Not in the Public Interest

Paul Krugman’s 5-13-25 column provides a key insight into the relationship between renewable energy and fossil energy. Renewables are competitive, even when we don’t take into account the hidden subsidies society provides fossil fuels by tolerating the externalized environmental damage. If a driller can’t get at least $60 a barrel for oil produced, it doesn’t pay to drill. Gas has a similar threshold of profitability. So when the energy industry waxes poetic about the benefits of drilling, look for the dodge and the gimme. The driller needs a premium price for the energy he mines. And the cost of renewables will continue to drop.

Here’s a quote from Krugman’s article:

In the case of shale, it’s all about prices. Drilling new shale wells is expensive. In fact, Trump’s vision of drastically lower oil prices never made any sense, because any large drop in oil prices would make new shale wells unprofitable. And since production from any given shale well drops quickly over time, anything that caused new drilling to fall substantially would quickly translate into declining oil production.

How low would prices have to go to shrink the U.S. oil industry? Recently the Dallas Fed did a survey which suggested that drilling in many major fields would stop if the price per barrel fell below the low 60s:

And that was before Trump’s tariffs raised costs, so the critical price is probably higher now. And guess what: oil prices right now are at a level where we can expect production to fall. Here are oil futures:

Source: Bloomberg

Why did oil get cheap? Look at the sudden drop on April 2, aka Liberation Day, when Trump first announced extreme tariffs. It’s obvious that oil prices are down thanks to pessimism about the global economy, which in turn is tied to Trump’s trade war. And by the way, that war is by no means over. A new analysis by the Yale Budget Lab finds that the damaging effects of Trump’s tariffs are only modestly mitigated by his surrender to China.

And as for renewables: Trump hates them, wind power in particular. He offers crazy justifications for that hatred — did you hear about his claim that offshore wind farms kill whales? — but it’s pretty clear that he has been nursing an irrational grudge ever since he was unable to stop a Scottish wind farm that he thought ruined the view from a golf course he owns.

Oh, and I’m pretty sure that MAGA types in general dislike renewable energy because they don’t consider it manly.

So what will be the economy-boosting effects of drill, baby, drill? Nil, baby, nil.