The surging cost of gasoline and home-heating fuel is a political problem in itself. Energy is 7% of the typical family’s budget, and higher prices = hardship. Voters blame whoever is in charge, and it’s no surprise Biden’s approval rating has plummeted as gas prices have risen 50% year-over-year.
This energy trap is also helping illustrate how difficult it will be to transition from fossil fuels to renewables and to reduce the carbon emissions baking the planet. Biden is mounting the most aggressive effort of any U.S. president to develop policies and legislation to combat global warming. Yet there’s resistance everywhere: Republicans at the federal level are nearly universally opposed to green-energy incentives or limits on fossil-fuel drilling. Democrats want to act but can’t agree on new taxes to fund green-energy investment. There’s more bipartisan support at the state and local level, but the scale of the problem is beyond what states and cities can do on their own.
Consumers increasingly acknowledge the damage global warming is causing, but they’re understandably leery of changes that will raise their out-of-pocket costs. Biden’s struggles on the issue reveal the fault lines forming in a transition from carbon to renewables that will take 30 years or longer. Here are 3 warning signs:
There’s a cost to vilifying fossil fuels. Americans got used to relatively cheap energy because of the fracking revolution that sharply lowered the cost of reaching certain oil and gas deposits in Texas, the Dakotas, Appalachia and elsewhere. But the drilling frenzy that kept costs down also required ready capital for new investments, and investors want to know there will be years of healthy returns before committing money. There’s now evidence that money is drying up, as policymakers in the U.S. and many other countries roll out incentives for green energy while in some cases penalizing oil and gas drillers. Steve Schwartzman, co-founder of private-equity titan Blackstone, said recently that new emphasis on environmental investing is causing a credit crunch at oil and gas companies that is crimping supply and pushing prices up.
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What’s missing is a realistic transition plan that begins with global dependence on fossil fuels, which still account for more than 80% of global energy needs. Biden himself tacitly acknowledged this dependence recently when he asked members of the OPEC oil cartel to drill more. They declined, and Biden is now pushing for an investigation into whether U.S. gasoline refiners are colluding to jack up prices. He probably won’t find much. Global supply and demand sets oil prices, and U.S. gasoline prices follow oil prices closely, as the chart below shows. Gas prices currently averaging around $3.50 per gallon seem in line with oil prices that are around $80 per barrel.
A coherent transition plan would acknowledge the need for significant amounts of fossil fuels beyond 2030, and probably beyond 2040, while providing a policy framework that gives drillers and their investors some confidence they won’t be drummed out of business. Vilifying fossil fuel providers is cheap political theater, but it can backfire when you’re trashing the companies that fuel your SUV and heat your home—or worse yet, those of your constituents.
There are going to be disruptions. Supply-demand mismatches today could be a preview of much worse imbalances as we draw down one piece of giant energy infrastructure while trying to build another. Here’s one illustrative example: Forecasting firm IHS Markit believes the infrastructure bill Congress recently passed will fund about 400,000 new electric vehicle chargers by 2026. But with more than 9 million EVs on the road by then, the nation will need about 700,000 chargers, IHS predicts.
Private companies could provide some of the shortfall, but there could also be a major lack of charging infrastructure to keep all those EVs going. If wait times for a charger are too inconvenient or there aren’t enough chargers to allow long-distance trips, it could damage the credibility of EVs or trigger a consumer revolt. Getting the balance right as new technology displaces old is going to be difficult, and there are going to be snafus. What’s the backup plan?
Nobody is preparing consumers for these challenges. While touting the benefits of green energy, nobody is telling consumers there will be a cost to them: in dollars, convenience, or preference. But there will be a cost. Green energy is cost-equivalent with fossil fuels in some places now, but often because natural gas provides a ready backup when renewables like wind and solar aren’t available. Without that backup, renewables would be costlier and unreliable.
In some areas, the transition to green energy might go smoothly. But in other areas it won’t, and it's clear at this point that small-scale setbacks or outright lies that spread in the bogusphere can take on outsized importance and wreck public attitudes toward something new. This reality needs to be part of a transition plan, too.
The shift to green energy is necessary. But if conducted in a way that misleads consumers or creates unexpected hardships, it will backfire and take far longer. This will go on for decades, and there’s still time to get it right.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.
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