It really stresses me out to see this all laid out here, and then to see the Biden admin’s proposed solutions, and to note that they have approximately 0 overlap.
Again - if all their people are young urbanite wokesters with zero interest in practicality and entirely focused on moral posturing - it's actually doing exactly what you'd expect.
It really does seem like the ultimate goal of the progressive movement these days is just pure self-expression -- if we are able to shout about something on Twitter, we won, etc. etc. Meanwhile everyone else cares about actual results.
I'll channel Freddie deBoer here but I agree with him that there seems to be a diametrical opposition between progressives' impact on culture/the discourse (where they/we dominate) and our/their (absolute lack of) impact on reality.
The less we're able to change the world, the more we shout on Twitter?
It seems to me that we don't have any good leavers to pull here. Oil producers and refineries see the writing is on the wall for their industry. The negative oil prices at the beginning of Covid along with the shift in societal momentum towards battery electric vehicles means that the only feasible way for the government to increase the supply of gas is to make it themselves or heavily subsidize it (for what is already a heavily subsidized market).
Honestly, imo, the best leaver we have available as a broad society are individuals making small changes many millions of times (those who can at least). Which is a wholly unreliable prospect you highlighted: American culture generally abhors non-individualist thinking.
Also, better city design with mixed zoning and denser housing, allowing for more effective transit that allows more people to be less reliant on cars, would be better than a transition to electric vehicles. But any project to that effect is multigenerational to fix in the same what it was multigenerational to create.
None of what I said was descriptive. I was detailing what would be the ideal path forward, not the path I think we're likely to take. Saying mixed zoning and efficient public transport are the answers indicates that I think that people are currently inclined to want the personal pool, gym, and theater. That's what I mean by "individualist thinking". We're a nation of over consumers who are selfish and bored.
A society built on reliance on cars in cities that have turned their nearby country sides into endless miles of cookie cutter and soulless suburbia fiefdoms is a society that will fail to do what we ought to do to live within its means. Meaning, that we live as good stewards of the health of our land, our air, our waterways, and that of the rest of the world.
Nuclear energy ought to be the backbone of our energy grid. In time as non/low-lithium based batteries become more affordable and energy dense, our vehicle based society will switch to electric vehicles. I don't see this as an ideal thing... just as a better thing than sticking with combustion engines. This will dramatically change the amount of oil we'll need to produce in the coming decades. Oil and Nat gas products will still be in demand for industry, heating, fertilizer, etc... but transportation will be transitioned.
In the end... we're not the "best winningest people on Earth." Honestly, almost no one on Earth is in my opinion. Nearly everyone worldwide is in a race to the bottom to see just how much useless junk they can make and convince someone else they just have to buy it. America is among the leaders in advocating for this empty-headed consumptionism. Also, a silenced EPA is a nightmare scenario to me. We already have too few advocates for the environment.
US petroleum refinery capacity has dropped partly due to bad luck (explosion in 2019 knocking Philadelphia Energy Solutions refinery off the market) and partly due to the generous incentives offered by California's Low Carbon Fuel Standard. Neste and Valero figured out early that they could make fat profits by pouring modest-cost feedstocks like UCO (used cooking oil) and beef tallow into refurbished petroleum refineries, and producing renewable diesel. So other petroleum refiners, notably Marathon, figured they could get into that game, especially in 2020, when the outlook for petroleum refining looked dismal. So the Martinez CA petroleum refinery went off line in 2020, and is coming back online in 2022 as a renewable diesel facility. There are other players doing the same thing, which has eaten into the US petroleum refining capacity. Of course, there's not enough beef tallow and UCO to go around, so these bio refineries will be looking for other feedstocks, like palm oil (sorry orangutans) and soybean oil (look out Amazon).
