New Report: An Economist’s Case for Restrictive Supply-Side Policies

March 16, 2023

A report on why green-lighting fossil fuel development like the Willow Project hurts the United States’ economy and climate, with ten policies to actively manage the transition off fossil fuels.

As President Joe Biden greenlights the Willow Project, a massive ConocoPhillips oil project on the North Slope of Alaska, the Climate and Community Project today released its latest report, “An Economist’s Case for Restrictive Supply Side Policies: Ten policies to manage the fossil fuel transition.” The Biden Administration has heralded the climate benefits of the 2022 Inflation Reduction Act (IRA), but this ‘all-of-the-above’ energy strategy is tantamount to climate denial. Biden cannot be considered a ‘climate leader’ if he advances both the Inflation Reduction Act and the Willow Project, boosting demand for renewables but doing little to restrict the continued expansion of fossil fuel supply. 

Economists Mark Paul and Lina Moe, Climate and Community Project fellows, outline the economic reasoning for why the United States need to simultaneously invest in renewable energy and phase out the production of fossil fuels. Neoclassical economists have positioned a carbon price as a silver bullet, arguing that the climate crisis can be addressed by applying a cost of carbon and relying on a decentralized market reaction. But price signals alone can not stop the climate crisis. While politicians have recently advocated for more direct investment in renewables with policies like the IRA, investments in clean energy technologies alone won’t secure decarbonization – nor justice for fossil fuel communities. 

“Assuming that the market will simply take care of the fossil fuel sector, slowly dismantling it as more renewables come online, is not a plan,” says Mark Paul, lead author and Climate and Community Project member. “In fact, it’s an approach that will prevent the United States from reaching its climate goals while bringing ruin to fossil fuel-dependent communities as oil companies prioritize profits above all else. Developing policies to manage a controlled wind-down of extractive activities is the only way to ensure chaos is prevented, climate goals are achieved, and health and community well-being are prioritized.”

The new Climate and Community Project report outlines how policies which wind down fossil fuels in tandem with clean energy investments have serious benefits. Supply-side policies keep fossil fuels in the ground, which when combined with proper protections can guarantee emission reductions, unlike demand-side investments with more speculative decarbonization gains. Actively planning the transition off fossil fuels also allows the United States to guarantee that workers and communities reliant upon fossil fuel jobs receive support, secure a more liveable planet, and ensure that the United States’ economy weathers the transition without volatility. 

In contrast, when the Biden Administration allows new fossil fuel projects to be built, the United States locks in decades of additional global emissions. According to ConocoPhillips’ own numbers, the new extraction by the Willow Project will generate just 300 permanent new jobs in Alaska – less than .01% of jobs in the state. Burning the oil produced by the project will generate 280 million metric tons of emissions over the next 30 years, equivalent to over 74 coal plants. Estimates put the social cost of emissions from the Willow Project at nearly $80 billion. 

“The science is clear – we can’t keep building new oil, gas, and coal projects. Climate leaders don’t drill,” said Collin Rees, United States Program Manager at Oil Change International. “As a diversified economy, the United States should be leading the world in phasing out oil, gas, and coal extraction with a just transition. Instead, the Biden Administration has doubled down on a deadly ‘all-of-the-above’ approach that’s deepening environmental injustice and wrecking the climate. Paul and Moe make a key contribution to the policy landscape with their findings that the economics support the need for aggressive supply-side action to wind down fossil fuels.”

Supply-side action is not just an issue of national policy, but is an international imperative. The United States is one of the biggest exporters of fossil fuels in the world. Only addressing domestic decarbonization through clean energy means fossil fuel companies can keep drilling, exporting oil and gas onto the international markets. As one of the biggest contributors to the climate crisis, the United States has a global responsibility to stop all new fossil fuel projects, and support the transition and cleanup of existing projects.

“The United States needs to rapidly increase the use of clean energy technologies and stop fossil fuel extraction,” says Johanna Bozuwa, Executive Director of the Climate and Community Project, “So far, policymakers have taken half of this equation seriously, while ignoring the other side to our collective peril. This report makes a strong case for comprehensive climate action at a critical moment in the transition.”

The Willow Project is a cautionary tale of disastrous supply-side policy and an enormous missed opportunity. The Biden Administration is allowing fossil fuel executives to continue drilling in the face of a climate crisis, while burdening Native communities and crucial habitats with pollution, destruction, and food insecurity. Instead, the Administration could seize this moment to support Alaskan communities and workers to transition from reliance on fossil fuel companies and build a vibrant economy in its place, while keeping fossil fuels in the ground and accelerating the transition to renewable energy. 

Read the full report: https://climateandcommunity.org/economists-case-end-fossil-fuels

***The Climate and Community Project is a progressive climate policy think tank developing cutting-edge research at the climate and inequality nexus. www.climateandcommunity.org 

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