Big Oil Is Getting in the Way of Sound U.S. Energy Policy

Republican lawmakers are encountering a surprising source of opposition to reforming and rationalizing U.S. energy policy: America’s Big Oil companies.

Big Oil talking about climate change?

Before the dust had even settled on the 2024 national elections, CEOs at major oil companies from Occidental and Chevron to Exxon Mobil were laying down markers by warning about the need for continuity and certainty in climate policy. Many in Big Oil continue to recommend that the U.S. remain a party to the Paris Agreement despite the fact that many supporters of the accord openly pursue the goal of ending the very existence of American oil and gas companies.

More recently, many of these same corporations have leapt to defend the 2022 Inflation Reduction Act (IRA), the massive spending bill signed into law by President Biden with its endless buffet of clean energy tax credits. The IRA was widely touted as the biggest “climate bill” in history and is now in the crosshairs for big cuts by the GOP-controlled Congress.

In recent years, all the major oil companies have pursued plans to either diversify into lower-carbon energy businesses or lower their “carbon footprint.” For example, Occidental is constructing its inaugural Direct Air Capture project in West Texas, where the company plans to scrub carbon dioxide out of the atmosphere, bury it and then sell “carbon credits” to other industries. Exxon Mobil is building its own carbon capture and sequestration (CCS) system on the Gulf Coast, along with a new hydrogen production facility in East Texas. Chevron is adding both CCS and hydrogen capacity and ramping up its biofuels volumes.

Big Oil looking for environmentalist subsidies

Big Oil is making some big bets on green energy science projects, all of which have one thing in common: None are remotely close to economical without generous government subsidies. Hence the continuing support for federal handouts. All of this creates the obvious “moral hazard” challenge, especially at the scale of subsidies in play.

This dynamic is visible at the state level too, even in Texas. Since 2021 when Winter Storm Uri shut down the state’s grid for days and killed hundreds of people, Texas legislators have been scrambling to fix the underlying problem: Massive subsidies have fueled unchecked growth in highly intermittent wind and solar power, leading to underinvestment in reliability.

In the current legislative session, Texas Republicans have proposed new reliability standards for all ERCOT generators that would effectively force wind and solar plants – both planned and existing – to invest in back-up power from dispatchable fuel sources such as natural gas and coal. In short, the legislation seeks to simply ensure that wind and solar operators pay their fair share of the costs imposed on consumers to keep the grid reliable.

The Texas Oil & Gas Association and the energy-dominated Texas Association of Manufacturers have both been lobbying to kill this commonsense bill because it would raise the cost of many of the renewable power purchase agreements signed by these groups’ members. One could be cynical and suspect the opponents are eager to retain their green PR images at the lowest cost possible.

Read the room! The jig is up

Major U.S. oil and gas companies are failing to read the room. The real costs of going green are increasingly impossible to hide. Public tolerance is evaporating for the unintended consequences of trying to force a transition away from abundant fossil fuels. Momentum has clearly shifted and there’s been a change in the “direction of travel” in energy domains, to borrow a phrase favored by the International Energy Agency.

For the past two decades, Big Oil’s climate strategy has focused on being the last man standing in a net-zero world. Voicing public support for costly energy policies (including carbon taxes) is a key part of this calculated bet.

Given their deep financial pockets, oil majors can allocate billions of dollars of capital for green indulgences to curry favor with government regulators and sustainability-focused investors. Smaller and private energy businesses don’t have that luxury and are also disproportionately impacted by onerous environmental rules.

Chasing competitors out

Increasing regulatory pressure on faster-growing independent energy companies helps to raise their cost of doing business, and it tamps down domestic production, which is “good” for commodity prices. One could, again, be cynical. Since most small domestic companies don’t have the ability to shift operations overseas, higher costs weaken their balance sheets and make them potential acquisition targets for bigger players as the industry continues to consolidate.

This wouldn’t be the first time in history that larger companies have used other issues as proxies to gain competitive advantage. The old patterns of brass-knuckled market fights of days of yore are just as likely to be a feature of what’s really happening as are claims of concern for the climate. Call it climate duplicity.

We are at a critical juncture in America’s energy future. Big Oil needs to be on the right side of history to try to help restore sound energy policy in this country.

This article was originally published by RealClearPolitics and made available via RealClearWire.