Utter Nonsense from Biden on Gas Prices

P resident Biden today announced a plan to reduce gas prices. It’s a perfect reflection of his party’s completely incoherent energy policy.

The White House fact sheet describing the plan says it is in response to “Putin’s Price Hike,” which has apparently assumed proper-noun status. (Unorthodox capitalization must be contagious among presidents.) As I’ve noted before, Russia’s invasion of Ukraine did cause a spike in oil prices, which sent gas prices up as well, but U.S. gasoline prices were rising for more than a year before Putin sent in his troops.

The first part of the plan is “immediately increasing supply.” The fact sheet says the administration plans to accomplish that by “doing everything we can to encourage domestic production now and through a historic release from the Strategic Petroleum Reserve to serve as a bridge to greater supply in the months ahead.”

It’s defensible so far. But it’s all downhill from here.

The fact sheet then adds, “The fact is that there is nothing standing in the way of domestic oil production.” That’s simply not true. Oil producers face shortages of many supplies that they need to do business. One of the most important is sand, which is needed for fracking.

In addition to material constraints, oil producers are also finding it difficult to attract investors. One reason is that they made relatively low profits as they expanded at breakneck speed over the past decade, so investors are hesitant to pour more money into an industry that had provided them with low returns. Another reason is the pressures of ESG (environmental, social, and governance) in the financial world, which views investing in fossil-fuel companies as socially irresponsible because it would exacerbate climate change.

Rather than address any of those actual problems, Biden addresses an imaginary one: that oil companies are doing nothing to increase production because they are greedy. The fact sheet says, “Too many companies aren’t doing their part and are choosing to make extraordinary profits and without making additional investment to help with supply.”

This is pure nonsense economically: Greed would motivate oil companies to produce more in times like the present when the price of oil is over $100 per barrel (supply curves slope upward). The administration is ignoring the actual constraints that oil companies face in order to vilify them while, in the very same document, asking them very nicely to “[do] the right thing” by “committing to ramp up production now.”

In the meantime, while the good and/or bad oil companies get their act together (or keep up the good work), the administration wants to release a million barrels of oil per day from the Strategic Petroleum Reserve for the next six months. That’s a lot of oil, but some perspective is needed as well.

First, the U.S. consumes about 20 million barrels of oil per day. Second, looking only at oil consumption doesn’t tell the whole story because crude oil on its own is not useful; it must be refined. When the new oil goes to American refineries, it will be turned into gasoline, as well as diesel, jet fuel, kerosene, and many other refined products. Those products are all sold on a global market, not just to Americans. By the time the benefits of the increased oil supply make it to American drivers, they will be much smaller than the administration is hoping.

Right after announcing the release of reserves, however, the fact sheet goes on to say that “the Department of Energy will use the revenue from the release to restock the Strategic Petroleum Reserve in future years.” So the government’s grand plan to increase oil supply is to release a bunch of oil from reserves, while also taking a bunch of oil off the market to restock those reserves? How is that going to help?

Then we get to Biden’s ideas for “achieving real American energy independence.” Item No. 1:

The President will call on Congress to pass his plan to speed the transition to clean energy that is made in America.  His plan will help ensure that America creates millions of good-paying union jobs in clean, cutting-edge industries for generations to come. And it will save American families money in the immediate future – including more than $950 a year in gas savings from taking advantage of electric vehicles, and an additional $500 a year from using clean electricity like solar and heat pumps to power their homes.

“Clean energy,” “made in America,” “good-paying union jobs,” “electric vehicles,” and “solar” — that’s a Biden bingo in just one paragraph. The fact sheet goes on to note that the president will use the Defense Production Act to increase production of materials needed for batteries and use some money from the bipartisan infrastructure law to increase energy efficiency.

It seems that the president’s solution to high gasoline prices is to stop using gasoline, a commodity of which Americans currently use 337 million gallons per day. This is apparently something he thinks he can accomplish with some subsidies, some executive action, and a few billion dollars in government spending. You don’t have to be an expert to realize that’s not going to work.

We’ve seen how government speeding the transition to clean energy worked out for Germany (spoiler: very poorly). Invoking the Defense Production Act does not suspend the laws of economics and create new technology out of thin air. Biden’s living in a fantasy land on energy policy.

But he doesn’t have much of a choice. His party believes that fossil fuels are evil but that gasoline should be cheap. It believes that carbon emissions pose an existential threat to humanity but that nuclear power is bad. (The word “nuclear” does not appear in the fact sheet at all.) It believes that high gas prices hit the poor hardest but that the solution is to buy a new electric car.

Given that set of beliefs, nonsense is the only possible result. Today’s fact sheet is no exception.