Living on Borrowed Capital

This article first appeared in City Journal.

Just over a year ago, America had perhaps the world’s most affordable and reliable supply of energy. Today, hostility to fossil fuels—which began on President Joe Biden’s first day in office, when he canceled the Keystone XL pipeline—and the war in Ukraine have Americans heading toward energy insecurity. As gasoline and oil prices skyrocket, U.S. energy policy threatens the country’s infrastructure to discover, produce, and distribute energy from fossil fuels.

This is by design. The White House, along with state and local governments, has gone directly after production, distribution, and use of fossil fuels. In addition to shutting down pipelines, Biden issued an executive order early in his presidency that banned new oil and natural gas leasing on public lands and offshore waters. Though a federal court later overturned the ban, the U.S. Department of Interior has taken another route to halt new oil and gas leasing. Even for already leased lands, the federal government can take as many as 140 days to approve a drilling permit. (The process takes about two days in Texas.) The Bureau of Land Management approved just 95 permits for oil and natural gas drilling in January, down from 643 issued last April.

State and local governments have followed suit. New York City recently adopted a phased-in prohibition on the combustion of fossil fuels in new buildings, and New York governor Kathy Hochul announced her support for what could be the nation’s first statewide gas ban for new buildings.

The federal government has also taken steps to raise the cost of investing in fossil fuels. Biden’s executive order called for the immediate development of a government climate-finance plan “promoting the flow of capital toward climate-aligned investments and away from high-carbon investments.” Along these lines, the Securities and Exchange Commission is increasing the pressure on companies to turn away from fossil fuels with new rules that would require publicly traded companies to disclose their climate risks and carbon emissions. And a push for environmental, social, and governance (ESG) investing in the private sector is having an effect, too: BlackRock chairman and CEO Larry Fink has said the company will be “exiting investments that present a high sustainability-related risk” to chart a “path to net zero” carbon emissions.

U.S. producers have kept the energy flowing, notwithstanding claims that they are not properly utilizing oil and gas leases. The percentage of producing leases on federal lands hit a two-decade high, with nearly 100,000 producing wells. The U.S. rig count has rebounded with growth in the Permian Basin, resurgent interest in high-cost basins, and steadily increasing capital investment. And U.S. crude oil production averaged 11.7 million barrels per day in January, up 100,000 barrels per day from the month prior.

But while markets are doing the best they can to meet consumer demand for energy from fossil fuels, the country is living on borrowed capital. America’s current energy infrastructure can keep the lights on, cars running, and homes heated for a while. But if efforts to shut down new investment succeed, it will only be a matter of time before Americans see long-term shortages. Wind turbines and solar panels will never be able to provide the same level of reliability and affordability as fossil fuels.