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With gas prices soaring over $5 a gallon as Americans hit the road this Fourth of July weekend, Andy asks the question on many of our minds: what tradeoffs are we willing to make for relief at the pump? Columbia Climate School Dean Jason Bordoff and Harvard Kennedy School Professor Meghan O’Sullivan go through how different compromises, from deals with Saudi Arabia to gas tax holidays, would affect our pocketbooks, global relations, and the planet.

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Follow Jason Bordoff and Meghan O’Sullivan on Twitter @JasonBordoff and @OSullivanMeghan.

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• Read Jason and Meghan’s article on how to maintain our energy supply while still hitting climate-change goals: https://www.economist.com/by-invitation/jason-bordoff-and-meghan-o-sullivan-on-maintaining-energy-supply/21808312
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Transcript

SPEAKERS

Andy Slavitt, Meghan O’Sullivan, Jason Bordoff

Andy Slavitt  00:17

Welcome IN THE BUBBLE, this is Andy Slavitt. It is Friday, July 1st, welcome to our Friday conversation $5.20.50. Those two numbers to focus on as we go on today’s show. 5, you probably noticed about the price of a gallon there, although here in California, it’s like more like 7, in 2050, that’s when the UN says we are going to see potentially two degrees of temperature rises that we desperately as a planet want to try to prevent. And by the way, as our guest will point out today, most of that work needs to get done between now and 2030, for us to have much of a hope. So, energy security, on the one hand, is something we’re all very attuned to now, climate policy, something that I thought was important to us. And by the way, if you want to get deeper in those two topics, there’s two prior shows, you can listen to June 3rd, we had a conversation on gas prices and how they impact people, November 10, we had a great conversation around climate and what we’re doing about it. But this is a conversation that has as much to do with the options that we face, as a nation and as people. And I think we kind of want to know a couple things, which of those options are viable in managing gas prices, and our climate future, and also which are smart, which are the right things. So today’s kind of conversation around tradeoffs, with two amazing experts, Jason Bordoff, who is a former energy adviser to President Barack Obama. Jason is also the host of  a great podcasts if you love this topic. It’s called Columbia Energy Exchange. You’ll find it wherever you find your podcasts. I love that phrase. And Meghan O’Sullivan, who was a former deputy national security adviser under President George W. Bush, and in my notes, just said, George Bush, but by looking at Meghan O’Sullivan, I assure you, it’s not George HW Bush,

Meghan O’Sullivan  02:09

Thank you, I’ll take the compliment.

Andy Slavitt 

Absolutely. Let me set the stage. So we find ourselves at a place where our goals and our values are meeting each other. And it’s time for us to kind of understand what we really care about, okay, we want low gas prices. It’s an economic hardship for many people. You know, beyond that, not to mention, it’s a political imperative for a president facing a midterm. And on the other hand, or maybe it’s not, and on the other hand, but we also want to move away from fossil fuels. So these things are clashing together. You know, our values are easiest spout. Well, they don’t require much sacrifice. But it is most interesting in the most challenging times, when we decide what really matters. And I think it’s a perfect time for this conversation. These choices aren’t easy. So, one big question I have, we’ll try to get to this conversation is where do our principles stop and start? But the question we have to start with is, what do we do in this current crisis? What will work and what’s in our best interest? So, as we entertain the series of tradeoffs, there’s a couple of questions that I want to make sure we keep in mind with as we talk to Jason and Meghan. Number one, would the tradeoff even work? How effective would it be? And perhaps more interestingly, should we try to make it work? So Jason, maybe you could start by setting the stage for us with this sort of $5 in this 2050 notion? How should we be thinking about this moment we find ourselves in?

