Low-Energy Joe v. High-Carb Donald

In last week’s column I compared the energy-related policy agendas of the two men, Joe Biden and Erin O’Toole, who have been chosen to lead their parties, both in opposition, in the United States and Canada respectively. It was a task requiring at least some subtlety and fine distinctions, because both men claim to be pursuing the same goal of zero-carbon emissions by . . . well, by different dates but let’s not quibble yet.

O’Toole is the more cautious politician, and he has hedged this pledge about with more qualifications than does Biden, who in his embrace of Green policies is a purist missionary devoted to environmental virtue at any cost. Joe’s 47 years in politics haven’t exactly demonstrated this selfless devotion to principle, but it’s possible that, like President Truman, he’ll be a different man if he makes it to the White House. Anyway, let’s take the charitable view.

Besides, now that President Trump has accepted the GOP nomination for the 2020 November election, we can compare Biden with Trump directly which means we have at least to start by treating their energy-related policies at face value. Just to show that we’re not naïve, however, we’ll lay out a key reality test:

Economic growth means more energy. Growth needs more energy and it generates more energy. Sure, there are qualifications and off-sets which is why we always add the rider, “other things being equal.” And innovation can produce more growth without using more energy in those cases where an entrepreneur arranges the factors of production more efficiently. But the overall truth remains that growth and energy go together like a horse and carriage—with the horse providing the energy and the carriage representing the greater comfort and wealth of a economically prosperous society.

All aboard for the 21st century!

Most politicians try to confuse this truth and avoid the difficult problem it imposes on them. Since they want both to increase growth and to reduce the carbon emissions that fossil fuels generate, they have to avoid putting realistic prices on their “carbon net-zero” policies and to argue that as yet elusive technological innovations, such as carbon capture, will enable them to produce the same amounts of energy with lower carbon emissions.

Boris Johnson is a prime example of this approach since his energy policy is deep green and his signature economic policy (before the Covid-19 pandemic) was to borrow large sums on money at low interest rates in order to fuel a U.K. recovery via infrastructure spending. Nice work if you can get it, as Gershwin wrote, but there’s a car crash in the future of such a contradictory policy.

So it’s a pleasant surprise that both Trump and Biden do their best to be honest about their choice in the Growth versus Greenery debate. Trump favors a policy of encouraging economic growth above all else; so he accepts that it will require energy policies that exploit as many new ways of generating energy as possible. His motto might as well be “Let 'er rip!”

Biden makes the opposite choice. He wants to move the U.S. away from fossil fuels and towards “cleaner” energy as quickly as possible and he seems to accept that this will mean less economic growth overall even if it encourages jobs growth in specific areas. He doesn’t spell out that choice exactly, but the phrase “economic growth” is hard to find in his grand $700 billion economic program.

It’s low-energy Joe versus the high-carb Donald.

Of course, we already know what Trump is about because his first term was based on the policy choice of liberating energy production, de-regulating, and cutting taxes in order to hike growth. Just in case we’ve forgotten, however, his acceptance speech this week reminded the viewers of how he began four years ago:

Days after taking office . . . I approved the Keystone XL and Dakota Access Pipelines, ended the unfair and costly Paris Climate Accord, and secured, for the first time, American Energy Independence. We passed record-setting tax and regulation cuts, at a rate nobody had ever seen before. Within three short years, we built the strongest economy in the history of the world.

And the future?

Over the next four years, we will make America into the Manufacturing Superpower of the World. We will expand Opportunity Zones, bring home our medical supply chains, and we will end our reliance on China once and for all. We will continue to reduce taxes and regulations at levels not seen before. We will create 10 million jobs in the next 10 months.

All that’s clear enough. But what of the environmental costs of Trump’s booming pre-Covid US economy? These should have been visible in rising carbon emissions. But, remember, that depends on “other things being equal.” In reality carbon emissions in the industrialized world—the US, the EU, and Japan—fell in the last few years because these economies were switching to cleaner fuels. And they fell faster than most in the U.S. because the “fracking revolution” in America meant that cleaner natural gas was replacing dirtier coal.

