It will take a generation to cure our addiction to fossil fuel, but if any fact emerged from the past several years of energy disruption, it is that fossil fuel prices are subject to wild gyrations. COVID-19 shutdowns reduced demand for fossil fuels along with their prices as people traveled less. But when the shutdowns ended, demand came roaring back but faced reduced supplies as oil companies cut back production to maintain prices during the time of reduced demand. It seems that the pumps are easier to turn off than turn back on. Then Russia decided to invade Ukraine, further disrupting the flow of fuel. The top four producers of fossil fuels in the world are the United States, Russia, Iran, and Saudi Arabia. There is little question that American foreign policy has long been shaped by the need to assure a smooth supply of fossil fuels to the world economy. This has been made even more challenging by Russian aggression, Iranian terror, Saudi murder, and the economic disruptions of COVID-19. While energy insecurity has damaged America’s ability to promote its national interests globally, our global fossil fuel companies seem to be emerging from recent turmoil with their wallets bursting with cash.
As Collin Eaton reported recently in the Wall Street Journal:
“…the three largest Western oil companies, banked a record $46 billion in collective profits in the second quarter, fueled by the highest energy prices in over a decade and lucrative oil-refining margins. Exxon, the largest U.S. oil company, said Friday its second-quarter profit rose to $17.9 billion, its highest ever and nearly four times as much as the same period a year ago, citing rising oil and fuel production, higher energy prices and cost cuts. Rival Chevron also posted a record profit Friday of $11.6 billion, up from $3.1 billion in the same period last year. The historic profits come as companies reap the benefits of record fuel-making margins following the shutdown of 3 million barrels a day of global refining capacity since the onset of the pandemic in 2020. Exxon Chief Executive Darren Woods said while refining margins have moderated recently, it’s a situation that could take years to fix until additional capacity comes online.”
This is all taking place while gasoline prices are subject to incredible fluctuations. Last year at this time, the American Automobile Association (AAA) reported regular gasoline prices in the U.S. averaged about $3.17 a gallon. On June 14 of this year, it peaked at five dollars. A month ago, the cost was $4.86, and this month, it has dropped to $4.23. It’s impossible for a family or a company to set and adhere to a budget when a key commodity like gasoline changes price that frequently. Clearly, this commodity is an enemy to both political and economic stability.
Last March, my friend and colleague Admiral Dennis McGinn wrote about the foreign policy impact of fossil fuels after Russia’s brutal invasion of Ukraine began. According to Admiral McGinn:
“America and our allies have once more been thrust into a conflict inextricably linked to the world’s addiction to fossil fuels. But if we heed the warning and decisively act now, it could be the last such global conflict. U.S. leadership for rapid national and global expansion of clean, sustainable renewable energy will increase our energy security, economic security and environmental security, the key elements that underpin our national security and quality of life… This is not a new story—from Iran to Saudi Arabia to Iraq and Venezuela—dictators have derived their strength from the fossil resources within their borders, flexing their powers because of their control of a finite resource made valuable only because of our addiction to it. Much of world history has been determined by the haves and have-nots when it comes to energy… The only way to reduce the power of oligarchs and dictators fueled by gas and oil is to stop our reliance upon these sources of energy. When we stop needing to buy their products, we stop allowing them to use their fuel as bullying instruments of power and diplomatic leverage. Rapidly expanding our American and allied renewable energy portfolios protects us from dictators, price swings and a continuing fossil fuel driven threat of geopolitical chaos. That is the 21st century definition of true energy and national security.”
National security is impacted due to the control of fossil fuels by authoritarian regimes, and economic security is impacted by the instability of supply and demand for fossil fuels. The large fossil fuel companies have done a terrible job of matching supply and demand but a very good job of profiting from market instability. The answer to both forms of instability is a stable, predictable energy source that is not controlled by any single nation or powerful corporations. And guess what, we have that source! It’s called the sun. Clearly, this transition to solar-based energy is going to take a long time to implement, but this past year our motivation to accelerate this transition intensified. Californians pulling up to a gas pump and paying six bucks a gallon were powerfully incentivized to invest in solar arrays, home battery systems, and electric vehicles. Even if you had to depend on the grid to charge your car, at least the price is regulated by state utility commissions and can’t change on an hourly basis. Companies with delivery vans are also starting to go electric.
The greed and short-term thinking of the oil companies will prove to be their undoing. I would be shocked if these companies used their massive short-term profits to invest in the transition to a renewable energy business. Profit taking, lobbying for political influence, and “drill baby drill” seems to be all these western oil companies are capable of. They certainly didn’t consider lowering their profits to reduce price instability at the pump. Clearly, their approach is to charge whatever the market can bear. In the short run, the American public has no choice. But electric vehicles and renewable energy are becoming more cost-effective each day. Fossil fuels are a dying business.
The surest sign of this was the deal that West Virginia’s Senator Joe Manchin made last week to promote both renewable energy and fossil fuels. A few weeks ago, I criticized Manchin and noted that:
“If Manchin wasn’t so obviously in the pocket of the fossil fuel business, he’d push for subsidies along with plant siting in his home state. But West Virginia’s horrible leadership dooms the state to economic distress as they double down on a dying industry and refuse to pivot toward the future. West Virginia’s poverty rate of 17.7% is the fourth worst in the United States. Only Mississippi, Louisiana, and New Mexico are worse. Manchin could be using his temporary clout to advance poverty reduction in his home state; instead, he is using it in a futile effort to save the fossil fuel business.”
Well, I stand corrected. In the deal Manchin agreed to, the senator managed to support fossil fuels, renewables, and brought home the bacon for his home state of West Virginia. As Brad Plumer and Lisa Friedman reported in the New York Times:
“The legislation, if it passes, is expected to bring big benefits to West Virginia. It would make permanent a federal trust fund to support coal miners with black lung disease. It would offer new incentives for companies to build wind and solar farms in areas where coal mines or coal plants have recently closed. And it would provide generous tax credits for nascent technologies like carbon capture and storage and low-emissions hydrogen fuels, which Mr. Manchin has supported.”
While fossil fuels will be needed for a generation as we transition to renewables, they will ultimately be driven from the marketplace by price, pollution, and the performance of renewable energy. A fossil fuel must be extracted from the earth, shipped, and burned. Each step costs money and pollutes. Solar and wind energy will become cheaper, more reliable, and less polluting as the technology of solar cells, wind turbines, and battery storage advances. The price of the base fuel will always be free, and that is a price advantage that fossil fuels will never enjoy. The future is clear, and if the bill agreed to by Chuck Schumer and Joe Manchin passes, that future will get here a little faster than we might have thought.
Views and opinions expressed here are those of the authors, and do not necessarily reflect the official position of the Columbia Climate School, Earth Institute or Columbia University.