Jason Bordoff 

Yeah, thanks so much for having me on the podcast, which I really enjoy listening to. So it’s great to be on. You set the scene really well, about where we are today, and where we need to go in the future. And those are different things. And so just to start, you know, this moment of energy crisis and climate crisis, not to mention food crisis and inflation crisis, all at the same time, is a reminder and forcing a reckoning with what Meghan and I have been writing about for several years. Others too, obviously. What we have seen in the climate community over the last many years, has been a successful effort to elevate ambition on climate and decarbonization, a goal of two degrees well below two, one and a half degrees Celsius warming and getting many, many, many countries, many companies to commit to those increasingly ambitious targets. The problem is the gap between ambition and reality has been growing, not shrinking. And so what we have seen is oil use going up not down except in times of recession and pandemic, gas use, even coal use may be plateauing, but now it’s going up, not down. So there’s we’ve had, we’ve changed the targets and the ambition, but we’re not yet changing the reality and the consequence of that is the potential for underinvestment in supply relative to where demand is going. We should remember we were in an energy crisis, even before Russia invaded Ukraine in Europe, because of some mismatches between how much people were beginning to pull out of investing in oil and gas, but demand wasn’t going down what we and that’s what climate cares about, are we making demand go down? Are we using less oil and gas? Are we using more alternatives, then you have this massive shock of Russia invading Ukraine, loss of some amount of Russian oil and refined products like gasoline and diesel, loss of Russian gas supply increasingly in recent days, Russia is actually intensifying the pressure by unilaterally cutting more gas to Europe, and raising the specter of real crisis, high prices and shortages. And what we need to do is walk and chew gum at the same time. It’s not easy, but it’s necessary and possible. And a core point that that I think underlies what we’ve been writing and moves in your scene setting for the whole podcast is a concern we have. And that if energy, affordability and security come into tension with climate ambition, climate ambition will lose. And it is in some sense a tradeoff. But in another sense, it’s not because you’re actually can’t sustain political support for stronger climate action. If people have trouble paying their energy bills and making sure we’re taking steps today that provide people with affordable energy that still requires oil and gas. That’s the reality of the world today. That helps, keeping energy affordable smoothing the process of a transition allows us to have more ambitious goals. And then we have to keep our eye on the ball and not become complacent once the immediate crisis passes, as we often do, and make sure that we take the measures that might not help with this crisis, but they would make us much more resilient with the next energy crisis, not to mention the climate crisis.

Andy Slavitt  06:46

That’s really interesting and really clearly stated, going back and get your thoughts. One of the things I pulled out of that, I think very good takedown is climate change policies can only happen if they’re practical. In other words, telling people don’t drive or live with high gas prices. We can’t afford to go there. Meghan, what are your thoughts and like, give us some of that global perspective around the sanctions coming from the west, to Russia. And, you know, this is a place where it particularly in Europe, and here as well. They really been tested on a number of matters with this war and how much they’re willing to put the sanctions in place and live with the implications, right?

Meghan O’Sullivan

So, I think if we look at it from that geopolitical perspective, from the context of the war, there are a couple of tradeoffs or things that Europe in particular is trying to balance, but also the United States, given the interconnectedness of the global economy. And the energy markets is first, as you point out, there’s a desire not only to punish Russia, but also to remove the countries of Europe and other countries around the world from being the funders of this atrocious war in Ukraine. So there’s a desire to disengage from the energy trade, that is really what is supplying Russia with its dominant source of revenues. But at the same time, what we’re seeing right now, we’re seeing that it’s bumping up against real economic pressures and the question of what the economic cost people are going to be willing to bear. So this is quite apart from the climate question. It is just you know, is Europe willing to embrace a recession, is the United States willing to encourage Europe to embrace a recession, there’s a lot going on now, almost a lot of second guessing now that Europe has moved forward and said, for most practical purposes, they are going to ban the import of Russian oil. And then everybody kind of gets a glimpse at what that might mean for global energy markets, and what that might mean for the oil price in the context of pressures on inflation that are including but also well beyond the energy price. So I think there’s that, you know, trade off, there is just the economic pain versus the strategic objective of trying to see that the defeat of Russia is not just, you know, having Russia limit.

Andy Slavitt 

[…] prepared bearing up under this challenge, and how long does it take to do you think they’re prepared to sustain it?

Meghan O’Sullivan 

Yeah, I think Europe is bearing up Well, it certainly has not been able to go the whole distance in terms of disengaging from trade with Russia on the energy front. But that is just because of the sheer magnitude of the dependency. And so really, if we look back just 4 months, and what the expectation was, it was very naive, but many people, many policymakers thought it would be possible to penalize Russia on every front but the energy one, so that was the expectation, and now we’re in a very different reality where Europe has itself taken steps to disengage. The real question is the one that you just asked, How long is this going to last? Because the economic pain as the Europeans are fully aware is going to increase pretty significantly because is now after four months finally, Putin has decided he’s going to start cutting off gas to major European economies.

Andy Slavitt  10:08

So it’s gonna get worse before it gets better. Before we get into some of the tradeoff case that I want to take just picked up on, […] just said, here, you know, if you’re following this story in the news somewhat peripherally, you’re going to hear one or two things. You hear some looking at the globe and what it’s experiencing and Ukraine and saying what Meghan is saying, it’s coming out of Europe, but just now’s a perfect time to demonstrate why it’s so important to break our dependence on fossil fuels. Others watching the situation, say, no, no, that’s not the lesson. The lesson was simply. And the phrase that they use a lot is energy independence, regardless of the source of energy, which is sort of a common refrain. And of course, there’s something that in people’s gut, sounds right, about that. It sounds like, oh, we can’t be dependent on Russia. What’s the actual situation? What is right here?

