This is a bit of a false choice – we can do both, or neither – but it is an important question and a somewhat of a dilemma. Is the optimal path to reductions and eventual elimination of fossil fuel burning through reduced demand or supply? There are some interesting tradeoffs either way, and no perfect answer.

To focus the question, it’s clear that we need to reduce demand as quickly as possible. This is not a question, and there is no dilemma here. Reducing demand is a win-win. We can do this in a number of ways. Switching from internal combustion to battery-electric vehicles is one way. Changing coal and gas power plants to wind, solar, nuclear, hydro, and geothermal is another. Increasing energy efficiency is also important – in homes, cars, and industry. Longer term we can also shift some of our societal patterns of behavior, creating more walkable cities, expanding public transport, and reducing waste.

Basically we need to electrify our technology, switch to green energy, and maximize efficiency. All of these are good things that will reduce pollution, create jobs, foster energy independence, and improve prosperity. Even if you are a climate change denier, you should still favor the green energy revolution (don’t let political propaganda dissuade you). If we were having this conversation in the 1990s, this would be all we need to talk about. How do we accelerate the switch over from fossil fuels by investing in R&D and providing strategic tax incentives? But it’s 2023, and time is basically up.

The path to keeping warming below 1.5 C (still a lot of warming, but likely to avoid disastrous tipping points) has “narrowed”. There are no longer any easy paths, where we just invest and let technology save us. There are no moderate paths, where we heavily invest, but also restrict fossil fuel use, tax carbon, and take other similar measure. There are only a few extreme paths, where we do everything possible and impose some draconian measures and invest heavily in carbon removal. The extreme paths are likely not politically feasible, so welcome to > 1.5 C warming. Now the game is – how much more? If we peak at 1.6-1.8, we may still avoid the worst tipping points, but we’re taking a chance. If we exceed 2.0 C, we will almost definitely experience some extreme climate change that will cost trillions.

This brings us back to the original question – now that we are under the gun, in addition to reducing demand for fossil fuels, how much should we constrain supply? Here are the arguments I have encountered on both sides.

The “stop drilling” side argues that if we are going to limit ultimate warming, that will require leaving oil and gas in the ground. If we pull fossil fuel out of the ground, we (the world) will burn it. Therefore, from one perspective, the ultimate goal is to leave as much oil and gas in the ground as possible, so it makes sense to stop pulling it out. At least stop developing new well. Drain the ones that exist, but don’t drill new ones. There is a range of opinions and proposals here, with the more moderate advocates of this position arguing for at least stopping off-shore drilling, and also drilling in pristine wilderness like some parts of Alaska. Offshore drilling has other negative climate effects other than burning the resulting fossil fuel, such as the occasional oil leak which can devastate ecosystems.

Another argument is that reducing supply of oil and gas will raise their price on the global market. When gas prices are high, people use less, and the incentive to go electric is greater. If we keep gas prices low due to robust supply, it will remain an attractive option. Further, if we reduce or stop developing fossil fuel assets, that leaves more money to invest in other sources of energy. If the big fossil fuel companies realize they have no future in fossil fuels, they will accelerate their investments in other energy assets.

This all makes sense, as far as it goes, but the other side has some compelling arguments to make as well. If people need oil, they will get it, they will pay for it, and they will burn it. The only long term solution is to reduce and then eliminate the need for fossil fuel. Allowing the price of oil and gas to increase just raises their value as world commodities. This increases the incentive to develop more assets.

As a practical matter, if one or a few countries (like the US) reduce their oil production, other countries will take up the slack. Russia and Iran and not going to stop their oil production because we do. This just shifts money and resources to our geopolitical rivals, who are mostly dictators, giving them more money and power.

On the political side, passing policies that choke supply in order to force reductions in consumption will feed inflation and harm the economy. It’s possible this will be offset by new green energy jobs  and reduced cost-of-living through greater efficiency and reduced energy costs when you do switch to green energy. But there will likely be some short term economic pain, which will get blamed directly on the green energy transition, politically empowering the climate change deniers.

If we lived in a mostly rational world, with mostly liberal democracies, then it makes sense to work together to reduce supply as well as demand. But that is not the world we live in. I don’t know what the perfect answer is, because there are mostly trade-offs here. My sense is that some compromise in the middle would likely be optimal. What would that look like?

Offshore drilling, because it has so many other negative effects on the environment, should probably be phased out first. Investing trillions in developing new assets that are dirtier and more expensive (like shale oil) may also not be worth it. Essentially, when it comes to reducing the development of new sources of fossil fuel, focus on the worst, and accept the fact that we will still, for the time being, need to open new wells to meet current demand without shifting production to dangerous dictators. Provide incentives to big energy companies to develop green energy assets. This is what the IRA did, and it is working incredibly well. Do more of that.

In terms of the price of gas at the pump, one solution might be to impose a rather hefty federal gas tax. Use the money to give rebates to the lowest income people so they are not hurt by it. Use anything left over to invest in green energy or give further tax incentives. Further, this tax can be adjustable. Figure out, from an economic point of view, what would be the optimal cost of gasoline, in terms of both the overall economy and making gas a less attractive option. Let’s say, hypothetically, that $4.00 per gallon would be a strategic price. Then tax gasoline up to that point (although state taxes would be on top of that), with the tax decreasing as global gas prices increase. This would keep the price mostly stable, despite fluctuations in the global market. Gas prices would only increase if they exceeded $4.00 per gallon. However, the government could also build up a strategic reserve when gas prices are low, and then release it if there are pulses of high gas prices, as another buffer. Further, the “optimal” gas price could also increase with inflation.

I’m not sure how workable this solution is, but the point is, we need to balance reducing fossil fuels with economic and political realities. At the same time we need to look for and take the win-wins. Reducing demand is a no-brainer, and will be the ultimate solution. The question is – how do we get there as quickly as possible.