Oil executives are just like you and me: They worry about the election.
"A Biden administration would absolutely kill our industry."
Such comments from oil and gas chiefs featured in the Dallas Fed's latest sector survey. It is received wisdom that, if elected president alongside a few more Democratic senators, an administration led by Joe Biden would sacrifice the industry on the altar of the Green New Deal. After all, Biden says one thing but he's secretly just Bernie with better hair and teeth, right?
Actually, any oil and gas executive with an eye on the decade ahead rather than their next quarter has good reason to hope Biden wins. Washington's battle over replacing the late Justice Ruth Bader Ginsburg on the Supreme Court gets to the heart of why.
First, though, a gentle nudge for the American oil business toward self-reflection.
Commanding 14% of the S&P 500 when Barack Obama was first sworn in as president, energy's weighting had sunk to about half that when President Donald Trump took his oath. Today, it's close to being a rounding error.
This industry drilled itself into a ditch regardless of who sat in the Oval Office. Unlike oil and gas investors, the CEOs who are frequently rewarded for growth at all costs and insulated from sometimes catastrophic overreach have mostly done just swimmingly. One reason Trump's "energy dominance" agenda didn't halt the long decline is that its Soviet-tractor-quota approach merely encouraged the industry's worst self-harming impulses.
Elsewhere in that Dallas Fed survey, participants were asked for their primary goals over the next six months. The top two answers: maintain or grow production - amid a historic oil glut and with balance sheets that look like they've been fracked themselves. This industry could use a little less dominance and a lot more discipline.
Keep this in mind when Biden is decried as the sector's nemesis. Which brings us to the election and that Supreme Court seat.
Americans who think climate change either isn't real or is overblown are in a small and shrinking minority.
There is a partisan divide, of course, with Democrats overwhelmingly accepting climate change as a real threat. Still, a majority of Republicans also believe climate change is happening (though only a minority blame human activities) and that carbon emissions should be regulated as a pollutant. Moreover, millennial and Gen-Z Republicans show more concern about climate change and support for renewable energy than the elder cohort.
Republican leadership, however, is of a different mind. This starts at the top, with a president who has long expressed doubt climate change is real and muses aloud on wind turbines causing cancer. It is emblematic of a party that long since gave up on late Sen. John McCain's carbon cap-and-trade proposals in 2008 and this year adopted a policy platform consisting of little more than an arrow pointing at Trump with the slogan "what he said."
Gestures toward the issue are made for appearances' sake; in his recent debate with Sen. Kamala Harris, Vice President Mike Pence deployed the studiedly beige phrase "the climate is changing." But there simply is no consequential policy debate about climate change occurring within the GOP.
This has become the firewall for fossil fuels against meaningful climate policy as the disconnect with public opinion widens, with the Republican-controlled Senate a critical defense. Fossil-fuel production is relatively concentrated within the U.S. — 80% of it comes from just nine states, according to ClearView Energy Partners, a Washington-based analysis firm. And while 18 senators might not seem like much, as ClearView points out they are significant when the filibuster rule prevents passage of legislation without 60 votes. Fossil-fuel production accounts for more than 1% of GDP in a further seven states and for some smaller proportion in many more. All this, plus partisan cohesion regardless of direct fossil-fuel exposure, has made pulling together a blocking minority eminently doable.
But the filibuster hangs by a thread, and Senate Majority Leader Mitch McConnell's push to seat Amy Coney Barrett on the Supreme Court, cementing a 6-3 right-wing majority, could trigger its demise altogether. Several Democratic presidential candidates called explicitly for the end of the filibuster on the campaign trail, often linking it directly to addressing climate change.
Biden didn't, and it seems doubtful he would push a Democratic Senate in this direction over climate policy. What could change that? How about a naked power play by an outgoing president and Senate to tilt the least-democratic branch of government their way for a generation, threatening things that probably would constitute a tipping point even for Biden: the Affordable Care Act, access to abortion, voting rights.
