To Drill or Not to Drill?: The Economic Effects of Energy Policy during the Start of the Second Trump Administration

(Oil Wells, Richard Florsheim, Art Institute Chicago)

The Trump administration has pursued a slew of economic policies in its first 100 days. While tariffs, an inflationary policy, have taken center stage over the last few months, the administration has continued to maintain its intent to bring down the cost of living. They argue that this will be achieved primarily through declaring a “national energy emergency” and pursuing a rapid roll-back of environmental, energy permitting, and transportation regulations. The decrease in energy costs, their logic follows, will trickle down to all other sectors, giving the federal government wide leeway in other policy areas. In reality, current expert consensus and economic data so far does not suggest that broad deregulation has any effective downward pressure on prices.

“Drill, Baby, Drill” seeped into real policy with the early 2025 executive order “Unleashing American Energy.” The order laid out a few principal areas of energy policy, each with specific intended effects on the broader economy. The change President Trump most loudly championed as the key to lower prices was the opening of federal lands to oil speculation. This was meant to make it easier and therefore cheaper to produce oil in the U.S. The guidance in the executive order was then implemented by the EPA, resulting in what was termed the “biggest deregulatory action in U.S. history.” The deregulation included 31 actions that were explicitly meant to bring down energy prices, which included revising various emissions regulations for power plants and motor vehicles. Together, the administration’s policies repeatedly tried to dramatically decrease the price of energy. Unfortunately, the effects of these policies thus far and predictions for the future do not suggest that these measures will reach their lofty goals. 

So far, prices for crude oil, gas, and consumer electricity have decreased steadily but not at levels notably greater than before the announcement of the deregulation. The picture for forward-looking energy futures and natural gas forecasts is not much rosier, with few signs of the dramatic price decrease that the administration seems to expect. Across all statistics, the only notable decrease in prices came in April, not from the introduction of any energy-specific policies, but because of the economic shock from tariffs dampening demand. Even oil company executives, including Ron Gusek of Liberty Energy, generally agree that it is “too early to say that [the policies] are going to translate into a change in actual activity levels here in North America.” This might be because of an uncertain economic and policy outlook, with Jeff Gustavson, President of Chevron New Energies, noting that “Early actions by the Trump administration to streamline permitting are encouraging, but durable policy will require action by Congress.” Furthermore, it is clear that oil producers are not yet buying into the promise of cheap federal land and power plants, partially because doing so would hurt them. Even before the change of administration, the United States had more than 7000 permits for drilling on public lands but much of it was underdeveloped precisely because increasing the supply would undercut the large profits for investors that the industry currently procures. While circumstances could still change in the future, it currently appears that the policy decisions are insufficient for reducing energy prices, which are reliant on many factors.

(Image Credit: Pyotr Sergeevykh)

If an administration wants to lower the prices of other goods, this begs the question of whether energy cost reduction is a strategy worth focusing on in the first place. However, the administration’s overall strategy is more evidence-backed. Studies point to a high correlation between energy prices and consumer spending. For example, researchers Hillard Huntington and Brantley Liddle’s 2022 study of OECD nations established that “Averaged across all nations, results suggest that a 10% increase in energy prices dampened economic growth by about 0.15%.” However, it is unclear whether an intense focus on fossil fuels is beneficial to this goal, as opposed to investments in clean energy. Despite it quickly becoming the cheapest way to produce energy, President Trump has so far moved to limit green energy projects, such as offshore wind. Without substantial benefits originating from policy, any link between energy and the cost of living becomes moot. 

Despite an earnest attempt at making an impact, President Trump’s policies have not yet proved to be more than a half-hearted acknowledgement of the high costs of living. Devoid of compelling data to back up their efficacy, the Administration’s various rule changes have failed to live up to their promises. Reform presents an opportunity to significantly improve people’s quality of life, but it will take a nuanced, balanced approach, rather than just grand gestures.