May 22, 2023

The War on Drugs and Carbon

By now, it’s not controversial to say that fighting a war on illicit drug supply rather than demand has been a failure.  It hasn’t reduced addiction and it has increased crime, violence, incarceration, etc.  Moreover, when the war on supply pushes up the cost to consumers, an alternative appears in the form of prescription opioids.

This fixation on blaming supply rather than demand reminds me of the approach many are taking toward the energy transition; that the best path to reducing carbon emissions is cutting off the supply of hydrocarbons without addressing the demand for hydrocarbons.

Reducing demand for something bad usually requires an alternative.  Sobriety and cleaner energy sound good but what do I have to give up?  In the world of energy, the answer to that question needs to be “nothing.”  Reducing demand for fossil fuels requires an alternative that is cheaper and better (more reliable, more resilient, safer, and yes, cleaner).  The contingent fighting the war on the major oil companies doesn’t seem to get this.

Alternatively, dispose of waste responsibly.  The Clean Air and Water Acts reduced emissions by mandating the installation of the best available control technologies, not shutting down every factory in the U.S.  This is the approach behind the EPA’s proposed rules on reducing carbon emissions from gas and coal fired power plants by 90% using a combination of carbon capture and sequestration (CCS) and co-firing of hydrogen[1]. (EIP Insight- CCS) Expect a heated debate over whether this technology is established and affordable enough to be a new EPA mandate.  But either way it shows that even the Biden Administration has moved on from shutting down the fossil fuel industry and campaign promises to throw oil company executives in jail.

Just as there are entrenched constituencies that drink at the trough of the war-on-drugs industrial complex, so too are there non-profits funded by donors who blame the fossil fuel companies for the pollution of their customers. This seems even more misguided now that many of those customers can use the $85 per ton tax credit to capture their emissions.  While not a carbon tax per se, this tax credit certainly puts a price on its head. Even the Biden administration now seems to be saying: Fight the war on demand side, not the supply side, and fight the war on carbon and methane emissions from consumers of fossil fuels.

I am not taking the side of nor defending fossil fuel companies.  I am an investor.  I care about sustainable returns from sustainable businesses that are a benefit to society, and I have been one of the most vocal critics of the oil and gas producers for their poor performance over the years. (EIP Insight – Revolting Shareholders).  But policies that attempt to cut off supply rather than provide better alternatives to consumers (aka voters) are largely a waste of time and often make things worse. See: War on Drugs.

This information presented contains EIP’s opinion which may change at any time and without notice. The information provided above is based on data obtained from third party publicly available sources that EIP believes to be reliable, but EIP has not independently verified and cannot warrant the accuracy of such information. In providing the information, EIP has made several assumptions that if changed, materially affect the information and conclusions provided.

[1] New Source Performance Standards for Greenhouse Gas Emissions from New, Modified, and Reconstructed Fossil Fuel-Fired Electric Generating Units; Emission Guidelines for Greenhouse Gas Emissions from Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule (proposed), RIN 2060-AV90  (May 11, 2023)

 

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