For all its complexities, there is a simple way to think about what happens on Nov. 3. If Trump loses, then all the Republican never-Trumpers will be able to say told-ya-so. If Biden loses, then progressives will say the same thing to Democratic leadership. For the oil and gas industry, a Trump loss likely means the Senate flips too.
Yet with Biden in the White House and the incumbent Democratic leadership still mostly in charge, the chances of a sweeping, AOC-style Green New Deal would be diminished. Climate change measures would still be enacted in some form — not least as part of a post-covid stimulus effort — but likely more along the lines of an actual transition rather than abrupt disruption.
And adult management of the COVID-19 crisis and a large economic stimulus, along with tighter restrictions on fracking on federal land and methane emissions, could support oil and gas prices from both the demand and supply side, at least in the short term.
A Trump win, with Republicans maintaining their slender grip on the Senate, might still seem preferable to oil and gas CEOs. This is short-sighted. The Green New Deal is itself a reaction to decades of obstruction by oil and gas interests and their Republican allies against even incremental measures to address climate change. As the clock ticks by, and the wildfires and hurricanes intensify, so climate change's mindshare among Americans grows — and so does frustration with inaction.
If the industry's strategy to deal with this is simply to retreat ever further into a fortress built on the quirks of the U.S. political system, then it had best hope the other side, post-Biden and with gloves discarded utterly, never gains power and abolishes those quirks. That is the logic of the raw power politics revealed so brazenly in the Republican push for Barrett just four years after stonewalling Merrick Garland on spurious grounds now being ignored (not to mention rampant voter suppression, with oil-capital Houston an epicenter in this cycle).
Indeed, such defensive thinking is implicit in McConnell's relentless focus on judicial appointments — the court-packing's already happened, folks — rather than actual legislating. Confident parties fight to win power and use it; fearful parties make a grab for power and obsess over how to keep it.
The industry faces a choice between getting on board with a smoother transition, with more emphasis on market-based solutions, or keeping with Republicans' maximalist, but minority, position until political fortunes inevitably change — at which point mandates like California's gasoline-car ban will drop like bricks. The first option entails risk management; the second is a gamble with lengthening odds. Spencer Dale, chief economist at BP Plc, noted the risk for the industry in a recent presentation about future energy demand:
"If the required reductions in carbon emissions cannot be met through energy efficiency or fuel switching, the only other way they can be achieved in this scenario is via widespread energy rationing. That is, policies which stop or restrict energy-using outputs or activities - generating significant economic costs and disruption."
Oil majors such as BP find it easier (though not easy) to take a longer view; the E&P companies active in shale are more concerned with surviving the next 12 months. Even so, the larger ones should also have an interest in putting the industry on a more sustainable footing, not least because the costs of, say, doing the right thing on methane emissions would force many marginal competitors to consolidate or disappear.
This is the lesson of energy's decline into index obscurity. Even with so much extraneous help — rising demand, OPEC+, reinstated Iran sanctions, zero interest rates, free flaring in Texas, Trump's regulatory rollback, unpriced carbon emissions — the industry has foundered. What exactly is required to make it work? A Supreme Court ruling that everyone must own two SUVs?
Whether they realize it or not, those decrying the prospect of a Biden administration forcing the fossil-fuels business to finally internalize the costs of climate change are implicitly admitting this business cannot survive without massive subsidies. And one suspects the overlap between them and those folks who dismiss renewables with tired stuff like "but Solyndra!" is reasonably extensive.
Similarly, if the industry only sees a future for itself via its political allies setting judges against majority opinion and making energy just another front in the culture wars, then it has lost the moral authority to help shape the inevitable transition. The line linking decades of discrediting scientific findings on climate as elitist oppression and our current moment, in which a sick president mocks masking against a deadly disease, may be a dotted one, but it is there. Rather than a dead end for the industry, Biden represents an off-ramp.
Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.