Issue Briefs

The Post Oil Economy Just Began

The Post Oil Economy Just Began

Paolo von Schirach

January 29th, 2021

WASHINGTON – President Biden has been heavily criticized by conservatives for issuing a raft of executive orders aimed at restricting activities of the US fossil fuel industry. Many critics described these as deliberate frontal attacks on the American oil and gas industry, motivated by nothing more than ultra leftist ideological animus. Other analysts concluded that these executive orders are the price a pragmatic Biden (who knows better) needs to pay in order to keep the troublesome green left of his party quiet.

How important?

Be that as it may, are these restrictions on new drilling on federal land and other mandates affecting the energy industry a really big deal? Yes and no. It is undeniable that today the very viability of the American economy, just like the economies of the rest of the industrialized world –like it or not– still depends on the availability of affordable fossil fuels, (now produced mostly here at home, in large quantities). In this light, Biden’s activism is portrayed by pessimists as a horribly misguided effort that will seriously undermine US economy vitality, without producing any appreciable environmental gains.

A detectable shift

Still, looking at the not so distant future, this truism about the obvious link between abundant and affordable oil and gas and optimal economic performance may not be so true anymore. And this is not just on account of the damage to the industry’s viability caused by the relentless war against hydrocarbons waged by green groups who have brought to the energy debates the blind zeal of religious fanatics. No, this is because now many if not most traditional actors, including major auto manufacturers and oil companies, realize that global warming is a real problem staring at them, while at the same time viable alternatives to oil and gas are gaining altitude because they are or are about to become cost-effective.

Which is to say that Biden’s high profile, anti-oil gestures aimed at pleasing the Democratic party left do not carry the same economic weight they would have carried 10 or 15 years ago when truly viable alternatives to fossil fuels were not available.

This ship sailed

While a real, irreversible shift from fossil fuels to clean renewables will take a long time, my sense is that many major “traditional” players have already concluded that this is where we are going. This being the case, they decided that they may as well lead the way to the non oil future, as opposed to being dragged into this new dimension kicking and screaming.

Here are just some recent examples that illustrate the attitude shift I am talking about.

The New York Times
“The days of the internal combustion engine are numbered.
General Motors said [on January 28, 2021] it would phase out petroleum-powered cars and trucks and sell only vehicles that have zero tailpipe emissions by 2035, a seismic shift by one of the world’s largest automakers that makes billions of dollars today from gas-guzzling pickup trucks and sport-utility vehicles.”
 [Bold and emphasis added]

Auto Week
“Following similar commitments by several nations, Japan is planning to phase out the sale of gas and diesel-engined cars by 2035. Government officials announced the plan as part of an agenda that the Prime Minister set to reduce greenhouse gas emissions over the next few decades, NHK reported.”

Seeking Alpha
On Wednesday, December 23, 2020, Italian energy giant Eni S.p.A. (E) joined forces with Snam and state-backed Cassa Depositi e Prestiti on a series of green energy projects. This is an area in which the European energy companies have diverged from their American cousins as the American firms have stuck solely to their fossil fuel businesses. However, there is much more growth potential in renewables than there is in fossil fuels so we could very easily see companies like Eni outperform their American counterparts as time goes by. This is especially true as Eni in particular is focusing its efforts on many different sorts of green technology. For example, this latest announcement relates to the development of green hydrogen as a fuel source. Overall, this development could prove quite stimulative to Eni’s growth going forward and could thus make the company more attractive as an investment.

Climate Home News
“Denmark [an oil producing country] will stop issuing new licenses for oil and gas exploration and phase out the production of fossil fuels by 2050, after a groundbreaking deal was sealed in parliament on Thursday evening.
The Scandinavian country is the largest oil producer to commit to a managed decline of the sector, nearly 50 years after it started extraction of hydrocarbons in the North Sea.
The minority Social Democrat government reached agreement with five other parties to cancel the country’s latest licensing round and all future tenders. The deal includes support for alternative economic development and job creation in the Esbjerg area, where the country’s offshore oil activities are concentrated.
Climate and energy supply minister Dan Jørgensen said he hoped the decision would inspire others to take similar steps. “We are now putting an end to the fossil era, and drawing a straight line between our activities in the North Sea and the Climate Act’s goal of climate neutrality in 2050,” he said.”
 [Bold added]

Total is paying $2.5 billion for a share in Indian renewable energy firm Adani Green Energy Limited (AGEL) and a portfolio of solar power assets, marking the latest step in the French energy company’s drive to reduce its dependence on oil.

A real shift

There you have it. Auto makers –led by iconic General Motors– proclaiming to the world that they decided to ditch the perennial internal combustion engine. Governments announcing a soon to come post-carbon era. Oil and gas companies making substantial capital investments in renewable energy.

The skeptics would argue that all this flurry of new green activism is suspect. It is just window dressing. This is nothing more than a well orchestrated public relations effort aimed at pleasing the Greens in Europe, Asia and North America.

Look, I am sure that there is some of that. But I find it hard to believe that weighty proclamations followed by large investment pledges in green technologies are just smoke and mirrors whose only purpose is to create overnight green credentials for the eternal bad guys. I believe that there is more.

Global warming is real

I believe that rational, responsible leaders in government and industry, including the fossil fuels industry, have finally come to the conclusion that global warming is a real problem that is bound to get worse. May be it is not the catastrophic emergency that doomsayers scream about, but it is nonetheless a real problem that needs to be addressed by embracing –today– technologies that will substantially reduce greenhouse gases emissions. Since now we do have viable renewable energy alternatives, now is the time to start investing in them and scaling up their deployment. If they are still imperfect, (think of still costly batteries for electric vehicles), then let’s work on them, and make them more cost-effective.

No going back

Maybe the announced targets for phasing out oil, gas and the internal combustion engine are unrealistic. Maybe it will take longer. Still, we have reached an inflection point. From now on a U turn is impossible.

Given this new context, Biden’s edicts targeting the fossil fuels industry simply indicate that it is time to recognize that oil and gas are the past (and for a while longer the present). But they are not the future.

Paolo von Schirach is the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC. He is also the Editor of the Schirach Report.