Jason Bordoff 

Yeah, I think, you know, every president since Richard Nixon has promised energy independence, and no one, it’s never been quite clear what that means. It was just in the last couple of years that the United States became a net exporter of energy. So on a net basis, we import a lot, we export a lot, we are independent in the sense that we produce more than we consume on a net basis. But independence as a goal wasn’t that coherent, because we’re still part of an interconnected global market. And there are many benefits to that we should remember, if the hurricane hits the US Gulf Coast, if something happens, you will have the ability to pull supplies in from other parts of the world. So there can be resilience that comes from being more not less connected. You look at the energy, the electricity crisis in Texas, you know, a year or so ago that Texas is its own grid, if Texas was more connected to the rest of the national grid, it would have had an a little bit of more of an ability to pull electricity in when it had its own problems because of freezing temperatures that affected both fossil fuel and renewable generation. But being interconnected means you’re part of a global market. And so I don’t know what better reminder, we need. That real energy security comes not just from producing more or importing less, but actually using less in the first place, making your economy less dependent on globally traded hydrocarbons that are inevitably exposed to geopolitical risk. Then the last few months, we seen the US as a net exporter of oil last year. And notwithstanding that, we’re still feeling a huge amount of pain at the pump when something happens halfway around the world with Russian energy supply. And that’s because oil is globally traded. gasoline and diesel are globally traded, and prices are set in a global market. And that’s the reality of it. And there’s not that much one can do about it.

Andy Slavitt  12:53

Yeah. So what I hear you saying is, we could produce it export as much oil as we want. But that’s not reducing the price of oil. It’s the demand side. And that I don’t want to put words in your mouth. But it sounds like you’re saying that the right framework goal, putting aside the issues we’ve had to deal with in the short term for a second is that we’ve got to break our dependence on fossil fuels and lower demand. And that there’s energy independence thing is a bit of a, I won’t say the fool’s errand, but it’s a bit of a, it doesn’t help with this kind of situation.

Jason Bordoff 

Yeah, I think energy independence is a bit of a shimmer, and has been held up as something beyond what it actually can be. I want to say production has no impact or economic benefit; more economic activity associated with industry in the US. And US has grown its oil production from 5 to at the peak 13 million barrels a day over the span of a decade because of the Shale Revolution. That’s a huge amount of additional supply to put into a market that uses about 100 million a day. But everyone two or 3 million on the margin can have an outsized impact on price. So when you’re putting more supply in the market, you are helping to reduce prices, but in the context of a global market, not just because you are using everything you consume, here at home, the point that in the longer term, the things that would make you more resilient to inevitable geopolitical shocks to the oil market, or actually using less in the first place. I think that’s the most important lesson. That’s also what we happen to need to do to decarbonize as well. But those things don’t happen, you know, by this summer, or this winter or November election, they take a little bit more time to play out.

Andy Slavitt  14:34

Well, let’s go to break. And then we’re gonna come back and talk about the tradeoffs that we face right now as a country. Okay, so we talked about global oil prices. There’s also the matter of what we do here in the US to refine the oil, and gasoline to another factor. So the first lever, Meghan is we hear, well, let’s just pump more. And we have this, we have President Biden, who is in this sort of awkward public dispute exchange, if you will, with the CEO of Chevron, arguing that they can just go increase production, and that you’ve got these olive oil fields that are dormant and you have production facilities that haven’t been built, the refineries that have been shut down. And they say you the oil companies are to blame. And by the way, you’re making a lot of profits. So can you describe the conundrum that oil companies are in, why these facilities stand dormant? And what a reflection of kind of that push on the domestic front amounts to?

Meghan O’Sullivan  16:04

Sure, and I know that Jason will want to chime in on this as well. So I mean, it really is this almost unbelievable situation two years ago, it would have been hard to imagine a Biden administration coming in, and it being the one to really urge oil and gas producers to produce more energy. And you know, what is happening on the side is that you have oil and gas producers, you know, who have been reluctant, up until recently to make big investments. In certain areas, then there’s been the political rhetoric and the pledges of the administration that we need to be moving away from oil and gas, we had a report by the International Energy Agency that came out about a year ago that a lot of people misunderstood one of the main outcomes or outgrowths of the report, it said, if we were on track, to meet our goal to live in a netzero world by 2050, we would stop, we would have no need to increase oil and gas investment today. And so many people took that as a sign that we should not be increasing oil and investment and gas that that was required in order to ensure that we would get to net 50. But instead, you know, the reality is that we’re not even remotely on track for the 2050 goal, as Jason pointed out, and if we’re going to meet energy needs in the short and medium term, then we do need oil and gas investments. So there were a lot of signals, that had meant that investment in oil and gas had fallen short. And now suddenly, the administration wants the oil and gas industry to increase its production. But a lot of the things that are required to realize that have to do with infrastructure and pipelines and things that have not been built over the last few years, in part because of opposition based on the idea and the reality over time that we should be consuming less oil and gas rather than more.

