Banning natural gas exports. By Matthew Yglesias

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Banning natural gas exports

Does this even reduce emissions? Nobody seems to know or care.

The Biden administration announced last week that it would pause approval of 17 planned liquid natural gas export facilities, pending a review of the greenhouse gas emission implications of their construction.

Their plan, stated in this way, is pretty unobjectionable. Increasing LNG exports will generate modest economic benefits for the United States of America by increasing natural gas production and natural gas exports, which will mean some jobs in the gas extraction sector. The exports will also improve America’s terms of trade and make some imported goods cheaper. LNG exports will also presumably lower the global price of natural gas, which will increase the amount of gas that is burned globally. To the extent that cheaper gas displaces coal and oil, that will make global greenhouse gas emissions lower. But to the extent that it leads to more aggregate energy use, it could make climate change worse.

So there are a lot of important questions to ask about LNG exports and climate change:

How much does blocking the terminal actually reduce global natural gas consumption rather than redirecting it from the US to Qatar or Russia?

How much does increased gas consumption displace coal and oil? Or is it simply burned in addition to coal and oil?

Based on the answers to the questions above, what is the net impact of these LNG terminals on greenhouse gas emissions?

What is the economic value to the United States of increased natural gas exports?

What is the economic value to the world of cheaper natural gas?

If you had answers to those questions, you could then do two different cost-benefit analyses. One is what is the social cost to the United States of America of the higher emissions (if any) versus the economic benefits? The other is what is the social cost to the world of the higher emissions (if any) versus the economic benefits?

One certainly can’t object, in principle, to the idea that the government should run these numbers and try to reach a decision.

That said, I think it is clear that the climate advocacy community is not asking for a sober-minded calculation. I’ll just quote Jillian Goodman’s writeup for Heatmap, which I think is extremely telling in two respects:

“Um, I think we all just won,” wrote Bill McKibben — perhaps the project’s staunchest foe — in a newsletter sent out just a few hours later. “Yes,” he wrote, “there are always devils in the details. And it doesn’t guarantee long-term victory — it sets up a process where victory is possible (to this point, the industry has gotten every permit they’ve asked for). But I have a beer in my hand.”

That possible breaking of historical precedent partially explains why McKibben is so exhilarated. Another reason has a lot to do with an analysis of the climate effects of U.S. LNG exports, released in November by energy analyst Jeremy Symons. Among his most incendiary findings was that, if all 17 export terminals were approved, the emissions related to the fuel that would flow through them would exceed the annual greenhouse gas emissions of the entire European Union.

Two points on this:

McKibben defines victory as blocking LNG exports. He knows in advance which way he wants the analysis to turn out.

The movement has reached its decision on which way it should turn out based on Symons’ analysis, even though Symons doesn’t even purport to estimate the net impact on emissions.

I think this is bad. And generally speaking, it’s a bad idea to spend a lot of time listening to the ideas and priorities of activities who are this cavalier about their policy analysis.

I also have to say that any time I write a piece like this one from earlier in the month about how I wish Democrats would get real about the politics of climate change, I get a ton of immediate pushback. The climate advocates tell me that everyone knows the voters don’t want to make big sacrifices for climate change, that’s why the whole climate agenda was reoriented around jobs, industrial policy, energy security, innovation, and so forth. And I think that’s great. The Inflation Reduction Act really was centered around those things (thanks to Joe Manchin).

But this kind of thing is the tell. The actual revealed preference of the climate movement is to take an arbitrary hammer to any fossil fuel project that they see, in such an arbitrary way that they want to do it before even knowing whether the project raises emissions. And when I say that this kind of thinking is a problem politically, that’s what I mean: A group of people who know that they should be trying to create politically sustainable decarbonization via jobs, growth, innovation, and energy just can’t restrain themselves from seizing on regulatory loopholes and prejudging the outcomes of complicated policy analysis.

There’s a strong public interest in gas exports

I do think it’s important to be rational here.

The climate movement may have decided that blocking these facilities is a good idea without checking to see whether the sign on the global emissions impact is positive or negative, but that doesn’t mean that blocking them would fail a rigorous cost-benefit test. But I will note that the review process they have asked for, and won, doesn’t require a cost-benefit test.

It recapitulates McKibben’s successful campaign against the Keystone XL pipeline, which benefitted from the fact that rules on cross-border pipelines don’t require a quantified cost-benefit analysis, just a fuzzy “public interest” determination.

But I think we ought to be clear about this.

If you take the public interest concept seriously, that ought to be a higher bar for blocking a project than a mere economic cost-benefit analysis. Consider the Keystone pipeline. Whatever the impact of blocking this pipeline on global emissions or the American economy, it also pissed off the government of Canada. Canada is a neighbor to the United States of America, it’s a major trade partner, and it’s a fellow member of the NATO alliance. From time to time, we ask Canada to help us out with things, like during the September 11, 2001 crisis when tons of airliners were diverted to land in Canada. That’s not to say “do what Canada wants” should be the guiding principle of American policy. But all else being equal, it’s nice to help your friends out. So the right way to make a “public interest” calculus about Keystone would be to take a conventional economic cost-benefit analysis, and then put a further foreign policy thumb on the scale in favor of approving it.

In practice, though, that’s not what happened. The reason Keystone in particular became such a target of activism is that it was within the executive branch’s power to block the pipeline without saying exactly what the environmental benefits or economic costs were. It was a perfect piece of activist chum — bad policy pushed by people who simply don’t do policy analysis.

