An appeals court reversed the decision of a lower court to allow the Department of the Interior to use the “social cost of carbon” to calculate the climate costs of leasing on federal lands. The “social cost of carbon” is an Obama-era construct that is essentially a carbon tax that is used in analysis to weight results toward renewable energy and against fossil fuels. The calculation is ambiguous in that it can vary widely depending on the discount rate and other factors used in its calculation. But, now that the Interior Department can use it, the agency says that it can move forward with planning for oil and gas leasing on federal lands. Previously, the department said there would be delays in “permitting and leasing for the oil and gas programs” after a lower court barred the Biden administration from using the metric.
Background
The Biden administration had paused or delayed both lease sales and drilling permit approvals on Federal lands. One week after being inaugurated, President Biden issued an executive order that placed a moratorium on new oil and gas drilling on federal lands, indicating that the administration needed to review the process and revenues obtained from the lease sales. The Department of the Interior held no lease sales until a lower court ruled that the law required that the lease sales be held. The Biden administration then held one offshore lease sale in the fall of 2021, which generated the most revenue in history, but was overturned by a court for not sufficiently taking climate change into account. The Interior Department did not seek to appeal the ruling.
According to reports by the Bureau of Land Management, permit approvals dropped precipitously in August 2021 to 171 from 643 in April 2021 and were down to 95 permit approvals in January 2022. The Biden administration argued that the court ruling that barred the federal government from adopting or relying on the social cost of carbon metric would disrupt current work on federal drilling permits as well as new regulations. According to the Interior Department, the injunction on the social cost of carbon would lead to delays in permitting and leasing for federal oil and gas programs. As a result, the Biden administration is currently sitting on 4,621 unprocessed drilling permit applications.
It will be interesting to see how the Biden administration pursues lease sales and drilling permit approvals now that the social cost of carbon metric is approved by the appeals court.
What Biden and Congress Are Considering to Address High Gas Prices
The White House had considered having the IRS send gas cards to Americans—part of a broader package to address extremely high gas prices—that is still in its early stages of consideration. The issue is at the top of the White House issues as it is well aware that few things are more salient to voters than rising gas prices. The gas card idea, however, was opposed by some key House Democrats because:
- It would be expensive and poorly targeted.
- It could worsen inflation and would not do much to lower costs.
- Delivering the cards would be a slow process that could bog down the IRS in the middle of the filing season, potentially delaying people’s tax returns.
Democrats in Congress have been brainstorming ideas on legislation to lower gas prices after they reached record high levels, including stimulus checks, using more ethanol to lower the demand for oil, and canceling oil companies’ federal leases that are not actively being used. Various Democrats have also already introduced bills that would suspend the federal gas tax; raise taxes on oil companies to fund means-tested assistance, or provide a federal rebate whenever gas prices get above $4 per gallon.
Further, Progressive House Democrats want President Biden to bypass Congress and use his authority to:
- Ban new fossil fuel leases on federal territory as well as “environmental justice communities.”
- Issue a national climate emergency and invoke the Defense Production Act to increase production of renewable energy.
- End domestic and international fossil fuel subsidies and reinstate a ban on oil exports. (This would ostensibly preclude gas cards or anything else that might lessen the load on consumers.)
Would These Ideas Help?
Clearly, Biden and Congressional Democrats do not understand how oil and gas markets work. Banning oil exports would only reduce global oil supply and raise global oil prices and, as a result, raise gasoline prices at the pump. Canceling federal leases that are not actively used would reduce oil production in the future as the industry would have no new areas to develop and drill for oil and natural gas. That is, it would simply destroy ongoing development. That would hurt Americans as the Energy Information Administration in its Annual Energy Outlook indicates that oil and natural gas will remain the primary fuels through 2050.
Further, it takes years to develop the leases due to litigation, performing exploratory work to see if oil even exists, developing infrastructure, and obtaining funding to cite just a few of the undertakings necessary. Obtaining drilling permit approvals from the Federal government can take the better part of a year where on state lands it takes only a few weeks. Using more ethanol would raise corn prices and thus raise food prices that would further increase inflation. Ending fossil fuels “subsidies,” which are essentially tax breaks that all industries get, would only raise oil prices higher and be punitive to U.S. production.
Biden had previously asked OPEC for more production to no avail and has released oil from the Strategic Petroleum Reserve twice. But the reserve amounts were small and made no major difference to oil and gasoline prices.
Conclusion
It is not clear what President Biden and Congressional Democrats want to achieve. If it is truly to reduce high oil and gas prices all they would need to do is put back President Trump’s policies which achieved energy independence in 2019. If their desire is to rid the United States of fossil fuels, they need to be honest with voters that these high oil and gas prices are a result of Biden’s energy policies and that there will be further price increases as they march forward with their zero carbon future. They also need to produce a sensible pathway to achieve their goals because the current direction is just increasing energy prices and increasing inflation, while at the same time reducing national economic and energy security.