The International Council on Clean Transportation has several articles on the topic, my favorite is Animal, Vegetable or Mineral (Oil)? Exploring the Potential Impacts of New Renewable Diesel Capacity on Oil and Fat Markets in the United States https://theicct.org/publication/impact-renewable-diesel-us-jan22/
I don’t think there is anything we can realistically accomplish in the short term (chiefly 2022 midterms) to significantly increase the supply of gasoline and bring down the cost. As identified in the article, the chief bottleneck is refining capacity and that takes years to increase. We may be able to address this issue by 2024 to improve Democrats' election odds, but even that will require a major pivot on climate policy and messaging if we want an expansion of our domestic oil and gas industry.
And I think that would be a generally smart move politically and can be accomplished in a way that doesn’t harm our progress on the green transition. Yglesias explained this well in last week’s article, “The case against restricting domestic fossil fuel supply”. [1] Basically, fighting the domestic O&G industry is essentially a “shadow carbon tax”, with the “tax” captured by foreign O&G producers (e.g., Russia and Saudi Arabia). Further, rather than predictably increasing over time—as a carbon tax should so that consumers can plan to transition away—we instead get volatile prices that just financially harm Americans. That anti-domestic O&G industry policy and messaging could even be counterproductive if voters come to associate Democrats as the cause of the high and volatile energy prices.
Instead, we should focus on accelerating the green transition while having a healthy respect for a domestic O&G industry throughout the transition; a transition that will take over a decade. That would include messaging and policy that promotes our domestic O&G industry. For example, Yglesias has proposed decreasing the volatility of oil prices by massively expanding the strategic petroleum reserve to soak up domestic oil when it’s cheap (possibly guaranteeing a price floor for the domestic market) and sell it into the market when it gets expensive. [2] Such a shift in messaging and policy should generally encourage private investment in the domestic O&G industry as skittish investors get reassured that their investments will not be regulated out of existence in the near future.
Respectfully, I think it's not so certain. Starting now on greater supply could spur the Saudis to drill more and spur our domestic refiners to take lower markups, both in the hopes of warding off competition.
The chief obstacle to this approach is our own desire to keep gas prices high in order to speed the energy transition. I think we need to reevaluate this approach.
"throughout the transition; a transition that will take over a decade." This is going to take at least 50-100 years. Absorb that idea and then when you talk publicly you won't scare off investment in O&G. And then maybe refiners won't penalize Dems when they take power, like OPEC seems to.
Right on. I would also like to see experts discuss the idea of having IEA members set up a SGDR (strategic gasoline and diesel reserve) to help us navigate the transition. As noted the incentives aren’t well-aligned for refiners to produce an abundance of their products.
Jun 20, 2022·edited Jun 20, 2022Liked by Noah Smith
"That will be a difficult mental whiplash for many, but desperate times call for flexibility and adaptation".
Sometimes I worry I am an elitist asshole with zero understanding of people, politicians and politics. Then I see a sentence like that and I feel better. Coz Noah seems to think it's hard to understand that long term =/= short term and that gasoline at $5+ with no practical alternatives for most people isn't doing the fight for climate change any favor.
On top of trying to boost oil production and oil refining capacity in the short term, I think we need to push hard to subsidize the rollout of solar/electric cars. They're medium-to-long term part of the climate change solution (even if we eventually have to geoengineer our climate, the less we need to temper with it, the better).
IDK. If it's someone working in politics and genuinely interested in helping people/the economy (i.e. honest rather than just looking out for a special interest/a pressure group/his career), I cannot believe this requires any time to understand or to shift.
What I may be willing to believe and forgive to an extent is that it takes a little while for someone working in a viper nest of wokesters to check that all the other wokesters around also got the message and are indeed willing to be pragmatic about this i.e. there's a time delay due to coordination issues due to the fear of being the first one to speak out of turn.
This remains valid whether it's wokesters, national security chicken-hawks or the witch hunters of 1560-1630 i.e. any group of any affiliation where posturing is essential to career preservation and where everyone is afraid of his colleagues.
I am definitely confused by the long term plan here. Presumably if Biden does win reelection, there will be another Republican waiting in the wings to fend off; meanwhile, substantial policy to fight global warming is stalled regardless (worse under an EPA gutting admin, absolutely, but it's not like congress is passing any legislation to address the crisis either way). So let's say you plan was implemented and oil prices went down, to the political benefit of Democrats. What then? Is a rapid transition to clean energy possible.in a world with eternally cheap, subsidized oil?
