Political Expediency and Climate Change
Biden's policy objectives ran into reality – people do not appear to be willing to pay the price, at least at this time, for the transition from carbon to non-carbon sources of energy.
My friend Fred Lazar has written an excellent essay on how climate change policies are wrong-headed and result in short term political gain at the expense of economic pain and lower standards of living for Americans.
By Fred Lazar / October 14, 2022
I watch in a combination of amusement and disappointment the efforts of the Biden administration to try to lower gasoline prices before the November mid-terms. First, the run-up in oil and gasoline prices was attributed to Putin’s invasion of Ukraine. Then, the US Government drained about one million barrels per day from the strategic oil reserve. After about six months of doing this, and with gasoline prices once more beginning to rise, President Biden went to Saudi Arabia to ask their assistance to keep oil and gasoline prices from rising, at least through to the mid-term elections.
The Putin price hike no longer seems to resonate with the American public. Draining the strategic oil reserve seems to largely have run its political course. So all bets were on Saudi Arabia and the other members of OPEC+.
It appears, given the response of Saudi Arabia, which was totally predictable, that none of the foreign affair experts advising Biden understood Arab culture. You don’t publicly call an Arab, or for that matter, a member of any culture, a criminal, and then expect that person to turn the other cheek and grovel to you because you are the US.
Setting aside the longer-term damage to the important relationship between the Arab countries and the US, I find the actions of the Biden administration driven entirely by short-term political expediency. This administration seemed to be very committed to dealing with climate change and accelerating the timeline to achieve net zero carbon emissions for the US as a whole.
One of the key drivers for this goal is sharply higher oil and gas prices. Economics 101 teaches students that sharply higher prices for carbon fuels will greatly reduce demand for these fuels in the short run and promote the shift to alternative sources of energy, primarily renewables. Thus, the Biden administration should have been applauding the run-up in oil and gas prices. But policy objectives ran into reality – people do not appear to be willing to pay the price, at least at this time, for the transition from carbon to non-carbon sources of energy.
The ardent supporters of the transition keep suggesting that the transition will lead to the creation of millions of new jobs in the US. There are at least two problems with this argument. It ignores the adjustment process. Even if their numbers are right, and I will address this shortly, the argument ignores what happens during the transition. Many millions of people will lose their jobs, and they will not “transition” easily and smoothly to the new jobs that might be created. Indeed, there might be a significant time lag between the loss of jobs and the creation of new jobs. Like with all dramatic policy changes, there inevitably will be the winners and losers, and it is unlikely that the losers will be fully compensated by the winners. Reality can be ugly for politicians.
As for the claim that the transition will result in millions of net new jobs, there is good reason to doubt this conclusion. Consumer-oriented industries, with the possible exceptions of food and shelter, will have to make drastic changes in their business models. The regular introduction (yearly, quarterly, monthly) of new products or varieties of existing products (think of automobiles, iPhones, clothing, furniture, cosmetics, detergents, etc.) will have to end. The carbon footprints of regular introductions of less durable and marginally better products are substantial. Further, until most electricity worldwide is derived from renewables or nuclear, the growth of the Internet will have to be curtailed. The millions of servers, which are the backbone of the Internet, require large quantities of electricity for cooling and power. Will people be willing to limit their reliance on social media and streaming services? Imagine the implications for business and commerce.
Market economies will have to undergo dramatic changes involving lower levels of production and employment. The yellow brick road to Oz is not straightforward. It might never get to Oz, and even if it does, there is no assurance that it will be a pleasant experience for everyone.
Political reality seems to have been forgotten until very recently. Politicians must be careful in what they ask for, and they should be much more honest with the people.
Fred Lazar
Associate Professor of Economics, Schulich School of Business; Cross-appointed to Department of Economics; Faculty of Liberal Arts & Professional Studies. PhD in Economics from Harvard University.