How Can the U.S. Help Wean the EU Off Russian Energy?
In response to Russia’s invasion of Ukraine, the European Union (EU) has started trying to wean itself off of Russian energy. This is no easy feat, considering Russia provides about 35 percent of the EU’s natural gas supply.
The EU doubled down on May 4th, announcing its intent to completely ban imports of Russian oil and refined petroleum products within the next six months. To achieve this ambitious goal, the EU will need significant help from international allies.
In late March, the White House announced a joint task force with the EU focused on reducing dependence on Russian energy with an immediate emphasis on securing energy (read: heat) for the upcoming winter, but it also addresses deals and measures that could affect European energy for a decade.
The task force announcement identified two crucial goals it will be working toward:
1. Diversifying natural gas supplies to the EU, which means securing gas from countries other than Russia (such as the U.S.)
2. Reducing demand for natural gas in the U.S., by displacing it with other forms of energy, thus increasing the supply of gas available for Europe
There were some specific policy actions mentioned in the announcement. For example, the EU has announced plans to replace inefficient home heating systems in Europe with smart thermostats and heat pumps, saving about as much natural gas as the U.S. is pledging to send. President Biden has also allocated $6 billion to keep America’s nuclear plants from shutting down, a key step in replacing domestic natural gas consumption with reliable, carbon-free energy.
But there are still plenty of details to be filled in, which is what The New Center aims to do below. Although the most consequential steps the United States can take revolve around making it easier to produce and transport American natural gas, several more steps to boost other energy sources are essential too. Here is what it will take to significantly reduce the EU’s reliance on Russian energy.
Increasing natural gas storage and supply
1. Fill EU natural gas reserves.
Context: The EU directed its members to fill their natural gas storage to 80 percent capacity by November 2022, but the International Energy Agency recommends filling them to 90 percent. Stockpiling would increase the supply of natural gas available in the upcoming winter when demand peaks (for heating). It would also increase demand for natural gas right now, which should incentivize more producers to sell to Europe.
Action Item: Members of the EU should fill their natural gas strategic reserves as much and as quickly as possible.
Timeline: Members have until November 2022 to complete this and the benefits of increased supply would be felt throughout the winter and early spring of 2023.
2. Federally guarantee loans for natural gas export terminals.
Context: There are roughly a dozen liquefied natural gas (LNG) export facilities in the U.S. that have earned regulatory approval but still lacked funding as of March 25th. Building more terminals would reduce shipping bottlenecks and ultimately deliver more energy to Europe, but some private lenders are worried about the uncertain regulatory future of natural gas and are hesitant to invest.
Action item: The federal government should guarantee loans made to LNG export terminals. This would encourage private funding by reducing risks for investors and acknowledge that the U.S. and the world will need significant quantities of natural gas for years to come, even as we continue to deploy renewable energy sources.
Timeline: There are seven proposed LNG terminals whose developers are expected to make a Final Investment Decision and begin construction in 2022. By comparing these projects to existing terminals, we can make rough estimates of when and how big their impacts will be. If all seven proposals are completed at similar rates as the existing terminals, America’s export capacity would increase by around 42 percent by the end of 2025, from 76.5 million to 109 million tonnes per year. Once the larger projects are completed around 2027, the new export capacity could be over 160 million tonnes, more than doubling what we export today.
Existing US Natural Gas Export Facilities
Proposed US Natural Gas Export Terminals, 2022
3. Abolish the Jones Act.
Context: The Jones Act is a century-old law passed by Congress requiring that cargo ships be fully manufactured in the U.S. to sail from one American port to another. As of 2019, there were zero American-made ships able to transport large amounts of natural gas. As a result, moving natural gas around the U.S.—including to liquefaction and export facilities to be shipped to Europe—requires pipelines, trains, and trucks, which are all more costly and time consuming.
Action Item: Congress should repeal the Jones Act, or at the very least the Departments of Defense or Homeland Security should issue Jones Act waivers for natural gas tankers.
Timeline: Colin Grabow, a trade policy scholar at the libertarian Cato Institute, predicted to The New Center that energy markets would react quickly to Jones Act reform. He acknowledged that many industrial tankers are signed to multi-year contracts, so it could be another two to three years before the full extent of the benefits are realized. But even before then, he suggests oil and gas producers could quickly begin lowering costs, maintaining production, and operating more efficiently without Jones Act barriers.
4. Promote drilling on federal land.
Context: The Department of the Interior recently announced it would resume selling leases for oil and gas production on federal lands, but at higher royalty rates than previously charged and with 80 percent less land available for drilling. This will discourage domestic oil and gas production and raise prices for consumers. And making federal land off limits to energy exploration will not meaningfully advance the fight against climate change. Demand for oil and gas would inevitably be met by other countries, many of which have weak or no environmental standards compared to the U.S.
Action item: The administration should delay increases in royalty rates and changes to drilling policies at least until after the European energy crisis subsides.
Timeline: New drilling operations would take six months to a year to noticeably affect America’s energy supply.
