As the midterm elections approached, President Joe Biden couldn’t help but shoot one of the Democratic Party’s favorite scapegoats. As Americans continued to face high prices at the pumps, Biden lambasted oil and gas companies for “war profiteering” during Russia’s invasion of Ukraine.
He raised the prospect of a so-called oil industry windfall tax, which already exists in the UK and Europe. Although Biden hasn’t explicitly endorsed a plan, congressional Democrats have been pushing various proposals for months. And that probably did them good in Tuesday’s polls, since Big Oil is an effective Democratic Party boogeyman.
Biden is correct that oil and gas companies are raising money, and they indeed seem out of touch with the impact of energy inflation on ordinary households. Consider Exxon Mobil Corp. boss Darren Woods: Announcing the company’s highest quarterly profit of $19.7 billion in late October, Woods acknowledged pressure to return funds ‘directly’ to the people American. “That’s exactly what we’re doing in the form of our quarterly dividend,” he said.
“I can’t believe I have to say this,” the White House replied via Biden’s Twitter account, “but giving profits to shareholders is not the same as bringing down prices for American families. “.
In fact, American families can invest in a share of Exxon Mobil for just over $110 commission-free on many online sites, but White House Biden was not about to point that out. Instead, it would make these unpopular companies political targets.
But contrary to what the White House suggests, they do not fix the price of oil. Global commodity markets set prices taking into account war, recession, production capacity and supply shortages. And those prices can drop quickly, as they have during the pandemic.
The Biden administration doesn’t seem to mind such details. The president is no friend of Big Oil and has arguably done as much as anyone to hasten the transition away from fossil fuels, including passing landmark climate legislation. But the current supply shortage and high prices in the United States have as much to do with ex-President Donald Trump, who claimed to be a champion of dirty energy. Domestic industry fared less well under his administration than is generally believed.
Trump’s efforts to roll back environmental regulations have been chaotic and plagued by legal challenges. Its rash decision to withdraw from the Paris Climate Accord has not been good for the oil industry either. The 2015 agreement provides a useful framework for dealing with climate change, which companies like Exxon have supported by reducing emissions and investing in carbon capture and storage.
Trump has reversed promises to expand offshore production, failed to revive the coal industry despite much talk and perpetuated the longstanding requirement to dilute fuel with ethanol – an anti -market appreciated by Republicans in agricultural states because it subsidizes politically advantaged farmers and agribusinesses.
The perpetual weakening of major oil companies in the United States has discouraged investment in the domestic market. America needs these companies to be strong, so they can increase energy production and, with it, the collective security of the nation.
What will it take to stimulate domestic investment? Certainly not a government seizure of “excess profits”. Export restrictions, another restriction reportedly under consideration, would only weaken the case for US production. The Biden administration’s hostility to investments in interstate pipelines is also counterproductive.
The main factor in favor of additional investments is simple supply and demand. Supply shortages and sustained high prices are exactly the conditions growers need before they can reasonably give the green light to large-scale capital spending in the United States.
If anyone wants proof that producing energy at home is better than trying to get it from countries that don’t share America’s national interests, consider one of the recent blunders of Biden’s foreign policy. The president looked foolish when the OPEC oil cartel cut production last month shortly after pleading with Saudi Arabia, its de facto leader, to increase the flow.
Russia, too, has been denounced as an untrustworthy supplier after cutting off Europe’s energy supply. Even though Vladimir Putin’s war in Ukraine ended tomorrow, Germany and other countries stung by the warmongering Russian leader now recognize they need to find different energy sources. The reality is that America and other developed economies will need fossil fuels for many years to come.
Perhaps the best argument against a windfall tax on the oil industry is that America tried it before, in 1980, and it didn’t work. Predictably, it increased red tape, reduced domestic production, and made the United States more dependent on foreign oil, consequences that contributed to its repeal in 1988.
Then, and now, making American producers less competitive is counterproductive and counterproductive. Let’s not make the same mistake again.