Here’s why repealing the crude oil export ban wasn’t such a bad deal
While you were focused on negotiations in Paris to save the world from catastrophic climate change, congressional Republicans were hard at work trying to make things worse. One of their schemes was to cram climate-harming provisions into the federal budget, which passed on Dec. 18. They failed to push through most such provisions, like repealing the Clean Power Plan, but they succeeded with one big one: lifting the 40-year-old ban on exporting crude oil. This policy change — a generous Christmas gift to the oil industry — was their price for extending tax credits for wind and solar energy and otherwise leaving Obama’s climate agenda alone.
Activists and experts disagree on whether this trade might lead to an increase or a decrease in CO2 emissions, or make no big difference either way. From a political perspective, though, giving up the crude oil export ban in favor of renewable energy subsidies was a smart concession for Democrats to make. That’s because Republicans wanted it badly, but it threatens far less harm than many of the other policies the GOP is pushing for.
The backstory on the crude oil export ban
In 1975, in response to the 1973-1974 oil embargo, the U.S. government prohibited oil companies from exporting unprocessed crude; only oil that had been refined into products like gasoline or diesel could be sold overseas. The intent was to keep our domestically produced oil at home to restrain rising gasoline prices. The effect on prices turned out to be negligible, because the U.S. consumed vastly more oil than it produced, but the policy stuck.
Then, over this last decade, fracking technology unleashed a boom in previously unreachable shale oil. Oil companies complained that they might not make as much money as possible from that boom because they were confined to selling the oil only to U.S. refineries, whereas it might fetch a higher price on the global market. And you know how oil companies and the politicians in their pockets feel about profits being restrained in any way.
So a couple of years ago, the oil industry started spending big on lobbying Congress to repeal the ban. Environmentalists pushed back, arguing that repeal could ultimately lead to increased oil production and more CO2 emissions. But the battle was seriously lopsided. “Opponents of the prohibition — long some of the biggest forces in the Washington influence game — began lobbying on the issue in earnest in early 2013,” reports the Center for Responsive Politics. “All told, organizations and companies that lobbied on the measure spent $38 million weighing in on that and other issues in the third quarter of 2015. Oil interests outspent environmentalists by a wide margin.” Senators from oil states such as North Dakota, Louisiana, and Alaska began calling to lift the ban and the Republican caucus adopted it as part of its energy agenda.
And this month, the opponents of the ban won.
Grist’s Clayton Aldern and I have both previously reviewed the merits of this policy shift. In short: There aren’t any. Not unless your objective is to fatten oil companies’ bottom lines. For everyone else, it just opens up the door to more pollution — both the conventional kind that taints our air and water and the carbon pollution that causes global warming. As I explained last year:
The bigger profits to be gained from exporting crude oil would incentivize companies to drill more in the U.S. That means more oil contamination of our domestic environment — see, for example, the increasingly frequent oil-hauling train explosions — and more CO2 emissions when that oil is inevitably burned. …
The prospect of higher prices from foreign refiners would give oil companies more of an economic incentive to go after hard-to-reach supplies. It was only after oil prices rose in recent years that oil companies found it worthwhile to engage in the dirty, energy-intensive process of extracting oil from the Canadian tar sands.
For now, oil prices are so low that analysts don’t expect an uptick in U.S. production, but that could change as prices fluctuate in the future.
What the deal means for the climate
When an anti-environmental party controls Congress, trade-offs have to be made. Many Democrats didn’t want to give a gift to the oil industry, but at least they got something they wanted in return. The subsidies for wind and solar energy production are expected to bolster growth in those industries. Republicans also agreed not to block climate-related aid to developing nations that the Obama administration pledged at the Paris climate talks.
So was the deal good for the climate? In the short term, yes. Analysts such as Michael Levi and Varun Sivaram of the Council on Foreign Relations find that the renewable energy tax credits will reduce carbon emissions over the next five years more than allowing crude oil exports will increase them.
In the longer term, the picture is fuzzier. The wind tax credit will phase out in 2020, and the solar credit will begin ramping down then and settle at a lower level in 2022. The lifting of the crude oil ban, on the other hand, is not time-limited, and in our current political climate, it would be virtually impossible to reinstate it.
The green think tank Oil Change International argues that the trade-off “was a poor deal in terms of emissions,” pointing to a report that suggests a mere five-year extension of the wind production tax credit won’t do much to help that industry, while a 15-year extension to 2030 would. “The oil industry is playing a long game,” the group observes.
But the outcome of that game depends on how global oil prices fluctuate over the coming years. Vox’s Brad Plumer writes:
From a climate standpoint, this [trade-off] looks quite helpful in the near term. The wind and solar credits will reduce US greenhouse gas emissions moderately for the next half-decade (around 0.3 percent per year, by one estimate), at least until the EPA’s Clean Power Plan takes effect.
Conversely, few analysts expect the repeal of the export ban to matter much for the next few years, since conditions aren’t currently favorable for exports. But in the longer run, if those conditions shift, this provision could bolster US oil production and increase emissions, which is why so many green groups hate it. It’s a temporary clean energy boost, they say, in exchange for broader support for fossil-fuel extraction.
But, as Plumer notes, the accelerated expansion of renewables in the next few years could solidify their place in the U.S. electrical grid. That could give wind and solar a permanent boost even beyond the life of the tax credits.
Why the deal is good politics
Whether you think the budget-deal compromise was good or bad also depends on whether you think climate policy should focus on the supply side or the demand side. Green groups are increasingly focused on limiting the supply of fossil fuels, hence their “keep it in the ground” campaigns — so of course they see the lifting of the crude oil export ban as a loss. President Obama, on the other hand, has focused on limiting the demand for fossil fuels through policies like fuel-efficiency standards.
In fact, the Obama administration didn’t necessarily see lifting the crude oil export ban as much of a concession at all. In October, the White House had threatened to veto a bill that would lift the ban, but that same month Energy Secretary Ernest Moniz said that he didn’t think lifting the ban would make much of a practical difference.
Ultimately, the crude oil export ban mattered more to Republicans than to Democrats because Republicans are desperately, pathetically beholden to the fossil fuel industry. The repeal is more likely to have an impact on oil companies’ profits than on the environment. The chief reason the oil industry wanted to get rid of the ban was to get more bargaining power in their dealings with refineries. Under the crude oil export ban, domestic refineries were granted an oligopsony. Now oil companies will have more pricing power, which stands to boost their profits even if it doesn’t lead to one extra drop of oil coming out of the ground.
So if Democrats must give Republicans something in exchange for getting a pro-climate policy through Congress, this was the right kind of thing to give (though you could argue that Democrats should have tried to get more in return). Increasing pollution is bad, but increasing oil company profits at the margins doesn’t matter so much. As the world veers towards climate catastrophe, helping the fossil fuel industry at all is insane. But the Republican Party is insane and it they controls Congress, so the outcome could have been a lot worse.