With Gas Prices Soaring, Biden Searches for a Scapegoat

P resident Biden has put climate policy at the center of his agenda. On his first day in office, he canceled the permit for the Keystone XL pipeline, which would have carried more than 830,000 barrels of oil a day from Canada through the U.S. He also rejoined the Paris Agreement and has since dispatched regulatory agencies to cut off capital from the oil and gas sector.

The results have been predictable: declining domestic oil production and rising gasoline prices. And now that the chickens are coming home to roost, Biden is pointing the finger at oil companies, which he accuses of engaging in “anti-consumer behavior” to raises gas prices. In a November 17 letter to Federal Trade Commission chairwoman Lina Khan, the president claimed that “gasoline prices at the pump remain high, even though oil and gas companies’ costs are declining.” He cited as evidence of declining costs a 5 percent decrease in the price of unfinished gasoline over the last month.

The spot price of refined gasoline did indeed fall 5 percent between October 18 and November 17, but the White House chose that time frame for a reason. Wednesday’s spot price of $2.29 per gallon of refined gas was only barely down from the October 6 price of $2.31. Since Biden took office, the cost of refined gas has risen 50 percent, and futures markets suggest that prices will remain above $2.30 until at least July of next year.

Elevated energy prices are due in large part to OPEC’s production cuts, as well as diminished domestic output from ailing shale businesses that took a hit during the pandemic. For the past decade, U.S. fossil-fuel companies have essentially subsidized consumers, making massive investments in domestic production that brought down energy prices but returned little in profit. It is unsurprising that U.S. investors aren’t especially eager to turn on the spigots again.

But it is also true that the rise of so-called Environment, Social & Governance (ESG) investing, which the White House has included in public-pension plans, has pushed up the cost of capital for U.S. energy companies. If Biden’s early moves are any indication, capital costs will only continue to increase in the years to come. Saule Omarova, Biden’s pick for comptroller of the currency, explained the administration’s financial-regulatory approach to climate change as follows: “The way we basically get rid of those carbon financiers is we starve them of their sources of capital.” With the help of the private sector, administration officials have already begun pressuring banks to cut back on investments in the fossil-fuel industry. Now, White House appointees look poised to codify this policy.

Secretary of the Treasury Janet Yellen recently unveiled a report from the Financial Stability Oversight Council that, in her words, “puts climate change squarely at the forefront” of financial regulation. Among the regulations proposed by the FSOC are increased climate-risk disclosures and the creation of a climate-related financial-risk committee within the regulatory apparatus. The administration has, in no uncertain terms, put oil and gas companies on watch.

That energy companies have taken note and begun turning away from fossil fuels is unsurprising, but it is a problem for the White House. October’s 6.2 percent inflation reading was driven in large part by rising gas and heating costs, and high prices at the pump are notoriously damaging to politicians.

The White House’s letter to the FTC is unlikely to result in any tangible regulatory action. It appears to be a rhetorical gambit meant to redirect voters’ frustrations away from Washington and toward energy companies. While Biden may succeed in convincing some voters that nefarious oil executives are unilaterally jacking up prices, he cannot will away rising costs for consumers.

One step he can take, and is considering, is a halt on U.S. oil exports. Locking domestically produced oil within U.S. borders would reduce oil prices in the U.S., but at the cost of kneecapping an already-weak domestic energy sector. Unable to access global markets, U.S. energy companies would almost certainly respond to an export ban by reducing investment and cutting long-term output. A ban would also give OPEC even greater clout in the global energy market, undoing decades of progress that led to American energy independence.

Try as he might, Biden isn’t going to get very far attempting to find a scapegoat for the damage wrought by his administration’s economic policies. This is a mess of his own making, and he’s left himself few good options for cleaning it up.