Andy Slavitt 

Sounds a perfect example of our ambivalence. Don’t build new fields, hey, wait a minute. We’ve disincentivize that. And now we’re desperate for it. First of all, is there even something to do here? Could the oil companies do more domestically that would actually help. Talk to us, help us through this conundrum?

Jason Bordoff  18:16

Yeah, there is some ability to increase production more quickly. So we saw at the start of the pandemic, we shut down the global economy, right, global oil demand fell 25%-30%. And then it quickly came back when we reopen the economy. Production fell in response, particularly in the US, which as Megan said, is so called short cycle, you can ramp it up faster and ramp it down faster. But it has taken, it’s been harder to ramp it up. Now, we shouldn’t underestimate the fact that the US is still growing a lot, it’s gonna grow nearly a million barrels a day and supply this year and more than a million barrels a day next year. That’s a big increase. It is not enough to keep pace with how quickly demand is growing as we come out of the pandemic pent up demand people getting on airplanes, people traveling and driving over the summer, even with these high prices. And you have all the supply chain problems associated with it, the workers, the rigs, the sand you need and just you know, energy, oil supply chains are sort of gnarled up, just like many other supply chains are.

Andy Slavitt 

Even if you could, let’s say we’re practical to do it quickly. Is it good policy? I mean, should we be ramping up both refining capacity and domestic production?

Jason Bordoff

Well, I think we need to maintain for reasons of the economy, for reasons of equity. And for reasons, as we said earlier, have support for broader climate ambition and stronger climate policy. There is an argument for making sure that energy remains affordable and secure for people. The alternative is to say we should just stop investing, stop producing and believe that we are going to price spike and market crunch our way to an energy transition. And for the reasons Meghan said a moment ago, I think much evidence is to the contrary, it is true that clean energy is going to get a boost coming out of this crisis, I believe. But it is also the case that in the near term, politicians and across many parts of the world are subsidizing energy prices, rolling back fuel taxes, doing the opposite of many things that over a longer time in a more managed way, you would want to do to encourage a transition to clean energy. So I think what we need to do is focus on reducing demand transitioning to alternatives, electrifying the economy, electric vehicles, electric heat pumps, all the rest so that over time, demand for oil and gas good supply of oil and gas goes down because demand for it is going down. Not that supply is shrinking, but there’s people are still demanding it and prices are going up. And they’re getting hurt economically in their pocketbook. Because of course that has political consequences, too

Meghan O’Sullivan  20:42

I’ll jump in, I agree with everything that Jason said they’re just on the question of should we be producing more, let me give a very tangible example of why this makes sense, even if you are really invested and interested in a transition as both Jason and I are. So I think the assumption of some people is, well, maybe for not producing this stuff, it’s not going to be consumed. And of course, that’s has a certain logic to it, but take natural gas, natural gas, American natural gas is now in underpinning a lot of European energy security. And so a lot of what Europe is relying on is being able to replace Russian gas with a significant amount of American gas. And this reverberates through the whole ecosystem. And if that gas weren’t in place, it wouldn’t only be Europe, that’s boring, burning more coal, but it’d be also other parts of the world because of course, the gas has moved around as the prices has gone up. And when I’m saying gas, I’m meaning natural gas. And so essentially, you know, Europe is pulling more natural gas into the continent. And a lot of the developing world is finding that natural gas is too expensive. And so they’re burning more coal. And so the more gas that can be put into the mix, in my mind doesn’t mean that we’re using less renewable energy, it means we’re using less coal. And obviously, you know, coal is one of the chief culprits when we’re looking at carbon emissions.

Andy Slavitt  22:04

This is interesting, this conversation, such a great reminder on how everything is not quite what meets the eye when you’re talking about energy prices, and how these things interrelate. Because it would seem on the surface, that we want to encourage less production of fossil fuels, to the average person. And but of course, I think what you’re rightly pointing out here is that more supply doesn’t drive more demand, other forces drive more demand. And that’s where we’ve got to pick another lever that’s in the news. And it’s one that you hear every time gas prices go up, which is this idea of a gas tax holiday, either at the federal or at the state level. And when this idea comes up, you instantly hear I instantly hear pushback and people saying, well, this is all gonna just increase profits. For the oil company. It’s just not gonna make much difference. It’s small anyway. Do you like the idea?