And something similar is happening with natural gas exports. On the one hand, there’s the economic cost-benefit analysis. But over and above that, there are the foreign policy benefits of LNG exports. We make it harder for America’s critical diplomatic partners in Europe to follow America’s policy on the Russia-Ukraine war if we make it harder to supply them with natural gas. Conversely, across the global south, it is better for America’s foreign policy and diplomatic posture if countries buy American gas than Russian or Qatari gas. I’m not really sure how you’d put the foreign policy benefits of LNG exports into a cost-benefit analysis equation. But they clearly should count as a consideration in favor of approval, not against it.

Energy is important to the global economy

Climate activists want the world to burn less fossil fuels.

One way to do this is to promote new low-carbon technologies, which is what the climate provisions of the Inflation Reduction Act do. It’s a politically sound approach to mitigating climate change, and it also makes sense on the merits.

Another approach is to raise the price of fossil fuels, which is extremely politically dicey, but could make sense on the merits. A carbon tax, for example, would reduce emissions while also raising revenue. The problem is that it’s unpopular, so politicians don’t want to do it and climate advocates, wisely, don’t ask them to. Where the advocates keep running aground, though, is that their preferred strategy of stymying fossil fuel production and distribution has the same downside (higher prices) but without the revenue upside.

Imagine the polling on two ideas:

A tax on carbon dioxide emissions, with the revenue used to reduce the deficit and lower interest rates so mortgages are more affordable.

A tax on carbon dioxide emissions, with the revenue put into sacks and tossed into the ocean for no reason.

Whatever the political strength of (1), the strength of (2) is going to be less. So if you think (1) is not a sustainable strategy, then (2) is also not a sustainable strategy. The cute thing about trying to block exports is you can say “well, sure, I’m reducing emissions by raising energy prices, but they’re not American energy prices so it’s fine.”

But is it fine? As reported in this Euronews story from back when the Russia-Ukraine war spiked natural gas prices, “record-breaking gas prices have driven the cost of fertilizers up by 151% on an annual basis, putting producers and farmers under enormous financial strain.” Of course that’s bad for Europe. But the market for things like fertilizer and agricultural commodities is global, so higher global natural gas prices do come around to bite American consumers in the ass, even if our domestic natural gas price stays low. In June there was a Bloomberg story titled “Gas Crisis Rages On for the Poorest Nations” about how Europe solved its gas problems by sourcing from elsewhere, which simply created new shortages for the global poor.

Again, this is not just an economic problem, it raises the question of whether there are any climate benefits at all to blocking natural gas exports. On September 6 of last year, for example, Reuters reported that India was looking for more natural gas to help avoid blackouts. Then on November 29, Reuters reported that “India aims to add 17 gigawatts of coal-based power generation capacity in the next 16 months, its fastest pace in recent years, to avert outages due to a record rise in power demand, according to government officials and documents.”

I’m not here to tell you that blocking LNG exports will raise emissions on net. But it’s obvious that more than zero percent of the missing American gas will be replaced by coal, and exactly what that percent is matters. But looking around at the coverage of the issue, this question is shockingly absent. The frame is entirely about climate activists demanding this versus industry interests or potential foreign policy concerns. It’s taken for granted that this is a major step toward achieving global climate goals. But nobody is presenting any modeling that actually shows that.

Demand more from the climate movement

I was going to say something about the politics here, but honestly, I’m not sure what to say. I don’t think it’s politically wise for Biden to spend more time kowtowing to climate activists, but I also acknowledge that LNG exports are not a salient issue for anyone other than climate activists.

But I do hope other stakeholders in the coalition will note a few things:

The climate movement has not actually done the thing it says it has done and adopted a framework that emphasizes jobs and investment. They can be forced to do that when centrist Democrats insist, but their default posture is exactly what they’re doing here.

The climate movement also doesn’t bother to do real policy analysis before formulating their demand. Everything is reasoning backwards from fake climate targets. For the world to reach net zero by 2050, we need it to be the case that India is not making massive new investments in fossil fuels, therefore we don’t need to worry about selling them gas. But, in fact, India is making massive investments in fossil fuels, so the coal-gas margin matters!

The climate movement is out here making new policy demands in an election year, even though they already got to be the Democratic Party’s top legislative priority.

We have, essentially, a movement that is addicted to activist chum. There are three things that would actually make a big difference in addressing climate change. One is targeted deregulatory efforts aimed at making it easier to deploy zero carbon electricity — this would require getting environmentalists to compromise on other goals for the sake of climate. A second is persuading people to care more about climate change, because if they cared, you could do pricing that would accelerate all kinds of useful consumer change. A third is developing new technology that would solve hard problems like fertilizer production, high-temperature manufacturing, aviation, and maritime shipping.

There are people working on all of these things, which is great. But there’s this mass of people (and money) working in the amorphous chum space where they ask for a “climate emergency” or get really worked up about the exact wording of COP statements or want to block LNG exports. And they can’t really explain why any of this makes a difference or is helpful, it just kind of shambles forward as a donor perpetual motion machine.

So I hope the Biden administration does its review in a rigorous way and really tries to determine the net emissions impact of building these facilities, as well as the benefits and under what implicit Social Cost of Carbon it would make sense to block them. The advocate reaction makes me suspect that the fix is in. But I hope that whatever happens in 2024, the powers that be — in politics, in media, in philanthropy — will start asking harder questions about who they’re listening to on energy issues and why.