5. Streamline regulatory approval for new drilling operations.
Context: The National Environmental Policy Act (NEPA) is a 1970 law requiring strict climate-focused reviews for any projects seeking approval. The “Environmental Impact Statements” required by NEPA average over 500 pages in length and take five years to produce. The Bureau of Land Management (BLM) takes 120 days to respond to drilling applications, while comparable state agencies take just ten days as they are not bound by the same NEPA red tape. Further, President Biden is reinstating certain NEPA rules (loosened by the Trump administration in 2020) that give regulators more leeway to reject proposals by calculating the project’s “indirect effects” on the climate.
Action Item: Congress should limit environmental impact statements to 250 pages and ensure that FAST-41—a bipartisan reform that established a two-year timeline for NEPA approval and created a taskforce to guide projects through the application process—is appropriately enforced. In the meantime, the Biden administration should maintain the 2020 reforms to NEPA.
Timeline: Even if NEPA were reformed today and FAST-41 were properly enforced, it would still take up to two years to earn approval for new drilling operations and another year after approval before new drilling would affect America’s supply. This is a long-term reform with long-lasting benefits.
Displacing natural gas use in the U.S.
1. Expand PACE to encourage private adoption of clean energy.
Context: The Property Assessed Clean Energy Program provides upfront financing for clean energy systems on private property that owners pay back over time. Only 28 states and Washington, D.C. have active PACE programs, and only three apply to residential property.
Action Item: The Department of Energy should tie State Energy Program grants to requirements that recipients implement or expand PACE laws to all consumers.
Timeline: A 2020 study from the University of Southern California found that PACE programs in California saw modest increases in solar installations within two months of the programs starting, with larger gains starting around ten months and increasing until at least 24 months (when the study was concluded).
2. Expand net-metering options to incentivize clean energy.
Context: Net-metering is a practice in which people who generate their own electricity via solar power can sell their excess energy back to the grid. These customers are typically compensated in credits on their monthly utility bills. Currently, only ten states allow net-metering.
Action Item: The Department of Energy should tie State Energy Program grants to requirements that recipients implement or expand net-metering laws. The requirements should preference net-metering programs that assess direct energy costs and overhead business costs separately, so as to not unfairly increase prices for those who cannot or will not switch to solar.
Timeline: A 2021 report to the California Public Utilities Commission revealed that the state’s revamped net-metering program implemented in June 2016 modestly increased adoption by the end of 2016, with larger effects in 2017 that continued over time. The data is not broken down into months, but this roughly tracks with the data on PACE adoption in California.
3. End solar panel tariffs.
Context: In February 2022, President Biden extended tariffs the previous administration placed on imported solar power equipment through at least 2026. These tariffs have increased solar panel costs by an average of $600 per installation.
Action Item: President Biden should rescind these tariffs, making cheaper solar panels available to Americans and thus encouraging solar power adoption.
Timeline: It is hard to predict how long it would take for cutting tariffs to influence consumer behavior. Presumably it would take several months to a couple of years to show effects, as PACE and net-metering did. Once a consumer is convinced by lower prices, the average duration of the home solar installation process is three months.
4. Ease solar installation licensing requirements.
Context: 45 states require licenses to install solar panels. Most require a general electrician license, but some have specialized licenses a solar installer must obtain. 17 of these states plus D.C. do not allow other states’ licensed professionals to practice within their borders. Licenses can cost hundreds of dollars and require thousands of hours of training, reducing the supply of contractors and raising costs for consumers.
Action Item: The Department of Energy should tie State Energy Program grants to requirements that recipients reduce fees for obtaining licenses and recognize licenses issued by other states. The Department should also provide model licensing legislation that upholds public safety without discouraging future contractors.
Timeline: Most states require around four years of experience to earn an electrician license. Assuming they do not reduce these requirements, it would presumably take more than four years before the contractor supply is noticeably affected. The benefits from allowing professionals to work across state lines could be seen much sooner although the impact would presumably not be as large.
5. End anti-solar zoning laws.
Context: Non-hardware costs (those associated with zoning and permitting) make up two-thirds of residential solar costs. In far too many states and localities, it is too expensive and time-consuming to deal with convoluted processes to get permission for home solar panels. Some municipalities and HomeOwners Associations (HOAs) can further restrict or forbid rooftop solar panels.
Action Item: States’ Departments of Energy should provide straightforward information to the public on solar zoning and permitting rules as well as guides to complying with them to reduce hassle for contractors. States should also pass Solar Access Laws that protect peoples’ right to collect the sunlight that falls on their property.
Timeline: It would presumably take a few weeks or months to produce these guides and enact the necessary policy changes, plus another three months to install solar panels for early adopters. The impact would likely continue to grow over time as price reductions convince more consumers to switch to solar.
Ultimately, there is no single policy step that will enable the European Union to end its reliance on Russian energy. But together, these policies—to expand U.S. natural gas exports and accelerate the adoption of cleaner energy sources—can help cut off the most important source of funding (and power) for Vladimir Putin and the Russian government.