Using DPA for US energy security is ‘strong medicine’ worthy of caution – expert
|U.S. Sen. Joe Manchin, DW.Va., is among lawmakers calling on President Joe Biden to lean on a rarely used defense law to boost national energy production.
Credit: Alex Wong/Getty Images News via Getty Images North America
Some policymakers are urging US President Joe Biden to invoke the Defense Production Act to boost domestic energy production amid the loss of Russian oil and gas to world markets. But the United States must ensure “the cure is no worse than the disease,” an expert has warned.
Russia’s invasion of Ukraine prompted the United States to ban imports of Russian energy products, including oil and natural gas. The European Commission also announced its intention to eliminate the EU’s reliance on fossil fuels from Russia, helping to send spot crude markets to multi-year highs in recent weeks. The loss of supplies from Russia has added to inflationary pressures affecting energy markets as global economies recover from the coronavirus pandemic.
Although Russian imports are only a small part of the U.S. oil mix, lawmakers have pushed Biden to use the rarely tapped Defense Production Act, or DPA, for a range of energy-related relief.
Enacted in 1950 in response to the Korean War, the law authorizes the president to order private companies to sign contracts with the government to fill orders for rare materials needed for national defense. The law also authorizes the government to provide loans and loan guarantees to avoid shortages of essential resources.
“The situation unfolding in Ukraine is so devastating that a lot of things that would not have been the normal tools to use suddenly need to come under scrutiny,” Jonathan Elkind, senior fellow at the Center on Global Energy Policy from Columbia University. , said in an interview.
While some type of DPA directive may be needed, “it’s strong enough medicine that we have to think about it very carefully before we act,” Elkind warned.
Increasing number of calls to the DPA
U.S. Sen. Joe Manchin, DW.Va., recently called for using the DPA or other means to finalize permitting and construction of the 304-mile Mountain Valley Pipeline in West Virginia and Virginia. Additionally, a group of members of the U.S. House of Representatives called on Biden to invoke the DPA to “accelerate and expand domestic oil and gas production,” including through grants and loans for procure raw materials and implement refinery upgrades.
Some lawmakers and environmental groups have expressed interest in using DPA for clean energy generation. Supporting renewable energy development through the DPA “is a practical and logical next step for the administration,” U.S. Representative Raúl Grijalva, D-Arizona, said in a March 10 webinar.
Grijalva, who chairs the House Committee on Natural Resources, said potential investment in renewable energy research and development is the “wise way to go” in light of the country’s climate goals and that sanctions on Russian exports are sparking interest in alternative energy.
On March 17, the Congressional Progressive Caucus called Biden to declare a “national climate emergency” and to invoke its powers under the DPA and the Trade Expansion Act to mobilize domestic manufacturing of renewable energy technologies and build distributed energy facilities.
The Biden administration, however, has so far given a warm welcome to calls for relying on the DPA, at least for oil production.
“Without excluding or ruling on any option, let me explain what the Defense Production Act would do in this regard,” White House Press Secretary Jen Psaki said at a press briefing. March 10. “It would basically be providing money to the oil companies to do something that they probably already have the capacity to do.”
Alternatives to using DPA
Before taking executive action to enhance energy security, tThe Biden administration must consider potential impacts, including on other major energy-producing countries, Elkind said.
“Made [helping U.S. oil producers] sending the right signal to OPEC? Or does OPEC just turn around and say, ‘OK, we’re happy to cut our production by an amount equal to what you’re increasing'” noted Elkind, who served in the Obama administration as assistant secretary for international affairs for the US Department of Energy.
Elkind also called for caution when using DPA or similar measures to support alternative energy. Some clean energy advocates have said DPA could be used to help build heat pumps for European consumers to reduce dependence on Russian gas.
Elkind, however, said the administration needs to consider the effectiveness of such a solution and how shipping U.S.-made heat pumps overseas could affect European manufacturers of this technology. “We want to make sure the cure is not worse than the disease,” Elkind noted.
More broadly, with oil prices back around $100 a barrel and the platform counts bouncethe government may not need to intervene to better align U.S. supply with demand, said Zongyuan Zoe Liu, international political economy researcher at the Council on Foreign Relations.
Giving companies resources under the DPA “could end up wasting a lot of money, but also political resources,” Liu told S&P Commodity Insights.
Rather than exploiting the DPA or other wartime emergency measures, Liu said the government could foster public-private partnerships through existing institutions such as the States Export-Import Bank. States or the US International Development Finance Corp., or DFC. During the coronavirus pandemic, the DFC approved federal funding to increase vaccine manufacturing and support other COVID-19 response efforts.
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