Biden’s approach to climate action drives energy conflict, not cooperation

One year in, the Biden administration finds itself in an energy and climate bind. Its climate policies are a continuation of policies that President Obama adopted during a period of low energy prices. But now high oil, gas and electricity prices are threatening to derail President Biden’s commitment to climate action. The traditional U.S. approach to climate action — a mishmash of funding, regulations and new roadblocks for energy infrastructure — is an increasingly poor fit for an administration looking to ease global energy flows. 

A better approach would be a modest U.S. carbon price that automatically ratchets up with increasing regulation in trading partners such as Europe and Canada. This type of “matching price” would smooth, rather than snarl, global supply chains and provide a global glide path to cleaner energy. 

The Biden administration has been following the typical pattern of U.S. action on climate matters. Domestically, it will provide more funding for clean energy, demand reductions of automobile and methane emissions, and it has raised roadblocks for high-profile parts of the traditional energy supply chain, through such actions as canceling the Keystone XL pipeline and oil and gas production on federal lands. This approach continues the policies that Obama adopted during the eight years of his presidency, when energy prices were low and American energy supplies were expanding, but it’s a poor fit for a world of faltering supply chains.

The current challenge is securing investment in energy sources that could quickly ramp up supplies of reliable, affordable energy. Unfortunately, clean energy funding alone will not accomplish this. Investor hesitation is often driven less by pure financial concerns than by slow permitting processes that can delay or stop new infrastructure. Think of the 2009 stimulus, which put a record $8 billion toward high-speed rail, yet nothing has been built in America because of permitting delays — something that is holding up so many infrastructure projects around the country. 

The Biden administration’s international climate change efforts also are not well-suited to a world that faces record-high energy prices. The traditional approach has been to step up domestic efforts and cajole other countries into doing the same. But some of the Biden administration’s most high-profile climate actions seem almost designed to alienate our allies in energy. On his first day in office, Biden killed the Keystone XL pipeline, just weeks after Canada said that completing the pipeline was at the top of its foreign policy agenda. Then, with our allies in Europe and Asia desperate for U.S. oil and natural gas to combat rising global prices, the president moved to stop new oil and gas leasing on federal lands. These actions encourage energy conflict, rather than cooperation.

It is time for a new approach to fostering climate cooperation: carbon matching commitments. The Biden administration should build on bipartisan interest in compromise on carbon pricing and propose a modest carbon price that will increase automatically if and when America’s key trading partners, such as Europe, Canada and China, boost their own regulation. Rather than alienating our allies, matching commitments would give them a sign of our good faith — and, more importantly, an incentive to reduce their own carbon emissions. 

Of course, like any climate regulation, carbon pricing isn’t a free lunch. Like the administration’s current regulatory approach, it raises costs. But it does so in a more predictable and flexible way. It is easier for industry to plan for a modest price than to try to anticipate energy mandates that depend on the whims of the courts and future administrations. A matching price would assure industry that carbon prices would rise only in tandem with regulations covering its key competitors.

The Biden administration needs a different approach to climate regulation that will smooth global energy supply chains and encourage climate cooperation. Its current approach isn’t working. A carbon matching price could help. 

James W. Coleman is a nonresident senior fellow at the American Enterprise Institute and a professor at the Dedman School of Law at Southern Methodist University. He specializes in energy trade, policy, and regulation.