For the future, Trump is banking not only on the continued spread of fracking and its benefits but also on the likelihood that a booming economy will produce innovations that to make both renewables and fossil fuels cleaner, cheaper, and safer.

Frack this.

It’s a bold gamble, but so far it’s paying off.

Now, Biden makes his choice almost as clear. If you type “Joe Biden and economic growth” into Google, what you get back is this: The Biden Plan To Build a Modern Sustainable Infrastructure and an Equitable Clean Energy Future. In other words, you get an economic program that subordinates the need for economic growth to other desirable things—notably, a switch to cleaner energy.

That’s very clear in his plan’s section on what he proposes for those communities who powered the industrial revolution over centuries. He means people working in the fossil fuels industry, and his policies include “securing the benefits coal miners and their families have earned, making an unprecedented investment in coal and power plant communities, and establishing a Task Force on Coal and Power Plant Communities," etc. In other words, coal miners and perhaps other fossil fuel producers will not be part of Biden’s sustainable and equitable clean energy economy, but their workers will be economically protected.

The key elements of the Biden Plan to Build a Modern, Sustainable Infrastructure and an Equitable Clean Energy Future include:

  1. Build a Modern Infrastructure
  2. Position the U.S. Auto Industry to Win the 21st Century with technology invented in America
  3. Achieve a Carbon Pollution-Free Power Sector by 2035
  4. Make Dramatic Investments in Energy Efficiency in Buildings, including Completing 4 Million Retrofits and Building 1.5 Million New Affordable Homes
  5. Pursue a Historic Investment in Clean Energy Innovation
  6. Advance Sustainable Agriculture and Conservation
  7. Secure Environmental Justice and Equitable Economy Opportunity

In fact, there’ll be a Biden program costing $2 trillion that will finance both the transition from dirty to clean energy production and a large variety of other infrastructure expenditures and industrial subsidies to, for instance, the auto industry. But all economic forecasts of the costs of switching to non-fossil fuels show that it will be extremely expensive. And though two trillion dollars will finance many good things, unless there’s economic growth overall—and the Biden plan doesn’t seem to promise that—there won’t be any net additional jobs. What there will be is “jobs growth” in the industries favored by the Washington planners granting the subsidies.

So instead of Trump's policy rooted in growth and abundant cheap energy, we have a Biden policy based on cleaner energy and state industrial investments financed by . . . redistribution and tax increases.

And a very substantial overall increase in taxation at that. The Democrat candidate has so far proposed the following:

US Budget Watch, synthesizing the estimates of several other economic consultancies, suggests that the plan would increase taxes for the top 1 percent of earners by 13 to 18 percent of after-tax income; indirectly hike taxes for most other groups by 0.2 to 0.6 percent; and moderately slow the pace of economic growth by discouraging work and capital accumulation.

Biden’s gamble here is a kind of mirror image of Trump’s: he proposes to increase taxes sharply and use the proceeds to re-direct investment from existing industries to "cleaner" and more sustainable ones, leaving them to achieve higher growth and technical breakthroughs in the future. A lot of bad decisions can occur that way.

Moreover, whereas overall growth and technical innovation will be financed from the proceeds of a growing economy in Trump’s plan, much of the state finance for growth and innovation in Biden’s industrial plan is earmarked for the expensive transition to carbon neutrality, and his tax plan will leave much less for private investors to spend on inventing the future. On top of which the psychological atmosphere of an economy powered by state control and direction of investment is unlikely to inspire the kind of entrepreneurial innovation we saw in the pre-Covid Trump economy.

What have I done?

How do things look, however, when we leave the Big Picture and go micro-economic? Consider how the contenders fare on fracking, nuclear power, and renewables.