It can happen through government mandates. In California, no new ICE vehicles will be allowed for sale by 2035, so it won't matter what the cost of gas is.
Thanks! That's remarkably straightforward, if they can actually hold it/not repeal it. Can't imagine most states will pass similar laws, but that's a separate issue I suppose!
Germany is bringing back on line its previously run down coal power plants. This due to shortage of gas from Russia. Nothing to do with petrol or diesel for cars but different instability can make other solutions unfeasible. China has bought a huge lithium mine in Zimbabwe in the last week. None of that ore will be heading west. I suppose it is why Musk talks about Tesla becoming miners to guarantee supply.
As an economist, what's your take on California Assembly Bill 2816? It didn't make it out of committee this year but might be part of future legislation.
Thanks! I'll take a more detailed look, but when I read about this in the news it seemed like a good idea on its face. Implementation details matter a lot, though!
The information in this post has been churning in my head for most of today, and I realize I have two more questions. My hunch is that the answers to these questions will calm the nerves of anxious environmentalists like myself, but I don't have the technical expertise to confirm or deny it:
1. If the US were to enact a price floor by promising to buy oil for the strategic petroleum reserve at a $X for Y years, how high would the price need to be to reasonably assure domestic oil producers of a profit on investments in new wells?
2. If the US effectively implemented such a price floor, how low would that floor need to be before it would threaten the transition to EVs?
2 further complications. Refineries are setup to take and use only certain types of oil - heavy, light, sulfur content etc. So no 1 to 1 correlation on increasing oil supply to increasing gas supply.
Also we export some portion of refined gas, diesel and jet fuel. What effect do the exports have on pricing.
So why are oil prices set internationally? Is this a creation of financial markets and trading companies? The ability to move oil from USA to EU is limited as is ability to move oil from Saudi to EU or USA. If tankers are maxed out why is there no large "ding" on pricing of oil as its "fungibility (??) becomes rather limited.
Oil prices are set internationally because the ability to move oil around the world usually *isn't* that limited. If there's a tanker shortage we'll see a divergence between, for example, WTI and Brent. Which we occasionally do, but it's never very large.
You forgot fly Air Force one to Tehran and act buddy buddy with everyone in exchange for a production increase, then when the Saudis complain ask why they haven't been pumping. We need to use the geopolitical tensions within OPEC to bust it.
How would the Republicans handle this problem and would it be any more effective than the Democrats? Republicans would institute a completely pro oil company policy and would be rewarded by the oil companies suddenly discovering they could reduce profits and cut prices without much actual change on the ground occurring. Your economic analysis ignores the fact that Big Oil can reward their friends and punish their enemies.
I don’t think this conspiratorial thinking is accurate or useful. Oil and refined products are sold in a competitive market and individual producers cannot artificially decrease the price. Even a cartel of producers mandating a lower price would simply lead to shortages as the demand at that lower price exceeds supply. The only thing worse than having to buy expensive gasoline is not being able to buy it at all.
To be honest, I think there is a cartel that affects prices, and it's just OPEC. They're not as important as they used to be, but they can still make a difference.
It really stresses me out to see this all laid out here, and then to see the Biden admin’s proposed solutions, and to note that they have approximately 0 overlap.
Yes, I don't think they're handling it with the urgency or seriousness it requires.
Again - if all their people are young urbanite wokesters with zero interest in practicality and entirely focused on moral posturing - it's actually doing exactly what you'd expect.
It really does seem like the ultimate goal of the progressive movement these days is just pure self-expression -- if we are able to shout about something on Twitter, we won, etc. etc. Meanwhile everyone else cares about actual results.
I'll channel Freddie deBoer here but I agree with him that there seems to be a diametrical opposition between progressives' impact on culture/the discourse (where they/we dominate) and our/their (absolute lack of) impact on reality.
