RThe Russian invasion of Ukraine has amplified the importance of national security considerations in the energy policies of Western countries. At the same time, governments must continue to focus on reducing environmental damage, especially on reducing greenhouse gas emissions. The two objectives, geopolitical and environmental, are urgent and must be evaluated together.
These two goals are not necessarily in conflict, as some believe. There are many energy measures the West can adopt that would benefit the environment and serve its geopolitical goals. The most obvious measures, especially for the European Union, are sanctions that reduce demand for fossil fuel imports from Russia.
A review of the different areas of energy policy reveals other options. Here I emphasize the do’s and don’ts that seem like clear win-win choices, as opposed to policy decisions where the trade-offs are sharp and reasonable observers may disagree.
The first policy choice is stark: governments must not extend the life of coal and must withdraw coal subsidies. The International Monetary Fund has estimated that global energy subsidies (including for oil and natural gas, as well as coal), whether on the producer or consumer side, exceed $5 billion a year. Direct US fossil fuel subsidies alone have been conservatively estimated at $20 billion a year.
Next, policy makers should regulate natural gas. Continental Europe has become dependent on Russian gas, and US shipments of liquefied natural gas can help replace it. But if there is to be a renewal of the fracking boom, which actually reduced total carbon dioxide emissions in the United States from 2007 to 2012, careful regulation should significantly reduce the amount of methane released into the atmosphere as part of the process. Fortunately, this regulation does not need to be expensive.
Not subsidizing oil is also essential. Global oil subsidies amount to about $1.5 per year. If the United States is to open more federal lands to drilling, it should no longer offer leases to drillers at below-market rates.
Western governments should also tap into existing stockpiles, as Joe Biden did recently by announcing an unprecedented release of 180 million barrels of oil from the country’s Strategic Petroleum Reserve. While presidents have sometimes used the reserve for political purposes in the past, Biden’s move has a real national security rationale, as the release may help offset some of the current temporary supply shortfall.
Some argue that the oil reserve is not large enough to drive down world prices. But the US move was accompanied by the release of similar emergency reserves by the UK, Germany and many other countries, totaling 240 million barrels over the next six months. Some economists also argue that the United States does not need an oil reserve, now that the country is no longer a net importer of oil. Even if one agrees, this would not be an argument against releasing the reserves now, but rather against replenishing the reserve once the crisis is over.
In addition, governments should increase, not decrease, taxes on retail petroleum products. Several US states have recently declared “gasoline tax holidays” to protect consumers from the effects of high world oil prices. Other countries are also trying to protect their citizens from increases in energy prices. But these measures, although understandable from a political point of view, are terribly economic: they undermine the incentive for drivers to save on their fuel consumption, thus benefiting Russia and harming the environment.
As they stop promoting coal and oil, governments must maintain the momentum of renewable energy. Continuing the recent trend towards wind and solar power is important for both geopolitical and environmental reasons. Government subsidies for renewable energy, including to support research into storage technologies, can play a role. But the United States and the EU are also expected to take the less popular decision to lower, not raise, their tariffs and other protectionist barriers affecting imports of solar panels and wind turbines – imports that have helped make lower the cost of renewable energy.
At the same time, governments must arm themselves to extend the life of nuclear power plants. One of the most misguided current energy policies is Germany’s surprising choice to press ahead with its plans to shut down its three remaining nuclear power plants later this year, rather than try to reopen the three it shut down in december. The country’s decision in 2011, in response to the Fukushima disaster, to shut down all of its nuclear power over the following decade led to increased reliance on Russian coal and fossil fuel imports, and an increase in CO2 emissions.
Other countries assess the advantages and disadvantages of nuclear energy differently. Fewer deaths resulted from the Japanese nuclear accident than daily deaths from coal mining or burning. The UK now plans to build eight new nuclear reactors this decade, in part to reduce its dependence on oil imports following the Russian invasion of Ukraine.
The best way to reduce demand for fossil fuels is to impose a carbon tax or auction tradable permits (with revenue being used to reduce tax-distorting laws, for example). For the moment, the introduction of such price mechanisms in the United States is politically impossible. But 20 years ago we said the same thing about the EU, and today it has the emissions trading system.
Reduced demand for hydrocarbons hurts the incomes of all oil exporters, not just Russia. But while some of these producers are innocent bystanders, some are oil states that don’t fully deserve the support of the United States and its allies. It is no coincidence that so many oil-exporting countries are autocracies. Many studies of the natural resource curse have concluded that societies based on commodity wealth in general, and oil in particular, are prone to authoritarianism.
In the long term, it might be better for the fossil fuel sector to shrink around the world. As Western governments seek to design energy policies that are both environmentally and geopolitically robust, this reflection should help focus minds.
Jeffrey Frankel is a professor at the John F Kennedy School of Government at Harvard University. He was a member of President Bill Clinton’s Council of Economic Advisers
© Syndicate Project