Fracking is a clear advantage for Trump who has encouraged it with deregulation and who has been helped by its contribution to reducing carbon emissions. If fracking were a flag, Trump would be waving it. On the other hand, Biden has got himself twisted into knots on the issue, having earlier promised the illogical policy of “no new fracking” under pressure from the Green lobby. Unless Biden can embrace fracking fully, his overall energy policy becomes significantly more expensive. Plus, it’s a vital jobs issue in Michigan, Pennsylvania, Ohio, and New Mexico on which hundreds of thousands of job depend.

Both Trump and Biden favor a revival of nuclear power, but Trump has an advantage there, too, because a year ago he asked his Energy Secretary to assemble a nuclear energy working group to find ways to expand the U.S. nuclear energy industry in an effort to compete globally (i.e., versus China).

Renewables should be an easy win for Biden because he’s been a champion of them (his plan depends heavily on their success), whereas Trump has been a loud skeptic about the industry. Such is the unfairness of life, however, that last year there was a surge of investment in the U.S. industry. Expect more “America First” rhetoric about renewables, therefore, from the president. That said, better news for renewables is better for Joe Biden, just not that much better.

On those micro-economic measures, therefore, Trump wins two out of three, and when they’re added to the macro-economic outlook for their plans, Trump expands his lead over Biden by a head.

Trump and Biden are both to be congratulated on giving us a generally clear idea of how they would govern economically and especially on energy policy. It’s not a K.O, for either.

But on the evidence so far, High Carb Donald has it over Low Energy Joe.

The Suburbs Are Safe -- for Now

The Trump Administration has  announced that it's repealed the radical Obama-era institution of the so-called Affirmatively Furthering Fair Housing (AFFH) policy, after receiving thousands of complaints from around the country that the plan would radically change the nature of America's suburbs. "The suburb destruction will end with us,” President Trump stated.

This long expected and overdue repeal will allow the president to use the inflammatory issue of keeping federal control and divisive mandates out of and away from the nation's suburbs in his campaign. The issue is critical for appealing to suburban voters who constitute a majority of Americans, and who oppose nationalizing housing policy by Washington, D.C.

This move comes on the heels of the announcement by the Democratic presidential campaign of Joe Biden (“Obama 3”), that, if elected, he would aggressively implement AFFH, to force middle and upper middle class suburban communities to house, educate, and subsidize the poor.

The now-repealed 2015 Obama iteration of AFFH claimed that the federal government could use HUD’s community block grants to force suburbs to provide high density, low income, and Section 8 housing despite local zoning laws. That is, it gutted the right of communities to determine their own zoning policies, and thereby threatened to destroy the nature and property values of thousands of suburbs across the country. This policy rests on a radical departure in the definition of "fair housing." Prior to the Obama Administration, the term had always meant "no housing discrimination based on race or creed." 

The stated intent of the original 1968 Fair Housing Act was to defeat de facto segregation, by opening up the nation’s housing supply to anyone who could afford property. Obama’s radical socialist HUD Secretary, Julian Castro, chose to redefine "fair' to include economic status, and to compel local authorities to change zoning laws to force communities that typically lack public transportation, infrastructure, needed academic programs in schools, and even suitable jobs, to provide those things, along with the higher density Section 8 housing -- as if not having all of the above was a sign of active racial and economic discrimination.

The Trump Administration, which has been aggressive about removing unhelpful regulations from the books, noted that the Democrats' implementation of AFFH would have imposed a massive regulatory burden on localities, required high density zoning, eliminated single family zoning, and destroyed our suburbs.

The White House pointed out that the majority of African Americans, Hispanics, and Asian Americans now live in suburban communities, where they, like so many other Americans, are able to afford homes, achieving one important part of the American dream. And that home ownership “offers the chance for all Americans to build wealth for their families.”

The point about home ownership being a basis for building wealth is an important rejoinder to the critique of those who believe in "structural racism” that African Americans are somehow denied the ability to create inter-generational wealth. To be sure, that requires both actual ownership and a stable community, in which the value of property appreciates over time. Introducing mandatory Section 8 housing has generally reduced the value of adjacent properties while also raising the rates of crime that many homeowners fled the cities to escape in the first place.

