Why Big Oil Doesn’t Mind Big Regulation

Trump’s call to undo Biden-era regulation isn’t welcome news for all fossil-fuel producers

By Jinjoo Lee of The WSJ. 

Regulations are costly. Why would some firms want to be regulated? Maybe these excerpts will explain why.

"Leading oilmen haven’t suddenly become Greenpeace activists—strict regulations tend to work in their interest. Larger companies can afford to comply with them while smaller ones often can’t. Stringent rules can put these smaller companies out of business or force them to sell to larger producers. Notably, producers that had higher methane intensity than peers back in 2020—such as PDC Energy and Callon Petroleum—have since been gobbled up by larger companies."

"Other barriers to drilling under Biden were more burdensome to smaller companies and are likely to get eased under Trump. Greater environmental scrutiny in the permitting process for leasing on federal lands, for example, has increased the amount of legwork companies need to do to get drilling permits, according to Duman. Smaller companies simply don’t have access to the same resources to get through those processes."

"Historically, though, traditional energy has performed slightly better under Democrats, notes Arjun Murti, partner at energy advisory firm Veriten. That is because they tend to favor putting roadblocks on new supply, which helps limit capital spending and boost oil prices, he says. And those roadblocks tend to be more damaging to small producers rather than giants."

Related posts:

How Much Do Environmental Regulations Cost (2012)

Licensing Laws Are Shutting Young People Out Of The Job Market (2016)

The Staggers Rail Act of 1980 got American freight transportation back on track (2021) (See When Democrats Were Deregulators by Ian Jefferies.)

License to Exclude: Black Barbers in Arkansas (2024) (another case of regulation keeping the competition out)

Government Employees Trade Favors To The Oil Industry For Sex (and they got an ethics award from the government) (2008)

-this relates to the capture hypothesis

 

Capture Hypothesis-A theory of regulatory behavior that predicts that regulators will eventually be captured by special interests of the industry being regulated. Then the agency will serve the needs of the industry instead of society. This happens for two reasons:

1. The government has to hire people who understand the industry and they end up hiring people who used to work for the industry that is supposed to be regulated.

2. Most citizens will not care what they agency does because they are too busy with their own lives. But the companies will lobby and try to influence the agency because it is worth their time.