 article in Quartz urged President Biden not to draw the wrong lesson from these experiences, arguing that Republicans unfairly used Solyndra to give the DOE loan program a bad rap. Most of the loans and guarantees to about 35 companies were successful, the article contended.
Toomey, however, identifies and links to 24 green-tech companies that failed after receiving Obama DOE loans or guarantees. “All these had been lent massive amounts of money totaling billions of dollars of taxpayer capital, and all had collapsed in failure despite below-market interest loans, mandated markets, and overpriced revenue streams enabled by government-directed renewable energy thresholds,” he comments.
In short, nearly seven out of ten Obama DOE loan recipients in a $32 billion loan program went bankrupt. The total federal financial support provided by the IRA for “climate-aligned” investments is potentially 36 times larger. The stage is set for scores of Solyndras. Toomey’s labor as a chronicler of the war on fossil fuels is nowhere near done.
Marlo Lewis is a senior fellow in energy & environmental policy at the Competitive Enterprise Institute.