As for the Obama-era regulatory interpretation, HUD noted that:

This approach is not required by applicable statutes, which give HUD considerable discretion in determining what “affirmatively furthering fair housing” means, and it is also at odds with both federalism principles and specific statutes protecting local control over housing policy. For example, Congress specifically barred HUD from using funding to force grantees to change any public policy, regulation, or law.

HUD Secretary Ben Carson said,

After reviewing thousands of comments on the proposed changes to the Affirmatively Furthering Fair Housing (AFFH) regulation, we found it to be unworkable and ultimately a waste of time for localities to comply with, too often resulting in funds being steered away from communities that need them most. Instead, the Trump Administration has established programs like Opportunity Zones that are driving billions of dollars of capital into underserved communities where affordable housing exists, but opportunity does not. Programs like this …. allow communities to focus more of their time working with Opportunity Zone partners to revitalize their communities so upward mobility, improved housing, and home ownership is within reach for more people. Washington has no business dictating what is best to meet your local community’s unique needs.

Because this is all a matter of regulation, not law, it would be entirely possible for a Biden Administration to revive the Obama interpretation, and return to actively urbanizing and, consequently, destroying the suburbs. That is what they have promised to do in their statements on housing policy. As we approach November, that fact should be and widely publicized by the administration -- widely understood by American voters.

Saudis, OPEC Emerge as Losers from New Oil Deal

The oil-price war between Russia and Saudi Arabia has at least temporarily come to an end.

Saudi Arabia, Russia and the U.S. agreed to lead a multinational coalition in major oil-production cuts after a drop in demand due to the coronavirus crisis and a Saudi-Russian feud devastated oil prices. The deal, sealed Sunday, came after President Trump intervened to help resolve a Saudi-Mexico standoff that jeopardized the broader pact.

As part of the agreement, 23 countries committed to withhold collectively 9.7 million barrels a day of oil from global markets. The deal, designed to address a mounting oil glut resulting from the pandemic’s erosion of demand, seeks to withhold a record amount of crude from markets—over 13% of world production. The U.S. has never been so active in forging a pact like this.

Mr. Trump, on Twitter, said the deal will “save hundreds of thousands of energy jobs in the United States,” and he thanked the Russian and Saudi Arabian leaders for their cooperation.

Trump will get no credit for this, of course, but he also had no choice but to intervene. The rebirth of the American oil industry has been a cornerstone of the formerly booming economy under this president, and a vivid reproach to his predecessor's gleeful defeatism.

The Left, however, has seen the price war as (curiously) a good thing, hoping it will cause the collapse of the energy industry and thus allow them to continue to peddle their "green" snake oil. The stabilization of prices is meant to tightrope-walk the line between cheap gasoline and the maintenance of jobs in the oil fields of North America; under the terms of the deal, the U.S. will maintain production at current levels. With the Wuhan virus currently keeping the western world confined to quarters, demand for oil has fallen precipitously, but should Europe, Canada, and the U.S. return to normal soon, the summer driving season could be a record-breaker.

The deal is slated to take effect on May 1. What effect the deal will have on prices remains to be seen:

After a week-long marathon of bilateral calls and video conferences of ministers from the OPEC+ alliance and the Group of 20 nations, an agreement finally emerged to tackle the impact of the pandemic on oil demand. Prices rose about 1% to around $32 a barrel in London after swinging wildly in the first few minutes of trading following the deal. The focus now shifts to whether the cut will be enough to dent the massive glut that keeps growing as the virus shuts down the global economy.

The talks had almost fallen apart late last week -- amid resistance from Mexico -- but came back from the brink after a weekend of urgent diplomacy. President Donald Trump intervened, helping broker the final compromise. “Unprecedented measures for unprecedented times,”said Ed Morse, a veteran oil watcher who is head of commodities research at Citigroup Inc. “Unprecedented in historical discussions of production cuts, the U.S. played a critical role in brokering between Saudi Arabia and Russia for the new OPEC+ accord.”

OPEC+ will cut 9.7 million barrels a day -- just below the initial proposal of 10 million.