The less we're able to change the world, the more we shout on Twitter?
Seems like, yeah.
It seems to me that we don't have any good leavers to pull here. Oil producers and refineries see the writing is on the wall for their industry. The negative oil prices at the beginning of Covid along with the shift in societal momentum towards battery electric vehicles means that the only feasible way for the government to increase the supply of gas is to make it themselves or heavily subsidize it (for what is already a heavily subsidized market).
Honestly, imo, the best leaver we have available as a broad society are individuals making small changes many millions of times (those who can at least). Which is a wholly unreliable prospect you highlighted: American culture generally abhors non-individualist thinking.
Also, better city design with mixed zoning and denser housing, allowing for more effective transit that allows more people to be less reliant on cars, would be better than a transition to electric vehicles. But any project to that effect is multigenerational to fix in the same what it was multigenerational to create.
edit: grammar
None of what I said was descriptive. I was detailing what would be the ideal path forward, not the path I think we're likely to take. Saying mixed zoning and efficient public transport are the answers indicates that I think that people are currently inclined to want the personal pool, gym, and theater. That's what I mean by "individualist thinking". We're a nation of over consumers who are selfish and bored.
A society built on reliance on cars in cities that have turned their nearby country sides into endless miles of cookie cutter and soulless suburbia fiefdoms is a society that will fail to do what we ought to do to live within its means. Meaning, that we live as good stewards of the health of our land, our air, our waterways, and that of the rest of the world.
Nuclear energy ought to be the backbone of our energy grid. In time as non/low-lithium based batteries become more affordable and energy dense, our vehicle based society will switch to electric vehicles. I don't see this as an ideal thing... just as a better thing than sticking with combustion engines. This will dramatically change the amount of oil we'll need to produce in the coming decades. Oil and Nat gas products will still be in demand for industry, heating, fertilizer, etc... but transportation will be transitioned.
In the end... we're not the "best winningest people on Earth." Honestly, almost no one on Earth is in my opinion. Nearly everyone worldwide is in a race to the bottom to see just how much useless junk they can make and convince someone else they just have to buy it. America is among the leaders in advocating for this empty-headed consumptionism. Also, a silenced EPA is a nightmare scenario to me. We already have too few advocates for the environment.
US petroleum refinery capacity has dropped partly due to bad luck (explosion in 2019 knocking Philadelphia Energy Solutions refinery off the market) and partly due to the generous incentives offered by California's Low Carbon Fuel Standard. Neste and Valero figured out early that they could make fat profits by pouring modest-cost feedstocks like UCO (used cooking oil) and beef tallow into refurbished petroleum refineries, and producing renewable diesel. So other petroleum refiners, notably Marathon, figured they could get into that game, especially in 2020, when the outlook for petroleum refining looked dismal. So the Martinez CA petroleum refinery went off line in 2020, and is coming back online in 2022 as a renewable diesel facility. There are other players doing the same thing, which has eaten into the US petroleum refining capacity. Of course, there's not enough beef tallow and UCO to go around, so these bio refineries will be looking for other feedstocks, like palm oil (sorry orangutans) and soybean oil (look out Amazon).
Jeez. Another corn-fuel-like disaster in the making? I'd love to know more... Please share articles on the above if you have them.
The International Council on Clean Transportation has several articles on the topic, my favorite is Animal, Vegetable or Mineral (Oil)? Exploring the Potential Impacts of New Renewable Diesel Capacity on Oil and Fat Markets in the United States https://theicct.org/publication/impact-renewable-diesel-us-jan22/
I don’t think there is anything we can realistically accomplish in the short term (chiefly 2022 midterms) to significantly increase the supply of gasoline and bring down the cost. As identified in the article, the chief bottleneck is refining capacity and that takes years to increase. We may be able to address this issue by 2024 to improve Democrats' election odds, but even that will require a major pivot on climate policy and messaging if we want an expansion of our domestic oil and gas industry.
