“This letter to Biden is a very mixed bag of legalize and subsidize. It is hardly free market; it is a testament about how some Republicans and conservative Democrats are playing the government welfare game in a time of political defensiveness.”
Classical liberalism explains and justifies voluntary transactions between consenting adults. The framework is private property rights, the rule of law, and government abstinence, or neutrality.
Applied to civilian energy, the government should not research, commercialize, subsidize, or penalize. Government should buy energy for its usage, not requisition it. Market transactions should not be subject to price controls, allocation controls, or differential taxation. Jawboning by government officials toward non-market ends should be avoided too.
This background is necessary to parse a March 10, 2022, letter to Joe Biden from two Republicans, one (Trumpian) Democrat, and one Independent. [Don Bacon (R-NE); James Baird (I-IN); Jared Golden (D-ME); Dusty Johnson (R-SD)] I offer my classical liberal, free-market comments in green.
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Dear President Biden:
We are writing to urge you to use all of the tools at your disposal, including invoking the authorities granted to you under the Defense Production Act (DPA), to rapidly increase domestic oil and gas production. By making a multi-year purchasing commitment to increase supply in our Strategic Petroleum Reserve [SPR], employing DPA authorities to expedite and expand domestic oil and gas production, and convening top oil producers to identify and address other barriers to production, you can help reduce domestic energy prices and further our nation’s energy independence while blunting the impact of President Vladimir Putin’s efforts to use Russian energy exports as leverage in the face of European and American sanctions.
COMMENT: This letter invokes the Defense Production Act of 1950, as amended, to quickly increase oil supplies to reduce consumer prices. There are some issues here.
One, expedited authorization could invoke eminent domain that is a government intervention against landowners. (Such has a free market angle: substeading beneath the land surface to avoid surface conflicts.) Second, SPR withdrawals should be in the context of oil-out-but-not-back-in. The reserve should be emptied and/or privatized but not readied for another government day. Refilling uses tax dollars and adds to the federal deficit.
According to the U.S. Energy Information Administration, U.S. domestic oil production fell below 11.6 million barrels per day at the end of 2021 from a record high of 12.2 million in the previous year. With domestic oil production still below pre-pandemic levels and over 9,000 approved and unused oil drilling permits as well as numerous natural gas pipelines that could be brought online, the federal government and the private sector have ample opportunity to partner together to ramp up production and increase domestic supply.
COMMENT: The “9,000” lease number is misleading as a ready-to-produce figure. But expedited certification is doable and, indeed, must be done with anti-oil and anti-natural-gas polices at the Federal Energy Regulatory Commission (FERC) if not elsewhere.
To that end, we write today with a three-pronged plan to achieve these production and supply goals. First, your administration should provide financial certainty to domestic oil and gas producers by making a three-year purchase commitment for domestically produced oil that can be used to ensure that our Strategic Petroleum Reserve has ample supply to address current and future energy price increases. Given the volatility of oil prices over the past several years, that kind of commitment could go a long way towards giving oil producers the confidence to make the types of longer-term capital investments to help grow America’s energy independence in the coming years.
COMMENT: This is “pro-oil” and “pro-production” government intervention. True, every energy is on the government bandwagon for more subsidy, but oil and gas need freedom, not special government favor. So no, the federal government should not make a three-year purchase commitment to fill (refill) the SPR.
Second, you should invoke the DPA, which designates energy as a “strategic and critical material” that is necessary for our national defense. Under the DPA, your administration would be authorized to provide financial incentives to the private sector at a large scale through subsidies and loans to ensure that industry is able to access the raw materials and implement refinery enhancements needed to boost production. This is particularly important given that oil and gas producers have been struggling to procure steel pipes, high-quality sand, and other essential raw materials. The DPA also allows you to make direct purchases and purchase commitments for equipment, as well as the authority to procure and install that equipment in private industrial facilities. As we saw during the COVID-19 pandemic, the DPA can be an effective way to dramatically increase domestic production during a very short period of time.
COMMENT: No! Ouch! This is another “pro-oil” and “pro-production” government intervention. The federal government should not purchase or order “essential raw material” manufacturing to benefit oil and gas drilling. Current price incentives are all that is needed.
Lastly, you should use the power of the presidency to convene a summit at the White House with the top executives of our key oil and gas companies and their investors to identify and address the current challenges to raising output. Rather than suggesting that these companies may begin to engage in price gouging, you should appeal to their sense of patriotism in this heightened moment of international conflict and use your bully pulpit to encourage them to step up in support of American energy independence and security. Doing so would make clear that the federal government is serious about making long-term investments in domestic energy to reduce costs for consumers and protect producers in a volatile global market.
COMMENT: This request forthrightly tells President Biden to lay off and shape up. Support natural gas. Support oil. Such a “Nixon goes to China” moment would muddle the Green New Deal and Paris Climate Accord, but why not? Consumers, citizen-voters, have priority over speculative, long-term climate scenarios.
You could also use this opportunity with top producers to emphasize that the federal government’s partnership in increasing production must be accompanied by a renewed commitment from the private sector to investing in carbon capture, energy storage, and other technologies that will put our country on the path of long-term, responsible energy independence and development.
COMMENT: This tit-for-tat of government support for “a renewed commitment from the private sector to investing in carbon capture, energy storage, and other technologies that will put our country on the path of long-term, responsible energy independence and development” is political speak for federal subsidies for oil and gas companies to get their slice of the Green Pie. This is pandering to the enemy and defeatist for a sustainable oil and gas policy.
With the national average of the price of gas exceeding four dollars per gallon, it is clear that Americans need immediate relief from high gas and energy prices. We urge you to use the authorities currently at your disposal to expand and expedite domestic energy production and protect American consumers from future harm resulting from strong sanctions against Russia.
Doing so will help maximize domestic production now and minimize our dependence on foreign energy into the future. Should you need congressional action to facilitate these efforts, we stand ready to work with you to lower gas prices and build toward energy independence….
Final Comment
The above letter is a very mixed bag of legalize and subsidize. It is hardly free market; it is a testament about how some Republicans and conservative Democrats are playing the government welfare game in a time of political defensiveness. Tomorrow, a true classical liberal energy program will be shared with another letter to Joe Biden, this one from Americans for Prosperity.