If We’re Going to Give Handouts to Oil and Gas, Let’s Attach Strings

Policymakers in the United States seem stuck in a bind. To alleviate a potentially catastrophic energy crisis in Europe, more U.S. oil and gas will need to flow there to replace Russian fuel. To make that happen, companies and politicians on both sides of the aisle are clamoring to boost drilling and fast-track new infrastructure. Americans, meanwhile, want cheaper gas.

The grim backdrop is a climate crisis propelled by fossil fuels. “Investing in new fossil fuels infrastructure is moral and economic madness,” the United Nations secretary general, António Guterres, said at the release of the Intergovernmental Panel on Climate Change’s most recent report. “Such investments will soon be stranded assets — a blot on the landscape and a blight on investment portfolios.”

By 2050, global coal, oil and gas use will need to decline by 95, 60 and 45 percent respectively, compared to 2019 levels, for the world to have a halfway decent shot at capping global warming at 1.5 degrees Celsius, the I.P.C.C. noted. For rich countries, that timeline is even shorter. “No one should make it easy for the gas interests to be building out 30- or 40-year infrastructure,” U.S. climate envoy John Kerry told Bloomberg last week. Yet that’s exactly what the Biden administration is doing.

Under the fog of war and anxiety about the midterm elections, the White House is poised to hand over generous amounts of public money to a highly profitable energy industry — support that could lock in additional emissions for decades to come.

This government support — in the form of oil procurement, permits and loans — could be the deciding factor in whether a new generation of long-lived carbon and methane-spewing infrastructure gets built. As with the roughly $20 billion in subsidies the industry already receives each year, the government will demand precisely nothing in return. But it should: Any more money fossil fuel executives and shareholders get from the U.S. government should come with strings.

There are plenty of things to attach them to. The administration has vowed to release one million barrels per day from the Strategic Petroleum Reserve over the next six months — the largest release in the reserve’s history — and to become a guaranteed buyer of oil to refill it down the road. In recent weeks, the Department of Energy has issued four export permits to liquefied natural gas (L.N.G.) companies that will be valid through 2050. Such supportive signals, high prices and Europe’s new hunger for gas all contribute to what analysts predict could be a doubling in the amount of U.S. gas export capacity that gets commercially sanctioned over the next year or two.

Recently, the U.S. Export-Import Bank, the public credit agency, announced a new program that could “provide very large loans or loan guarantees for the construction of U.S. L.N.G. export projects,” as a spokesperson for one L.N.G. trade association put it. Administration officials applauded the new financing as a critical move for national and economic security.

The fossil fuel construction binge now enjoying bipartisan support isn’t needed. The Institute for Energy Economics and Financial Analysis finds that existing L.N.G. terminals and those scheduled to come online this year could ship out more than the 15 billion cubic meters (bcm) of gas the United States has pledged to help supply to Europe. In fact, if the pace of L.N.G. exports to Europe from the first quarter of 2022 keeps up until year’s end, the United States would boost its shipments to the continent over last year by 48 bcm. That’s nearly as much gas as the 50 bcm the United States said it could provide to Europe yearly by 2030, all without new long-term contracts or infrastructure.

New terminals that would need publicly funded loans or loan guarantees to move forward also aren’t likely to come online until 2027. So while pitched as critical to bolstering wartime energy security, gas infrastructure sanctioned in the name of short-term needs will do no such thing. Projects are typically unlikely to get financing for construction unless they can promise to stay online for at least 20 years. If these get built, they’re with us for the long haul.

Among the quickest, easiest things the U.S. can do to furnish additional supplies to Europe is to reduce demand for fossil fuels domestically, freeing up more existing gas to go abroad while driving down domestic emissions. A B.P. and Exxon Mobil-sponsored study from Princeton University finds that electrification efforts in line with President Biden’s own net-zero target could free up 20 to 30 bcm of gas per year.

Whatever new subsidies the administration hands out in spite of these opportunities should be contingent on oil and gas companies aligning their businesses with the goals of the Paris climate accord. One way to do that would be to require any companies that want to take advantage of new Export-Import Bank loan guarantees to identify and eliminate methane leaks across their supply chains.

Methane is a much more potent contributor to global warming than carbon dioxide in the short term, and atmospheric levels of methane increased more last year than at any point since record-keeping began, according to the National Oceanic and Atmospheric Administration. Methane leaks are especially bad in the Permian Basin region of Texas and New Mexico, where oil and gas production could skyrocket.

To be eligible to sell barrels back to the Strategic Petroleum Reserve at stable prices, oil and gas producers could also be required to create concrete, federally audited plans to align their production plans with Paris accord targets. Cheap leases to drill on public lands — recently expanded by the Interior Department’s Bureau of Land Management — should mandate companies to fully retire and clean up the polluting assets that don’t fit those plans, rather than selling them off to private equity vultures, as many are now doing.

Broad federal authority over permitting gives the Department of Energy and Federal Energy Regulatory Commission the ability to issue shorter permissions slips for fossil fuel infrastructure, let permits expire and even revoke them from companies that are running afoul of national priorities. If that means they don’t get financed, so be it. And if, as their assets become stranded, companies come crawling for a bailout like they did in 2020, those funds should come with commensurate ownership stakes.

Without such strings, executives will be content to drill well beyond planetary limits. Look no further than Charif Souki, executive chairman of the gas company Tellurian, who suggested at a March conference in Houston that U.S. companies can look forward to exploiting 100 years worth of gas reserves.

For entirely self-interested reasons, investors have put energy companies on a short leash. The U.S. government should now do the same, and keep short-term political and national security priorities from jeopardizing hopes for a stable climate. That leash should ensure that any new production has a firm end date and uses all available tools to minimize emissions.

It is theoretically possible that fossil fuel executives and their investors will voluntarily decide to bring on just enough new short-cycle production to meet European demand in the next few years, shut down L.N.G. terminals ahead of schedule or convert them all to export hydrogen and start storing captured carbon in freshly built pipeline infrastructure — all along a rigorous, science-based timeline. It’s just not likely unless the White House demands it.

Consider the spending habits of companies purportedly invested in the energy transition. Last year, Exxon Mobil and Chevron committed just 0.16 and 2 percent of total capital expenditures, respectively, to low-carbon energy. Occidental Petroleum has sought to rebrand itself as a “carbon management” company, yet C.E.O. Vicki Hollub has been fighting off her shareholders’ demands to set emissions reduction goals. By tying federal support to mandatory emissions cuts, the White House could make sure they pay more than lip service to planetary well-being.

Kate Aronoff is a staff writer at The New Republic and the author of “Overheated: How Capitalism Broke the Planet — And How We Fight Back.”.

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