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As Gasoline Prices Reach Record Highs, Biden Administration Continues to Send Mixed Messages On U.S. Energy Policy

If you’re scratching your chin over U.S. energy policy these days, you aren’t alone. The Biden administration has been sending mixed signals for months over how it will shape the future of domestic energy production and consumption. And nowhere has that been more obvious or confusing than in the administration’s rhetoric and actions on oil and natural gas.

Against the backdrop of rising energy costs – U.S. national average gasoline prices hit $5 a gallon Thursday – the administration has continued its back and forth on what it’s doing to bring down prices. From assurances that it is using every tool available to commitments to “push back hard” on efforts to build out critical infrastructure, it’s enough to give someone whip lash.

What is clear though is that the actions taken by the administration continue to show a lack of understanding of energy markets, as the so-called tools being presented would do little to alleviate prices or have the opposite effect altogether.

Blocking Energy Infrastructure

In less than 24 hours this week, two of President Biden’s top climate officials – U.S. Presidential Envoy for Climate John Kerry and White House National Climate Advisor Gina McCarthy – both explicitly called for blocking investments in the new energy infrastructure that is required to keep supply stable and affordable.

During an Axios interview on Thursday, McCarthy said:

“Yes, it will push back on the fossil fuel companies because as we transition to clean energy, we need less and less investment in fossil fuels.” (emphasis added)

Speaking at the Summit of the Americas on Wednesday, John Kerry, said that Russia’s invasion of Ukraine shouldn’t prompt more energy infrastructure development:

“You have this new revisionism suggesting that we have to be pumping oil like crazy, and we have to be moving into long term [fossil fuel] infrastructure building, which would be absolutely disastrous. WE have to push back, and we have to push back hard.”

As the Washington Post reported:

“Kerry concluded by warning that the war in Ukraine should not spur the construction of more fossil fuel infrastructure.” (emphasis added)

Yet, earlier this year President Biden announced a partnership with the European Commission to “reduce Europe’s dependence on Russian fossil fuels,” which includes an additional 15 billion cubic meters of LNG exports.

Lowering gasoline prices for American drivers and helping our democratic allies in Europe achieve energy security is simply not possible without needed energy infrastructure that McCarthy and Kerry seem intent on blocking.

Crude Oil Export Ban

In searching for answers for high gasoline prices, administration officials are considering responses that would actually make the problem worse.

Last month, Energy Secretary Jennifer Granholm spoke with media while touring Strategic Petroleum Reserve sites and was asked if the administration was considering a crude oil export ban as an answer to high prices. Granholm responded by saying:

“I can confirm the president is not taking any tools off the table.”

But restricting crude oil exports would actually make the problem worse by decreasing the global supply of oil, which would in turn push gasoline prices even higher, as a Dallas Federal Reserve study released in January stated:

“The prices of gasoline and diesel fuel in the U.S. would not be expected to decline and might actually increase, rendering the crude oil export ban not only ineffective, but also counterproductive. Thus, there is no reason to expect that U.S. consumers would benefit from such a ban.” (emphasis added)

Taxes and Increased Fees

 Another so-called tool the administration has proposed using is new taxes and higher fees that would increase the cost of doing business, but have the opposite effect on production. Case in point: Treasury Sec. Janet Yellen’s proposed FY2023 budget includes added taxes on the oil and gas industry, while Interior Sec. Deb Haaland’s announcement that onshore lease sales will tentatively be held in June included a 50 percent royalty rate hike.

Many administration officials and members of Congress have been playing the blame game, looking to throw American energy companies under the bus instead of collaborating to find solutions. This past Sunday on ABC News “This Week,” Transportation Pete Buttigieg sought to criticize energy producers and showed a stunning lack of understanding of energy markets by claiming:

“But we also know that the price of gasoline is not set by a dial in the Oval Office. And when an oil company is deciding, hour by hour, how much to charge you for a gallon of gas, they’re not calling the administration to ask what they should do; they’re doing it based on their goal of maximizing their profits.” (emphasis added)

As the Energy Information Administration readily explains on their website: U.S. oil companies do not set the price of oil or the price of gasoline – both of which are commodities where the price is determined by supply and demand. The Federal Reserve Bank of Dallas has also been adamant in explaining this, with economists Lutz Killian and Garret Golding writing:

“Much has been made of the fact that gasoline prices were quick to increase following the Russian invasion of Ukraine but have not come down as quickly as the price of crude oil since then. … The asymmetry of the response of retail gasoline prices need not be evidence of price gouging.” (emphasis added)

Despite this, Democrats in the U.S. House passed a gasoline price gouging bill last month, a Senate committee has taken up similar legislation, and just last week, the deputy director of the National Economic Council Bharat Ramamurti said that the White House is considering a windfall profits tax on oil companies:

“There are a variety of interesting proposals and design choices on a windfall profits tax. We’ve looked carefully at each of them and are engaging in conversations with Congress about design.”

None of this sends a supportive message to industry, investors and consumers that the U.S. government is doing everything it can to lower gasoline prices for drivers, and as Energy In Depth has shown multiple times, claims of price gouging have been debunked and a windfall profits tax would only decrease supply which would increase prices even higher.

Stalling Federal Leasing

In a precursor to the mixed message, in the first week Biden took office, the Interior Department issued an illegal ban on federal oil and natural gas leasing.

In the year-and-half since then, Interior has yet to hold an onshore lease sale, and most recently, issued a press release with a quote from Sec. Haaland (who was apparently unaware of it while testifying before the U.S. Senate Energy and Natural Resources Committee) that indicated its updated five-year offshore drilling plan may not support new leasing, stating:

“A Proposed Program is not a decision to issue specific leases or to authorize any drilling or development.”

Advisor McCarthy has been even more adamant over the administration’s opposition to federal leasing, saying in an MSNBC interview last month:

“Let me answer your question very directly: President Biden remains absolutely committed to not moving forward with additional drilling on public lands.”

McCarthy even admitted that the only reason the administration is moving forward with new leases sales this month is because a judge ordered it:

“The challenge that we faced was that we had a court that ordered a new lease to be done. The Department of Energy [sic, Interior] had no choice but to put it out.”

Strategic Petroleum Reserve

Meanwhile, one of the tools the president has used one of the tools at his disposal – the Strategic Petroleum Reserve. But while Sec. Buttigieg recently said that he didn’t think “it’s correct to say it hasn’t made any difference at all. This is an action that helped to stabilize global oil prices,” the reality is that it hasn’t.

When the president announced the first SPR release in late November 2021 when the price of Brent crude was $83 per barrel, WTI was $78 per barrel, and the average price of gasoline in the United States was $3.49 per gallon. At the time of the announcement for the second, “historic” SPR release, Brent and WTI had spiked as high as $127 and $116 per barrel, respectively, and gasoline had risen to $4.33 per gallon. And now, despite a third, historic release of 90 million barrels, both Brent and WTI prices have bounced around erratically and are currently at similarly high levels and the national average price of gasoline hit $5.

That’s because, as Energy In Depth’s Executive Vice President, the Independent Petroleum Association of America’s Jeff Eshelman, has explained, the reserve should be used for emergencies, not balancing markets.

All of these actions and statements combined make the Biden administration’s stance on domestic oil and natural gas production about as clear as mud.

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