In its quest to find someone to blame for high gas prices, the White House has zeroed in on a new villain: oil refiners. In a letter this week—as gas prices reached $5 per gallon—Biden called “high refinery profit margins” unacceptable, pledging to use “all reasonable and appropriate federal government tools” to bring more refined products to market and lower prices at the pump. That language doesn’t suggest that he’s considering having the government take over refining, but this would, in fact, be entirely reasonable and appropriate—and more effective than any measures he’s considering.
The U.S. has lost about 5 percent of its refining capacity since the start of the pandemic, when demand for oil cratered as travel ground to a halt at home and abroad. Given the unusual nature of the U.S. fossil fuel sector—where the state gives companies generous subsidies without control over investment decisions—the tools Biden seems willing to use to bring that capacity back online amid now-soaring demand are limited. Shuttered refineries could take six months and hundreds of millions of dollars to rev back up. Companies and their investors aren’t likely to go ahead with such an undertaking unless they can guarantee returns for the long haul. As the American Petroleum Institute and American Fuel & Petrochemical Manufacturers wrote in a joint response letter to the White House, “Refiners do not make multi-billion-dollar investments based on short-term returns. They look at long-term supply and demand fundamentals and make investments as appropriate.”
Incentives from the administration, that is—like paying refiners to restart operations via the Defense Production Act, or becoming a guaranteed purchaser of refined products—would likely need to guarantee that additional refinery capacity would be profitable for decades to come. This would require the White House both to counteract longer-term trends in global energy markets and to give up on Biden’s own stated goal of keeping global warming below 1.5 degrees Celsius (2.7 degrees Fahrenheit).
Before Russia invaded Ukraine, the world’s governments were already on track to produce double the amount of fossil fuels than is consistent with capping warming at that level. War has helped make that problem even worse. Western sanctions on Russia have further tightened energy markets, raising prices and profits and buoying prospects for an industry rocked by Covid-19 and longer-term trends like the still sluggish rollout of electric vehicles.
Fossil fuel companies seem to know that this situation—as well as the approaching midterms—give them the upper hand. Mike Wirth, the CEO of Chevron (among the refiners to which Biden addressed his letter), attempted to turn the tables on the administration by blaming high prices on modest emissions reduction policies like fuel efficiency standards. “At every level of the system, the policy of our government is to reduce demand,” he complained, echoing his colleagues. Fossil fuel executives have their party line: use the state to guarantee our profits indefinitely, or take a hike. Without direct threats on the table, they’re unlikely to budge from that.
What if, instead of showering whiny multinational corporations with buckets of public money to pour virtually unlimited amounts of greenhouse gases into the atmosphere, the government took a more direct route? Gregory Brew—an historian who studies oil and the author of The Struggle for Iran: Oil, Autocracy and the Cold War, 1951-1954—floated the idea in May of the federal government starting a National Refining Company, which could restart idle assets at a loss to meet the immediate challenge themselves, then shut them back down once the crunch is over so as to speed along the energy transition. As he explained, virtually every other major oil producing country on earth has some say over how their natural resources are exploited and refined, making the U.S. something of an outlier in having to go begging to combative CEOs.
“The administration should be focusing on getting more crude to market while also trying to move the needle on decarbonization,” Brew told me over the phone. “Getting involved directly in the refining aspect of the industry could help with that. If companies are worried about refineries not being profitable in the near future, better to sell them to a public utility.”
Even a publicly-owned refinery company wouldn’t solve broader problems like sourcing tools and steel or finding enough workers that are trained to run such facilities. That work would likely be contracted out to existing crews; refineries could be run in partnership with industry. Getting a shuttered refinery up and running would still take several months. But having the state hold the keys also means it wouldn’t have an obligation to return fat profits to shareholders—either now or in the coming decades as refineries should be shutting down. “There’s no way that the energy transition in the oil and gas industry happens at a reasonable rate without greater state intervention,” Brew added.
There aren’t any easy answers available to the White House. Rising gas prices are one of the leading drivers of inflation, but the breakneck interest rate hikes that the Federal Reserve is pursuing won’t alleviate bottlenecks in refining, rein in commodity traders, or convince executives to forsake their shareholders. As Fed Chairman Jerome Powell has conceded, the main way interest rates are likely to lower energy prices is by making people poorer (“get wages down”), thus reducing energy demand. Whether coaxed or cajoled, oil executives don’t have much of an incentive to either reduce prices or stem their steady flow of carbon and methane into the atmosphere. Without getting creative, getting the industry to help bring down prices means giving up on climate goals. So, the White House faces a choice: wait for the Fed to trigger a recession and give companies public money to lock in decades of catastrophic emissions, or piss off a few fossil fuel executives by taking matters into its own hands, as many other governments did long ago. To deliver lower prices while working toward decarbonization, America’s best bet is to start acting like a normal oil-producing country.
