The trick is to execute a transition that will reassure fossil-fuel workers that their jobs won’t vanish overnight, and that’s a tightrope Biden will continue to walk as he aims to eliminate contributions to global warming by the middle of the century.
Well before Biden’s White House win, some oil companies were already contemplating that scenario. Occidental Petroleum, Total, BP and Royal Dutch Shell have been thinking about what it would mean to go to a net-zero carbon future just 30 years from now. They want to make sure they have a seat at the table as the Biden administration develops its climate policies.
“Whatever happens, whatever government we have in the United States, we have always been able to work with them, to collaborate positively in the interests of the country and usually also in the interest of ourselves,” Ben van Beurden, chief executive of Royal Dutch Shell, said in a recent interview. “So I can’t imagine why it would be any different this time.”
Noting that Royal Dutch Shell is one of the largest foreign investors in the United States, van Beurden said that “we’d be very happy to also share our philosophy for energy systems globally and in the United States with the incoming administration. And we would probably find that, you know, many fronts are probably more aligned than misaligned also about the future of energy.”
One of the first things the incoming administration is expected to work on is plugging the leaking of methane, a potent greenhouse gas, from new and existing pipelines, wells and other infrastructure. President Trump’s deputies rolled back methane rules, but tougher regulations from the Biden team won’t be all bad news for drillers, because methane is a main component of natural gas. The more of it that stays in pipes, the more of it companies can sell.
Some major players are stepping out in front of the new administration. Perhaps it was not a coincidence that five weeks after Biden’s election, ExxonMobil announced that it would clamp down on emissions from its natural gas operations and from flares from around the world.
The incoming administration, along with big financial industry fund managers, are increasingly demanding that major oil companies make themselves more transparent, giving investors the tools needed to pressure management or simply divest, ultimately making it more expensive for the companies to borrow.
“It’s not quite as dramatic as [declaring] a climate emergency or stopping a pipeline, but it has a contractionary effect on supply because it takes money going in the ground to get oil out,” said Kevin Book, an energy analyst at ClearView Energy Partners.
Biden also campaigned on eliminating long-standing tax subsidies for the oil and gas industry as a way to partly pay for his $2 trillion climate plan. But any rewrite of the tax code would require the help of a sharply divided Congress. And estimates for the cost of fossil-fuel subsidies vary widely, although the Congressional Research Service put the price of the tax incentives at a relatively modest $4.6 billion in 2017.
The American Petroleum Institute, the industry’s lobbying arm in Washington, thinks it can work with the incoming administration in areas such as bolstering support for technology that captures carbon emissions. But API argues that it already pays higher tax rates than most American businesses.
“We as an industry don’t exactly know what President-elect Biden is talking about," Mike Sommers, the group’s president, said in an interview last month. "We don’t receive any tax treatment. We take advantage of deductions that other businesses in the world take advantage of.” He said API had already circulated a fact sheet on Capitol Hill.
Perhaps even more worrisome for the industry is Biden’s promise to stop issuing oil and gas drilling permits on federal land, although the prospect of doing so faces legal and political hurdles in places such as New Mexico and other Western states that rely on drilling revenue to help fund schools and other state programs. If Biden follows through, “he is shooting himself in the foot, because why would you ruin the revenue stream that comes into the United States from federal land?” said Betty Read Young, who runs a small oil operation in Roswell, N.M.
An even more threatening part of Biden’s climate plan involves cajoling Americans to buy more cars that use little to no gasoline — striking right at the heart of the oil business. The oil industry has a history of fiercely opposing the sort of incentives Biden is proposing for electric-vehicle buyers. Tightening fuel-economy standards on gas guzzlers, which Biden has promised to do, also would tamp down demand for oil.
The oil industry just got a sour taste of a world that didn’t need its products as much anymore. Producers were slammed by a decreasing demand for gasoline, diesel, jet fuel and other petroleum products as Americans stayed inside to stop the spread of the coronavirus. It could be years before the industry fully recovers from the crash.
But there’s an upside: The sale of more electric vehicles means more demand for electricity. And at least for now, natural gas has been replacing coal used for power plants. Electric vehicles today make up less than 2 percent of new cars and SUVs sold each year in the United States, but sales will grow as the cost of battery-powered cars decreases, even without government incentives.
When it comes to emissions, Sommers said, no matter how ambitious a target was established to cut greenhouse gas output, countries would still fall back on oil and gas.
Even if the world met its targets for renewable energy, half of global energy would come from oil and gas, he said, adding that it “should come from the United States, where it is produced in the most environmentally responsible, affordable way.”