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BP Chief Economist's Explanation of "North America's oil and gas renaissance" Should Win Chutzpah Award

4 min. read

An opinion piece by the chief economist of BP, Christof Ruhl, caught our eye, for its sheer chutzpah if nothing else. According to Mr. Ruhl, it turns out that "North America’s oil and gas renaissance, which has the potential to fuel a U.S. industrial recovery with cheaper energy, is not a happy accident of geology and lucky drilling." Instead, Ruhl asserts, this "renaissance" occurred because of "open access, sound government policy, stable property rights and the incentive offered by market pricing unleashed the skills of good engineers."

Those assertions, of course, are at best a stretch. In reality, fossil fuels for many years have been heavily underwritten through extensive and highly unpopular government handouts, as well as through billions of dollars worth of assistance by the Department of Energy's Office of Fossil Energy and other government agencies. For instance, as Michael Shellenberger and Ted Nordhaus of the non-partisan Breakthrough Institute explained in a 2011 Washington Post article:

The breakthroughs that revolutionized the natural gas industry — massive hydraulic fracturing, new mapping tools and horizontal drilling — were made possible by the government agencies that critics insist are incapable of investing wisely in new technology.

...the lesson of the shale gas revolution is that we should not be so quick to judge government investments in energy technology. Between 1978 and 2007, the Energy Department spent $24 billion on fossil energy research. Billions more were spent through the Gas Research Institute and non-conventional gas tax credits. Those investments were widely panned as a failure during the ’80s and early ’90s, when gas was plentiful and cheap.

In addition to the large-scale federal R&D assistance that helped develop techniques like hydraulic fracturing, of course there's also the hundreds of billions of dollars in direct federal subsidies to oil, gas, and coal between 1950 and 2010. Those subsidies dwarf the comparatively miniscule amount of federal support that's gone to wind, solar, and other clean energy sources. And the direct subsidies don't even include enormous indirect support for a fossil-fuel-based economy. Not the least of this indirect support is the absence of government policy to correct a clear and massive case of market failure, one in which the fossil fuel industry hasn't been forced to pay the true, fully internalized cost (e.g., counting health and environmental damages from fossil fuel pollution) of its products.  Take all that into account, and the economics of fossil fuels look a lot less rosy than they do now.

As we know, those facts haven't stopped the oil and gas industry, including the chief economist of BP - beneficiaries of a "playing field" tilted heavily in their direction thanks to government policy in a variety of ways - from shamelessly crediting what they call the "oil and gas renaissance" to "sound government policy" and "the incentive offered by market pricing."  Again, how is it "market pricing" when the industry's heavily subsidized by the government, and when government policy allows it to avoid the health, national security and environmental costs of its products?

Of course, if you ask the oil and gas industry to reconcile the fundamental, internal flaw in their argument, not only do they not 'fess up, but instead they double down. Take, for example, the assertion by American Petroleum Institute CEO Jack Gerard that the "oil and gas industry gets no subsidies, zero, nothing." In fact, as we've discussed time and again, the fact is that the oil and gas industry receives enormous subsidies, both at the federal and state levels. So what is Jack Gerard talking about, exactly? It's hard to say, but it's certainly not anything approximating the truth.

Now, all of this might be mildly amusing, if it weren't for the fact that these same fossil fuel folks loudly and relentlessly attack the clean energy industry by claiming that it somehow receives policy support which is somehow illegitimate. On top of that, they also either deny outright that their own industry receives any government handouts at all (see Jack Gerard, above), or they claim that somehow their subsidies are legitimate, while clean energy's aren't. Finally, as we discussed at the beginning of this article, they deny history and economics, arguing that the successes of oil and gas are all earned through "open access," "sound government policy," and "market pricing."

Of course, given the oil and gas industry's political clout in Washington, DC, it's no wonder why they view the system as operating quite well, thank you. But for those of us who support a rapid transition to clean energy, let's just say we have a sharply different view of what constitutes "open access," "sound government policy," and "market pricing."