“OPEC+ started the fire, and it was their responsibility to put it out,” Jason Kenney, the premier of Alberta, Canada’s biggest oil-producing province, said in a Twitter post. “Many challenging months ahead with very low demand and huge inventories, but at least now there is path to recovery.”

In the long run, breaking OPEC will continue to be a key tenet of American foreign policy, but thanks to the boom of the past three years, the Arabs and their allies can longer hold the industrialized world hostage with their monopolistic control of the oil fields. Already, the Mexicans are beginning to edge toward the exit. Another geopolitical upside has been the souring of the Russian-Saudi alliance, as the price war drove a wedge between Vladimir Putin (who relies on strong oil prices to keep his country, and his regime, afloat) and the Saudi ruling family.

Since 2016, oil has constituted the core of the deepening Saudi–Russia relations. Riyadh and Moscow have been coordinating under the umbrella of OPEC+ to stabilize the oil market and keep the oil prices at beneficial levels. In December 2019, the Saudi oil minister envisioned that OPEC’s deal to curb oil production with non-OPEC allies, including Russia, would stand the test of time, and remain steadfast “until death do us apart”. Three months later, Riyadh and Moscow waged an oil war against each other resulting in the sharpest drop in oil prices in around two decades.

The impact of the oil war on Saudi foreign policy is obvious. Feeling the pain of the low oil prices and the high costs of their regional adventures, the Saudis seem to be constrained now more than ever. Their priorities are shifting, and because of the pandemic and the oil war, they need to inject a lot of money in the domestic arena. Last week, Riyadh decided to announce a unilateral ceasefire in Yemen.

Who says there's never any good news?

Beyond the Virus, the War Over Oil Rages On

In an effort to stabilize the energy sectors, President Trump has interposed himself into the market-busting wrangle over oil prices between Saudi Arabia and Russia:

When oil prices crashed in early March after a dispute between Russia and Saudi Arabia, President Trump put a positive spin on the news. “Good for the consumer, gasoline prices coming down!” he wrote on Twitter as markets tumbled. On Tuesday, Mr. Trump said that falling gasoline prices amounted to “the greatest tax cut we’ve ever given.”

But the president has also nervously eyed the dire threat that American energy producers face from rock-bottom oil prices, and American officials have spent weeks pressing Saudi Arabia and Russia to settle a dispute that has created a global oil glut and further shaken an already-traumatized global economy.

Leaning on two authoritarian leaders he has befriended as president, Mr. Trump spoke this week with President Vladimir V. Putin of Russia and the Saudi crown prince, Mohammed bin Salman, urging them to bolster prices by cutting their domestic oil production.

The president has to tread a narrow path here. On one hand, lower prices at the pump are welcomed by everybody, but a ruinous price war between the Saudi "royals" and Russia's new czar-for-life, Vladimir Putin, is meant to hurt American energy producers just as the country has become energy self-sufficient. Add to this toxic mix the "greens" who would like to see us all living in grass huts and are thrilled with the prospect of destroying the American and Canadian energy industries, and you have a challenging, almost lose/lose situation.

Prices for Brent crude initially leapt by nearly 50 percent after Mr. Trump’s tweets, but dipped again as it became unclear whether his supposed breakthrough would materialize. Neither Russia nor Saudi Arabia publicly committed to such a cut, and a Saudi statement issued on Thursday called only for a meeting of oil producing nations to reach a “fair agreement.” The Kremlin cast further doubt on the possibility, denying a claim that Mr. Trump made on Twitter that Mr. Putin had discussed the matter with the crown prince.

The picture emerged of a president eager to find some good economic news amid the pain of a largely shuttered domestic economy, and of an embattled Saudi leadership feeling financial strain of its own, perhaps seeking the favor of Mr. Trump. Analysts said the major outstanding question was how Moscow, which has been waging a price war with Riyadh, will respond.

A timely reminder that, while the world is preoccupied with the Wuhan virus, the Great Game between and among nations goes on.