Meghan O’Sullivan

No, I don’t like the idea. The first reason is just as we’ve been talking about for the last, you know, however many minutes, what we need to be doing right now is focusing on paring back demand. And so to actually take a policy measure that will if anything, increased demand seems to be going in the wrong direction. The more practical reason why I’m not a fan of it is because the idea that we’re going to have a three month reprieve just doesn’t strike me as realistic in the political sense. So, you know, once you take off the gas tax, when is the right time to put on a gas tax or restoring the gas tax? I don’t know when that time is, but I’m pretty sure it’s not going to be two months before an election. And I’m pretty sure that, you know, if we come September, we’re actually not going to be looking at a significantly better oil price situation, unless we’re in a recession.

Andy Slavitt 

Before we move a little more to the global situation and to some of the climate issues. Just want to see if there’s anything else on the domestic side that President Biden can do is curbing exports in any way, a practical or a good idea or because this is a global market? Doesn’t really do much good. Can you use the defense production act? Is there any practical kind of thing that, you know, that goes beyond just looking busy, which is important and looking like you care. But is there actually something that you think moves the needle here on the domestic front? Jason, maybe start with you?

Jason Bordoff  24:26

Well, I think the option again, they’ve used several of the arrows in the quiver, like strategic oil stocks, and there’s some reports I saw that in a meeting with industry, Secretary Granholm indicated they may be open to waiving some of these summertime standards for gasoline that would potentially lower the price of refining a little bit it might come at the expense of some higher environmental pollution. So just these tough tradeoffs we have to weigh, I think the administration has signaled it’s open to the idea that if there are things the industry would come forward and say would be helpful to get some refineries restarted, they’re open to thinking about the defense production act to do that, if the industry were to apply for waivers of the Jones Act, this kind of makes it difficult to transport gasoline and diesel from one part of the country to another. They may consider waivers like that to help make supply more available.

Andy Slavitt

Short term waivers to get through the crisis?

Jason Bordoff 

Exactly. So we have a lot of extra gasoline and kind of the US Gulf Coast, but the coast, the East Coast and West Coast tend to import gasoline. So it might be cheaper to move some from the Gulf Coast to the East Coast. But that’s difficult to deal with unless you get these waivers if industry were to request them. And the last thing I’ll say is I do think you want to be careful about inflationary pressure, to be sure, but there is an equity issue here and our aggressiveness to high energy prices and so targeted support for low income and vulnerable households to deal with the higher prices they’re paying, I think, could make good economic policy.

Andy Slavitt 

When we come back. We’ll talk about President Biden’s upcoming trip to Saudi Arabia and all that that means. We’ll talk about another trade off. President Biden came into office highly critical of Crown Prince Mohammed bin Salman, he’s obviously critical over the very brutal and public murder of Jamal Khashoggi in 2018. Which was on display for all of us to see so hard to avoid, and critical of the Trump administration relationship and Jared Kushner’s relationship, so he pledged not to meet with him and so forth. And now, it feels like we’re in the middle of a sort of bizarrely choreographed visit, to try to persuade the Saudis to increase oil production in OPEC. So, can you talk a little bit about what’s at stake at this trip? How much can actually come from this? Can the Saudis and OPEC actually move the needle? And what do you think our policies ought to be here as these things rub against one another?

Meghan O’Sullivan  27:17

So I think you know, what’s at stake here really goes back to something you open the show with today, which is just the tension when you get into a situation where you have interests and values unaligned with one another. And I think this Saudi moment is a good example of that. And I think, especially when you think about values, not just American values, but also the values of President Biden, I think this deeply goes against, you know, where he wants to be on this position and what he wants his relationship to be with Saudi Arabia. However, another issue we’ve talked about, it’s just the importance of the global market in actually determining the price of gasoline at home. So political fortunes and economic fortunes, that two thirds of the price of oil that Americans pay or gas when they fill up their tank is determined on the global market. And so people who maybe prematurely thought that Saudi Arabia didn’t matter as much to America, when America was producing, you know, one of the was the largest producer of oil in the world, you know, really didn’t factor in to effect that even when that’s the case, the Saudis are still going to have a very important role in the market. So I think this was a premature downgrading of the importance of Saudi Arabia. And we’re seeing that right now. You know, so I think it’s going to be a very awkward trip, I think there’s going to be the you know, that’s probably going to be the understatement of the year, the best possible outcome is that Biden is able to, you know, say, yes, I was in the room, where Mohammed bin Salman was, but there were a lot of really important things happening in that room. That was essential. I was there for it, who knows exactly what that’s going to look like. But I think there’s a number of things in the works. And the other part of this going well, is that Mohammed bin Salman decides to take that as a win, decides not to press the case. And he really needs some public recognition from Biden, that he is really the de facto and presumably soon to be the actual ruler of Saudi Arabia. So that’s a when the question of how much difference this oil is going to make. I think, you know, it’s certainly going to be helpful, you know, who’s the Saudis are one of the only countries really the Saudis and the Emiratis that have spare capacity to bring to market at a time when there is this imbalance between supply and demand. I think it’s going to be less helpful than many anticipate, because at the end of the day, there are constraints on how much spare capacity the Saudis and others can bring to the market without the market, having, you know, a reverse psychology moment. So every time you move something from the category of spare capacity, unutilized capacity into the on the market, it means that there’s less and less of a buffer for the globe to handle any other potential crisis, be it a natural disaster, be it another war, be it say the breakdown of efforts to negotiate with Iran. I mean anything that could disrupt oil markets, the smaller the spare capacity, the more nervous the market, and the higher the price.