And I think that would be a generally smart move politically and can be accomplished in a way that doesn’t harm our progress on the green transition. Yglesias explained this well in last week’s article, “The case against restricting domestic fossil fuel supply”. [1] Basically, fighting the domestic O&G industry is essentially a “shadow carbon tax”, with the “tax” captured by foreign O&G producers (e.g., Russia and Saudi Arabia). Further, rather than predictably increasing over time—as a carbon tax should so that consumers can plan to transition away—we instead get volatile prices that just financially harm Americans. That anti-domestic O&G industry policy and messaging could even be counterproductive if voters come to associate Democrats as the cause of the high and volatile energy prices.
Instead, we should focus on accelerating the green transition while having a healthy respect for a domestic O&G industry throughout the transition; a transition that will take over a decade. That would include messaging and policy that promotes our domestic O&G industry. For example, Yglesias has proposed decreasing the volatility of oil prices by massively expanding the strategic petroleum reserve to soak up domestic oil when it’s cheap (possibly guaranteeing a price floor for the domestic market) and sell it into the market when it gets expensive. [2] Such a shift in messaging and policy should generally encourage private investment in the domestic O&G industry as skittish investors get reassured that their investments will not be regulated out of existence in the near future.
[1] https://www.slowboring.com/p/the-case-against-restricting-domestic
[2] https://www.slowboring.com/p/america-needs-an-actual-plan-to-boost
Respectfully, I think it's not so certain. Starting now on greater supply could spur the Saudis to drill more and spur our domestic refiners to take lower markups, both in the hopes of warding off competition.
The chief obstacle to this approach is our own desire to keep gas prices high in order to speed the energy transition. I think we need to reevaluate this approach.
The point about using strategic petroleum reserve policy to make very clear that there will be future demand seems like an important one.
"throughout the transition; a transition that will take over a decade." This is going to take at least 50-100 years. Absorb that idea and then when you talk publicly you won't scare off investment in O&G. And then maybe refiners won't penalize Dems when they take power, like OPEC seems to.
Right on. I would also like to see experts discuss the idea of having IEA members set up a SGDR (strategic gasoline and diesel reserve) to help us navigate the transition. As noted the incentives aren’t well-aligned for refiners to produce an abundance of their products.
"That will be a difficult mental whiplash for many, but desperate times call for flexibility and adaptation".
Sometimes I worry I am an elitist asshole with zero understanding of people, politicians and politics. Then I see a sentence like that and I feel better. Coz Noah seems to think it's hard to understand that long term =/= short term and that gasoline at $5+ with no practical alternatives for most people isn't doing the fight for climate change any favor.
On top of trying to boost oil production and oil refining capacity in the short term, I think we need to push hard to subsidize the rollout of solar/electric cars. They're medium-to-long term part of the climate change solution (even if we eventually have to geoengineer our climate, the less we need to temper with it, the better).
It's not hard to understand, it just takes a while for mindsets to shift.
IDK. If it's someone working in politics and genuinely interested in helping people/the economy (i.e. honest rather than just looking out for a special interest/a pressure group/his career), I cannot believe this requires any time to understand or to shift.
What I may be willing to believe and forgive to an extent is that it takes a little while for someone working in a viper nest of wokesters to check that all the other wokesters around also got the message and are indeed willing to be pragmatic about this i.e. there's a time delay due to coordination issues due to the fear of being the first one to speak out of turn.
This remains valid whether it's wokesters, national security chicken-hawks or the witch hunters of 1560-1630 i.e. any group of any affiliation where posturing is essential to career preservation and where everyone is afraid of his colleagues.
Still. For shame.
No one is investing in refurbishing or building new refineries because the industry needs to wind down. Democrats have put the writing on the wall.
https://www.washingtonpost.com/business/2022/06/20/refineries-profit-gas-prices/
We need to rethink that.
I am definitely confused by the long term plan here. Presumably if Biden does win reelection, there will be another Republican waiting in the wings to fend off; meanwhile, substantial policy to fight global warming is stalled regardless (worse under an EPA gutting admin, absolutely, but it's not like congress is passing any legislation to address the crisis either way). So let's say you plan was implemented and oil prices went down, to the political benefit of Democrats. What then? Is a rapid transition to clean energy possible.in a world with eternally cheap, subsidized oil?
