Last Friday, the Bureau of Ocean Energy Management (BOEM), part of the US Department of the Interior, announced a new five-year program for oil and gas leasing in federal waters on the outer continental shelf. BOEM periodically revises its offshore oil and gas leasing program in accordance with the 1953 Outer Continental Shelf Lands Act (OCSLA), considering changes in national energy needs together with the environmental impact of fossil fuel extraction on marine ecology. Normally a routine administrative exercise, the leasing program revisions have attracted exceptional interest this time because of a specific provision in last year’s Inflation Reduction Act, the US law catalyzing a sharp expansion in renewable energy development. Buried in the IRA’s fine print is a section modifying the OCSLA to require BOEM to hold at least one oil and gas lease sale and offer at least 60 million acres for oil and gas leasing, in the year prior to executing new offshore wind energy leases. This was included at the behest of Senator Joe Manchin (D-WV), who demanded investment in fossil fuel development as the price for securing his crucial vote to pass the legislation.
The Biden administration is issuing these new oil and gas leases despite its aggressive climate policies, because it does not want to risk losing the sizable potential contribution of offshore wind in its plans to reach net-zero emissions by mid-century. But the silver lining is that the OCSLA’s requirement to consider changes in national energy needs inspired BOEM to take notice of the IRA’s expected role in reducing fossil fuel demand. Consequently, the new offshore oil and gas leasing plan is far more limited than prior versions, authorizing a maximum of just three new lease sales to be held in 2025, 2027 and 2029 (by contrast, in 2018 the Trump administration had proposed a five-year plan with no fewer than 47 sales). All three leases are located in already well-plied Gulf of Mexico waters, and are timed to ensure that offshore wind development can continue without interruption. According to Interior Secretary Deb Haaland, the new plan is consistent with US clean energy targets for net zero emissions by mid-century, and will protect coastal communities from the adverse effects of much larger scale oil and gas drilling.
In a kinder, gentler America, the Biden administration’s initiative might have been seen as a reasonable path forward that balances both the the short-term interests of renewable and fossil energy industries, while holding course on the path toward climate stability. That is not how the plan was received. The National Ocean Industry Association, an offshore energy advocacy group, declared the effort an utter failure that would endanger livelihoods in the Gulf region while undermining national energy security. These sentiments were underscored by leading Republican legislators in the House and Senate. The reaction among Democratic lawmakers and environmental groups was more mixed, but many called the plan misguided and demanded full cessation of leasing activity. This echoes calls made by protesters at the United Nations Climate Ambitions Summit a few weeks ago, who directed most of their ire at President Biden for his sanctioning of new oil and gas projects (Earthward, September 21).
Undoubtedly, the President invited this criticism by acting contrary to his 2020 campaign pledge to halt all oil and gas drilling on federal lands and waters. However, his decision to endorse the IRA’s coupling of renewable energy development with new oil and gas leasing was necessary to get the law passed. Indeed, the IRA also couples onshore solar and wind development to new oil and gas leases, and includes provisions mandating specific oil lease sales in the Gulf of Mexico and Alaska’s Cook Inlet. While it is understandable that these sales attract opposition, their net impact on total US oil and gas production will almost certainly be negligible. In the heat of the moment when new leases are announced, what often goes unnoticed is that much of the land and ocean territory on offer is usually not bid on by the fossil fuel companies. When a company does buy the rights to develop its activities on leased land, the timeframes to enter into actual production often span the better part of a decade, with specific projects needing to pass environmental reviews and obtain financing in a highly uncertain business landscape. It is certainly bad optics for the administration to sanction even the possibility of new oil and gas projects in the heat of the climate crisis, but the huge substantive gains that the IRA should deliver make the compromise well worth it.
The strong reaction to even the modest proposal of a few new oil and gas lease sales certainly speaks to the volatility of US politics today, but it also underscores the inherent urgency and high stakes of the renewable energy transition. The intensity of the debate may also reflect that these are very early days in the definitive US pivot away from fossil fuels, a turning point that future historians may well date to the IRA’s passage in 2022. Since the shift is so recent, it can be hard to discern amongst the plethora of energy data and statistics emerging from government agencies and think tanks, especially since some of this information runs counter to the underlying trend. For example, in its latest monthly short-term energy outlook, the Department of Energy forecast that US oil production will soon set a new record, likely exceeding 13 million barrels per day by early 2024. Another data point: the nonprofit Global Energy Monitor reports that worldwide, the number of oil and gas-fired power plants in development increased by 13% over the prior year, with nearly two-thirds of this potential growth occurring in China and other Asian countries. Aren’t these data cause for concern?
It is easy to sink into despair in the face of numbers like these, but the antidote is to focus on information that reflects long-term trends, which is much more positive. A key place to look is in the business strategies of fossil fuel companies. We are fortunate to have the analyses of Carbon Tracker, an independent nonprofit financial think tank that looks in detail at capital markets in the energy sector, and works to identify where fossil fuel investments have been made that fail to account for the rapid policy changes and technological advances of the renewable energy transition. Carbon Tracker coined the term “carbon bubble,” which refers to overvaluing of fossil fuel companies that have invested in fossil fuel reserves that will never be developed because of competition from renewables. The reserves and associated physical infrastructure represent “stranded assets” that will increasingly lose value as the green energy transition gathers steam. By pointing out the potential losses associated with overinvesting in fossil fuels, Carbon Tracker hopes to influence would-be oil and gas investors to turn to renewables instead. It also points to historical events, such as the bankruptcies of American coal companies, as examples of what investors should avoid.
Last month, Carbon Tracker issued two reports that underline the fossil fuel industry’s reluctance to invest in new projects, which seem to indicate that its decisionmakers are recognizing the danger of stranded assets. Overall, industry investment in fuel supply has rebounded as part of the economic recovery from the pandemic, but it still remains far lower than its 2014 peak. The data show that instead of plowing recent revenues into future oil and gas projects, firms are instead providing large cash returns to their investors, while also refraining from investing significantly in green energy technology. This conclusion is also supported by data from the International Energy Agency, in its World Energy Investment report published earlier this year. The report shows that global investment in clean energy technology skyrocketed between 2020 and 2023, and is now about 70% higher than investments in fossil fuels, while investment levels in the two sectors were nearly identical as recently as 2018. The IEA analysis also showed that solar power and EVs led the global trend toward new clean energy investment, with important contributions from batteries, heat pumps and nuclear power.
Stepping back to look at the big picture painted by Carbon Tracker and the IEA can offer a helpful ballast for healthy climate advocates in the US, whose efforts, exemplified by the Green New Deal, have already been so influential in shifting the conversation. Advocates might also take note of the IEA’s “new energy security paradigm,” inspired by Russia’s invasion of Ukraine and the crisis it generated in the natural gas markets. A key organizing principle of this paradigm is to synchronize scaling up of clean energy with scaling back of fossil fuels, crucial to finding a workable balance between energy security, affordability and sustainability. The three values in this “energy trilemma” are reflected in the heated argument about new oil leases, and indeed in much of our fighting about energy, with fossil fuel interests emphasizing security and affordability, while healthy climate advocates put much more weight on sustainability. Hence the central importance of the energy investment data. The accelerating flow of capital to clean energy suggests that affordability will soon be better met by renewables, as shown by the plummeting costs of wind and solar power as we approach full economies of scale. Ultimately, this will tip the balance in the green direction. For now, keeping the big picture in mind can bring perspective to individual battles, helping us recognize that energy security is a legitimate concern and inspiring us to think about how to incorporate it into viable green solutions.