Andy Slavitt  30:19

Yeah, those Meghan and different metrics are this $5 and this 2050, do we have much of an opportunity to move the $5? Even if we decide, you know, we’re gonna do, we’re gonna do the real politic thing. We’re going to find a way, as you say, to cleverly embrace the Saudis. But we really going to push them here, is there a meaningful difference? Or does the price and get caught up in so many other factors, their limitations, as you said, and production, the global demand, which is still exceeds supply, and of course, we’ve got our own refinery capacity issues here as Jason said.

Meghan O’Sullivan

You know, I’m not trying to be difficult, but it is very hard to put $1 on it. But I will say it is meaningful, it can have a meaningful impact on the price. But in order to see a huge departure from the trajectory we’re on, will require a number of these things coming together, that I think additional Saudi spare capacity, in the face of continued countervailing winds on other fronts won’t be enough to give, you know, Biden the relaxation that he’s looking for.

Andy Slavitt 

Got it. So Jason, good idea or bad idea to try to get something done with Saudis?

Jason Bordoff

Well, I think there are many factors. I think Megan would agree there are many reasons aside from high oil prices, why some foreign policy and Middle East advisors around the President think that it’s important to reset this relationship, which is important for counterterrorism and intelligence while standing up for American humanitarian principles and values and of human rights and making sure we speak out forcefully on those. To the extent there’s some extra amount of oil that the Kingdom might be willing to bring to market. That’s, I think, kind of an added benefit. But I think there’s a lot going on here that goes beyond just energy. I might just say, I mean, the question you asked a moment ago, I think is a good way to think about it. $5 and $20.50, which can we make more of a difference on and there’s some amount you can do that $5, not a huge amount that those prices are going to come down because people the best cure for high prices is high prices, and a recession or something else. Economic weakness is already starting to bring oil prices down a little bit. The thing I want to say about 2050 is we can do a lot about that. But 2050 sounds far away. But you don’t, it’s actually today, or it should have been yesterday, if you want to take targets like that seriously. And just to like put this in context, we shut down at one point, you know, more than a third or half of the global economy, 4 billion people were under lockdown at maximum global emissions that year fell about 6%. We need the amount of annual reductions in emissions each and every year to exceed that percentage between now and 2030. If we want to look forward in 2030 and say we’re on track for net zero by 2050 goals, so we have a huge amount of work to do. And we have to start doing that really fast.

Andy Slavitt

Say that again, the 6% in the gap, what does the number, what does the target need to be in an annual basis sort of starting as soon as we can?

Jason Bordoff 

About something like an 8% annual reduction, it doesn’t have to move in a straight line necessarily, but what matters is the cumulative amount under the curve, not just the end state of net zero by 2050. Emissions stay up there for a really long time. So if we continue at our current emissions level, if they remain virtually unchanged, the amount of carbon you can put into the atmosphere that would be consistent with about one and a half degrees of celsius warming is pretty much used up by the end of the decade.

Andy Slavitt 

What do we see happening with demand as we see gas prices going up, and is there an argument, is there some good evidence in a positive way that Americans are driving less or carpooling more will take public transportation more? In other words, this will push people into changing their behavior for the better and way that may be sustainable. You know, buying more electric cars, although the price of electric cars is going up, does the theory, check out that this can have a long term positive impact on demand, or history say that, you know, we made some short term impact, but people as soon as gas prices are down, they get pretty forgetful and go back to the old ways.

