HEALTH CARE

Opinion: Opinion: Biden’s Energy Policy Makes Powell’s Job of Controlling Inflation More Difficult

President Joe Biden uses strategic oil reserves to lower gasoline prices to RB00,
-1.24%
—along with amnesties for federal marijuana possession convictions and forgiveness of student debt—was a key midterm election strategy.

He was able to bring the average pump price down from $5.11 in June to $3.77 in September, but that effort came at a cost of Europe’s sanctions on Russian oil and OPEC’s cooperation with Russian President Vladimir Putin. failed in part by Saudi Arabia’s Crown Prince Mohammed bin Salman to cut oil production. .

Biden has used up 37% of SPR. If you need to stockpile enough oil for a security emergency like a conflict in the Persian Gulf that could choke oil CL00,
-0.84%
and natural gas NG00,
+0.60%
Biden must stop running out of reserves. Even if the economy slips into a Federal Reserve-induced recession aimed at keeping overall inflation in check, gas prices will rise.

political cover

Seeking political cover, Biden blames greedy oil monopolists, Putin’s wars, and Saudi Arabia, but the blame falls squarely on him. Through executive orders, regulations, and the Inflation Reduction Act, he has imposed policies that are largely insensitive to how America’s energy markets operate.

While the United States is the world’s largest producer and has the potential to meet all of its own needs, petroleum products are commodities whose prices are highly dependent on international market conditions.

Treasury Secretary Janet Yellen’s plan to cap the price of Russian oil, which still flows to China, India and other Asian markets, will not work. As the EU denies tankers access to insurance and other services, Russia cuts production, making its non-Western customers less dependent on Saudi Arabia, the true oil monopoly, through OPEC’s control. You can force it.

economic restructuring

Biden has an ambitious goal of generating 80% of America’s electricity from renewable sources and reducing the economy’s overall carbon footprint by 50%. This includes increasing electric car sales to 50% of all cars by 2030. Domestic content requirements, stronger unions, and more benefits for previously underrepresented women and minorities to better serve economic and social justice goals.

Seemingly overly impressed with the success of Obamacare, which has reengineered and in some places monopolized key elements of the U.S. healthcare industry, his West Wing policy makers have been pushing for edicts and subsidies. Through this, we believe we can fundamentally transform the American energy and automotive industries.

However, their market structure is very different and they are not as isolated from international affairs as healthcare. Before Obamacare, the federal government, either directly or through state agencies, had already purchased the majority of health care services in the United States through Medicare, Medicaid, and federal employee, military, and veteran benefits.

Complex markets and regulations

The U.S. power, oil, and automobile markets are dominated by private purchases and largely regulated by politically independent federal agencies such as the Federal Energy Regulatory Commission and state and local governments.

Building permits for wind turbines and solar power plants are often administered locally, and power grids are primarily operated and jointly regulated by states, state consortia, and federal agencies.

Polysilicon and lithium, the building blocks of green energy, are mainly produced overseas, too often in China. New manufacturing and mining permits in the US are controlled by his NIMBY activists who access states and courts to impose lengthy delays.

Relying on green power requires massive new transmission lines to bring power from places where solar and wind power is abundant to the cities where it is needed. Environmental reviews and other litigation can take up to 10 years, and local building permits may not be issued.

Green energy requires nuclear and fossil fuel backup, but regulatory priorities for solar and wind are often too costly to operate. Blackout risk is therefore exacerbated in Texas, California and elsewhere, and that uncertainty will spread across the country as the transition to renewable energy increases.

Development limits

By limiting pipeline development and leasing for oil and gas drilling and discouraging financing for private projects, Mr. Biden is moving Americans to electric vehicles and generally away from fossil fuels. .

Five U.S. refineries closed in 2020, leaving distillate inventories dangerously low. Focusing on the long-term policy environment, oil companies are reluctant to invest heavily in this type of facility.

His hasty and unsuccessful withdrawal from Afghanistan and calling MBS over the murder of Jamal Khashoggi led Putin to believe that Western opposition to invading Ukraine was temporary. And instead of listening sympathetically to the president’s demands to keep the oil flowing, MBS should work with Putin to cut OPEC production.

All of this will make the Fed’s job of containing inflation more difficult, but falling gas prices will only make the president perilously deplete the SPR or relent to severe restrictions on drilling and new pipelines. No, or only if the Federal Reserve imposes continuously low interest rates. growth or permanent depression.

Peter Morici is an economist, professor emeritus of business at the University of Maryland, and national columnist.

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