It can happen through government mandates. In California, no new ICE vehicles will be allowed for sale by 2035, so it won't matter what the cost of gas is.
https://www.nytimes.com/2022/04/13/climate/california-electric-vehicles.html#:~:text=California's%20proposed%20rule%20puts%20into,to%20100%20percent%20in%202035.
Thanks! That's remarkably straightforward, if they can actually hold it/not repeal it. Can't imagine most states will pass similar laws, but that's a separate issue I suppose!
We'll see how well it sticks. EVs currently make up 16% of California's new car sales, up from 7% in 2018 (and 3% in 2014) so the trendline is good.
https://insideevs.com/news/583340/plugin-car-sales-california-us-2022q1/
Germany is bringing back on line its previously run down coal power plants. This due to shortage of gas from Russia. Nothing to do with petrol or diesel for cars but different instability can make other solutions unfeasible. China has bought a huge lithium mine in Zimbabwe in the last week. None of that ore will be heading west. I suppose it is why Musk talks about Tesla becoming miners to guarantee supply.
As an economist, what's your take on California Assembly Bill 2816? It didn't make it out of committee this year but might be part of future legislation.
https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220AB2816
Thanks! I'll take a more detailed look, but when I read about this in the news it seemed like a good idea on its face. Implementation details matter a lot, though!
The information in this post has been churning in my head for most of today, and I realize I have two more questions. My hunch is that the answers to these questions will calm the nerves of anxious environmentalists like myself, but I don't have the technical expertise to confirm or deny it:
1. If the US were to enact a price floor by promising to buy oil for the strategic petroleum reserve at a $X for Y years, how high would the price need to be to reasonably assure domestic oil producers of a profit on investments in new wells?
2. If the US effectively implemented such a price floor, how low would that floor need to be before it would threaten the transition to EVs?
Thank you so much for the reply!
Thank you, I'd been looking for someone to post some of the charts (the final one, in particular)
I am here for all your chartblogging needs! :-)
Full service substack!
2 further complications. Refineries are setup to take and use only certain types of oil - heavy, light, sulfur content etc. So no 1 to 1 correlation on increasing oil supply to increasing gas supply.
Also we export some portion of refined gas, diesel and jet fuel. What effect do the exports have on pricing.
So why are oil prices set internationally? Is this a creation of financial markets and trading companies? The ability to move oil from USA to EU is limited as is ability to move oil from Saudi to EU or USA. If tankers are maxed out why is there no large "ding" on pricing of oil as its "fungibility (??) becomes rather limited.
Oil prices are set internationally because the ability to move oil around the world usually *isn't* that limited. If there's a tanker shortage we'll see a divergence between, for example, WTI and Brent. Which we occasionally do, but it's never very large.
You forgot fly Air Force one to Tehran and act buddy buddy with everyone in exchange for a production increase, then when the Saudis complain ask why they haven't been pumping. We need to use the geopolitical tensions within OPEC to bust it.
Thanks Noah.
Is there an inflationary effect in the switch from oil to electric cars? Or is that not comparable.
How would the Republicans handle this problem and would it be any more effective than the Democrats? Republicans would institute a completely pro oil company policy and would be rewarded by the oil companies suddenly discovering they could reduce profits and cut prices without much actual change on the ground occurring. Your economic analysis ignores the fact that Big Oil can reward their friends and punish their enemies.
I don’t think this conspiratorial thinking is accurate or useful. Oil and refined products are sold in a competitive market and individual producers cannot artificially decrease the price. Even a cartel of producers mandating a lower price would simply lead to shortages as the demand at that lower price exceeds supply. The only thing worse than having to buy expensive gasoline is not being able to buy it at all.
To be honest, I think there is a cartel that affects prices, and it's just OPEC. They're not as important as they used to be, but they can still make a difference.