Jason Bordoff  34:18

Yeah, there’s a lot of economic evidence about the elasticity of oil demand. It’s much higher in the long term than it is in the short term people obviously if they had long term predictability, that prices would be a certain level they’d make different choices, maybe about what kind of car to buy or where to live. There’s not as much you can do in the short term because you live where you live and you have what kind of car you have on the margin people can take public transit it possibly in some places, not all places or you know I ride the bike around New York and have an electric vehicle so I’ve been personally a little more insulated to that. But I do want to say that it is a more economically painful than necessary way to achieve reductions in demand and Transition to just impose very high prices, market driven high prices on people. And there’s a difference between a certain market price with a government, you know, carbon tax or gasoline tax that tries to incentivize behavior and internalize negative externality, social costs like carbon emissions, then you create government revenue, you can use to offset the impact on consumers, redistribute it to people and just, you know, a market crunch alone, that leads to very high market prices. That as we’re seeing today is a politically and economically painful way to try to get that sort of transition.

Andy Slavitt 

Yeah, always forced into crisis mode and before we act, and the question is, you know, will you even act. So I want to close by asking each of your best thoughts on kind of the package of policy prescriptions that you will be advising the president Congress the country on right now it but and then as I do that, I want to take an attempt at sort of spinning back a scorecard of what I’ve heard on kind of the should we or shouldn’t we, against this sort of 2050 in the $5 goals? And what I think I’ve heard you say is, we went through a series of things, you know, what can you do on the domestic front? And I think what I heard was in the could we standpoint, yeah, we could do a little there could be some marginal benefit, there to a couple of things. But none of the big picture things, is that gonna make a dramatic impact? And what I didn’t hear, interestingly enough, from the should we standpoint is that there was a big objection, even from a climate standpoint, to enabling more production or refinement, gas tax holiday. I mean, either of you were in love with that idea, engaging with Saudis, the Emiratis. OPEC, we both pointed out the hazards. You both, I think, we think the scorecard is can make some difference, not sure how much the situation in Ukraine, it’s almost zoom was not a lever, because I don’t think there’s an option on the table to run away from the sanctions, although I think Meghan pointed out that, yes, in Europe, they’re really having to, especially figure out what their tolerance is, and that’s gonna get worse before it gets better. So it’s not a lever. In fact, if anything, can we be heading in the wrong direction, incentives to move more quickly to, from fossil fuel dependence, very hard, very painful, and maybe even temporary. So in a nutshell, I would summarize it as there’s a several different small things, no silver bullet, and that all the options are on the table. So feel free to begin by correcting any of that. But then tell me how you package up your policy prescriptions to say this is the combination of things that I think is most effective right now, Meghan, why don’t we start with you?

Meghan O’Sullivan

So, you know, I think that your summary is largely accurate and a good one, one thing I would want to emphasize in terms of when we’re talking about what to do, and what the different initiatives are, is that this is really a moment to look at things in tandem with other policies, just like individual policies pulled out of the policy toolkit, you know, not at random, but not in coordination, you know, there is an opportunity, and that is an opportunity to bring together people and when you’re talking about the imperative of more supply in the short term, to make sure that, that, you know, getting that supply, that it’s tethered to something that underscores the imperative of staying on track or not, you know, forsaking our need to get to net zero as soon as we can. So, you know, here’s an opportunity for an integrated energy and climate strategy that would, you know, allow there and enable there to be more supply recognize that there needs to be the building of new infrastructure, but not without some kind of constraints and some kind of understanding. So Jason and I have written and talked about a concept that we’re referring to as transition assets, which would basically say, Okay, we know there’s need for these, these fossil fuel infrastructure investments or other investments, but we’re not going to make them in the same way that they’ve been made in the past, we’re not going to know enable them to lock in a real bias against a transition in 20 or 30 years, but to do so with a policymaking understanding and an understanding of the private sector, that there need to be a different set of incentives in terms of how they’re financed, how long their life will be, what will happen to the assets, so that there aren’t concerns about stranded assets. So it’s a time for creative policymaking and a time, you know, for not just focusing on one prescription, because this is the opportunity to get everyone to compromise by doing, you know, some of what we need to do all at once from both sides.

Andy Slavitt 

So, Jason, the President calls you and says, give me the perfect package of policies. What are they?

Jason Bordoff

Well, we’re definitely in the world of imperfect solutions. But I’ll say a couple of things about both the short term and the long term and I think your summary of our conversation on this podcast, which has been great is sort of was it was a good summary on the supply side. And just note what Meghan said a moment ago that, you know, we wrote a piece in Foreign Policy magazine not long ago sort of talking about a potential for what we termed a sort of grand bargain. Some on the environmental left may need to confront a hard truth that is somewhat uncomfortable that there needs to be some amount of limited targeted investment in oil and gas supply and infrastructure today, but we want to make sure that we’re doing that in a way that doesn’t lock in 2030 or 40 year lived assets. And so we need to think creatively about how you finance how you get permits for infrastructure that the world needs today, because of the reality of today’s energy mix. But we acknowledge, we hope that in fact, those things in 1015 years become stranded and we want to retire them sooner than they would normally be retired if you want to pay back a return to your investors.

