Sanctions, Climate Policy, ESG, and Energy Dependence

President Joe Biden’s latest effort to cordon off the Russian economy and place pressure on the Putin regime is executive order 14066, blocking the import of all Russian crude oil, petroleum, and other types of fossil fuels.

In 2021, the United States purchased approximately 670,000 barrels of petroleum per day from the Russian Federation, representing 8 percent of our total petroleum imports.

Misguided, Counterproductive Responses

The White House’s short-term response to this impending shortfall and the highest gas prices in American history is two-pronged.

First, Biden is releasing 30 million barrels from the U.S. Strategic Petroleum Reserve. With American petroleum consumption topping approximately 20 million barrels per day in 2021, this release can sustain the demand for just one-and-a-half days.

To make up the remainder, Biden has begun negotiating with Venezuela, Iran, and Saudi Arabia. Iran and Venezuela are already under stringent U.S. sanctions, which would be partially lifted to enable an energy deal.

Putting aside these regimes’ sparkling track records of terrorism sponsorship and human rights atrocities, this deal would directly strengthen countries who oppose U.S. strategic interests. Moreover, Venezuela and Iran are longtime allies of Moscow and have expanded their ties to Russia and China in recent years.

What is to stop Venezuela and Iran from buying Russian oil once their sanctions have been lifted, and then selling that oil to the United States for higher prices? Nothing like profiting at the expense of Uncle Sam and funding Hezbollah with the proceeds.

Tyrants Win, America Loses

Everybody but the United States wins from that deal—including Russia.

As the Heritage Foundation’s Jim Carafano recently wrote, “If you’re doing business with the friends of Russia, you’re helping out Russians. It’s that simple.”

This counterproductive shift from Putin to Khamenei and Maduro is unlikely to reduce domestic energy costs substantially.

When Biden took office, gas cost approximately $2.48 per gallon. On his first day in office, Biden signed executive order 13990, canceling the Keystone XL pipeline. The project would have daily supplied Texas refineries with 800,000 barrels of crude oil from Canada.

Biden subsequently blocked oil and gas companies from leasing new property on federal lands and offshore, substantially increased regulations across the industry, and banned drilling for new oil on substantial swathes of federal property.

The current gas price of $4.33 represents a 74.6 percent increase in just 14 months, strongly correlating with the highest overall inflation rate since the 1970s. As with the 1970s stagflation, energy has been a primary driver of the current inflation.

Climate Pandering Continues

If Biden truly wants to reduce energy prices, he should begin by reversing his misguided policies.

Instead, Biden continues to pander to the international climate movement, carrying even more problematic long-term implications for our energy dependence.

Biden’s overarching climate goal is to cut U.S. greenhouse gas emissions in half by 2030 and achieve net-zero emissions by 2050. The aforementioned executive actions were the initial mechanisms to achieve these goals.

Environmental, social, and governance (ESG) scoring is the other mechanism. These scores are essentially a social credit framework for a company’s sustainability reporting. A company’s risk profile is subjectively determined by amalgamating both financial and nonfinancial aspects into an overall score, which determines whether that company is an attractive target for investment.

The Biden administration has worked with global financial elites, Wall Street titans, and international organizations to institutionalize ESG across the economy. Due to this network’s combined influence and leverage, 98 percent of U.S. companies now report ESG metrics.

Fossil Fuels, ESG, Trump

One of ESG’s main targets is the U.S. fossil fuel industry.

ESG metrics are inundated with green energy objectives. One prominently used system has 16 metrics related to climate themes, including Impact of Air Pollution, Land Use and Ecological Sensitivity, Paris-aligned GHG Emissions Targets, and Total Greenhouse Gas Emissions.

Traditional energy companies slapped with low ESG scores are considered unattractive investment risks.

ESG scores are disincentivizing investment in energy companies, leaving them with less funding to finance research and development toward optimizing existing technologies, innovating, and updating refineries.

Under the Trump administration, the United States experienced an energy renaissance based on both increased drilling and loosened regulations, plus unprecedented innovations in drilling technology, especially hydraulic fracturing, which gave the country access to vast new crude oil deposits.

Refining and Independence

Crude oil is not a homogenous product: it is differentiated by density and sulfur content. Most newly accessible U.S. deposits yield “light” and “sweet” crude oil, whereas countries such as Canada, Venezuela, Russia, and Iran yield heavier varieties.

The problem is most U.S. oil refineries are designed to process heavy crude oil.

That makes it more economically efficient to import heavy crude and export the light crude produced in the United States.

A sensible way to boost long-term U.S. energy independence would be to repurpose some domestic refineries to process light crude. This would entail short-term costs and require government approval. However, the move could both sustain domestic demand and export surplus for a profit.

Biden’s policies, by contrast, restrict energy companies’ abilities to tap into our domestic resources, which also keeps companies from overhauling their refineries. Why change the refinery if there isn’t much surplus to refine?

If energy dominance, economic superiority, lower prices, higher standards of living, and enhanced national security are the goals, the solution is simple. Unshackle the fossil fuel industries and allow them to operate according to the laws of supply and demand instead of politicians’ whims.

Jack McPherrin (jmcpherrin@heartland.org) is research editor at The Heartland Institute.