Andy Slavitt  40:51

And just I hate to interrupt because you’re in a great thread here. I just want to; how do you persuade people to make investments that have that have much capital required and such a limited useful life?

Jason Bordoff 

I think it’s a challenge, you know, and you see that today, I think part of the reluctance, you’re not going to build new refineries in the US today. And part of that is permitting and a bunch of other things. But also uncertainty about the demand outlook like the administration is not nor should it be changing its longer term goals, that oil demand is going to fall not increase in the years to come. So Megan talked about the possibility that you could require in permitting, as some Europeans are doing that infrastructure is built transition ready for some alternative fuels, you could permit a natural gas pipeline, but has to say it has to be ready to handle zero carbon or low carbon fuels like hydrogen or ammonia, you could imagine some innovative financial instruments that might provide a government, you know, call option after some period of time or permits for a shorter period of time, but with some mechanisms to lower the cost of capital, so people can pay back those investments sooner than would otherwise be the case. And then if we get on track with our climate goals, I hope we do, there’s an ability, a kind of an option from the government to sort of retire those assets, consistent with the longer term climate goals. That’s on the supply side, I want to emphasize that I don’t think in this conversation, we have talked enough about the demand side, there’s much more we can be doing on efficiency and conservation than we are doing. Some of that plays out over the long term. But some of it you know, if you look at what Europe can do to make a meaningful dent in dependence on Russian gas, some of it is coal. Some of it is LNG, but if you know, dial down thermostat, a few degrees put on a sweater I know that evokes images of President Carter wearing a cardigan.

Andy Slavitt  42:39

Only for those of us old enough to get that.

Jason Bordoff 

Yeah, right, and then there was political concern about calling for sacrifice, and not all of it needs to be a huge amount of sacrifice, there’s still a lot of low hanging fruit. But we should maybe acknowledge that at a moment when Ukrainians are making the ultimate sacrifice in terms of losing their lives. To the extent people are able to conserve a bit of energy to free that up for a market that’s trying to maximize the amount of pressure we put on Putin and take Russian oil and gas off the market. There’s a lot more we could be doing there. And again, that’s both in the near term, but also the longer term.

Andy Slavitt 

Well, Jason, Meghan, thank you so much for being in the bubble, really illuminating conversation and a complex set of issues that are not as straightforward as they look. And you know, a lot of us who have sort of gut instincts on climate, find that kind of our instincts don’t always take us in the direction of what the right kind of immediate steps are. And I think the way he broke down, how we think about the short term versus the long term and how we move these very important levers and make these decisions about who we are is critically important. So thanks again, both of you for being here.

Meghan O’Sullivan 

Thanks so much, Andy. This has been great fun; I really enjoy the chance to be on your show.

Jason Bordoff 

Thanks so much for having me on. Andy, was great conversation. I appreciate it.

Andy Slavitt  44:05

Monday, Independence Day, we’re gonna return to our just real Americana episode with Ken Burns, about Ben Franklin and the kind of first pandemic the country went through. It’s particularly salient because of Franklin’s decision about whether to vaccinate his child in the wake of vaccines for kids zero to five being available now. Wednesday, I think, former presidential candidate Jason Kander, who was on his meteoric rise as you can imagine, and then it all came to a stop and what’s different about the stop is he put a stop to it because he had post-traumatic stress disorder and it is an amazing, deep, fascinating conversation. We’re going to talk also about BA5 disappearing immunity. We’re going to talk with Scott Kirby, the CEO of United Airlines about how Just absolutely miserable travel is getting expensive. So a lot of great things coming up. Thank you for tuning in.

CREDITS

Thanks for listening to IN THE BUBBLE. We’re a production of Lemonada Media. Kathryn Barnes, Jackie Harris and Kyle Shiely produced our show, and they’re great. Our mix is by Noah Smith and James Barber, and they’re great, too. Steve Nelson is the vice president of the weekly content, and he’s okay, too. And of course, the ultimate bosses, Jessica Cordova Kramer and Stephanie Wittels Wachs, they executive produced the show, we love them dearly. Our theme was composed by Dan Molad and Oliver Hill, with additional music by Ivan Kuraev. You can find out more about our show on social media at @LemonadaMedia where you’ll also get the transcript of the show. And you can find me at @ASlavitt on Twitter. If you like what you heard today, why don’t you tell your friends to listen as well, and get them to write a review. Thanks so much, talk to you next time.