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What the War in Ukraine Reveals About Energy Security
Removing barriers to domestic energy production gives Americans more choices and prevents dependence on hostile powers
By Jordan McGillis and Alexander Stevens
Images of Russia’s war on Ukraine and of Olaf Scholz’s grimacing visage have heightened popular attention to energy security. Germany, whose chancellorship Scholz attained in December, finds itself wedged firmly betwixt rock and hard place, with Russian fuels representing the former and energy poverty the latter. Though Scholz himself is not to blame, Germany’s body politic certainly bears culpability, having opted for an ill-conceived Energiewende (“energy transition”) that has forsworn low-emissions nuclear energy and reliable domestic coal and yielded dangerous dependence on Russian imports. Americans view with trepidation Germany’s self-inflicted woes, worrying that our own choices could beget similar results.
Coming amid the ongoing logistical nightmare sparked by the COVID-19 pandemic, the Russia-Ukraine contretemps has hypercharged energy supply anxiety, leaving many asking, “Why can’t we produce all the energy we need here in the U.S.?”
Blocking Domestic Commerce
This, of course, isn’t the first time the notion of energy independence has bubbled into the zeitgeist. Historically, strategic vulnerabilities, such as the oil market choke point at the Strait of Hormuz, have kept American industry up at night. For the Germans today, the possibility that Russia will shut off the gas tap (as it just did for Poland and Bulgaria) comes on top of the uncomfortable truth that their energy purchases are indirectly funding the bombing of hospitals. Similarly, if perhaps less acutely, Americans today must wonder how young was the pair of hands that dug up the cobalt for our electric vehicle batteries and who was forced to toil to supply the solar panels for our rooftops.
Each of these concerns highlights the trustworthiness of production nearer to home. For Germans and Americans alike, supporting domestic energy commerce fulfills both a practical and an ethical imperative. Too often, however, public policy blocks domestic commerce and pushes buyers toward unscrupulous foreign sellers, as has Germany’s energy policy. The prime American example of this phenomenon in the energy sector is the one-two punch of pipeline permitting failures and the Jones Act.
Despite the productivity of the nearby Marcellus shale basin in Pennsylvania, the state of New York has walled off itself and its New England neighbors from affordable American natural gas by denying permits for new pipelines.
Meanwhile, the century-old Jones Act stops those same prospective customers from procuring American natural gas by sea. The Jones Act requires that commerce between American ports—say, between the Gulf Coast and the Atlantic Seaboard—be conducted by ships that are American-owned, American-built and American-operated. At this time, no such ships exist to transport the commodity. As the Cato Institute’s Scott Lincicome wrote in March, “The Jones Act makes transporting crude, refined products, and natural gas (LNG) from the Gulf to certain U.S. destinations cost-prohibitive, so these consumers buy from foreigners instead, while U.S. refineries export the same products elsewhere.”
In late 2019, the Wall Street Journal editorial board described the Jones Act as “protectionism at its most shortsighted.” The Journal’s case was largely economic, but the geopolitical crisis in which we find ourselves today shows that the Jones Act’s costs extend well beyond economic drag. Troublingly, the foreign entities to which Lincicome alluded have at times been Russian state-affiliated firms. For example, in 2018 the Jones Act was largely responsible for U.S. ports having to receive cargoes of LNG that originated from facilities owned by Russian firms that were subject to U.S. sanctions stemming from Russia’s 2014 annexation of Crimea. While trade in and of itself is beneficial, when the seller is abetting a brutal war against its neighbor, purchasing from that seller becomes more difficult to justify.
Jones Act-related distortions stifle domestic crude oil movement as well. As Vincent H. Smith of the American Enterprise Institute (AEI) wrote in 2020, “The Jones Act makes Texas crude and Alaska oil more expensive to ship to major markets—and less attractive than imports—in the Northeast, California and the rest of the West Coast.”
The point isn’t that we should bias policy in favor of domestic industry at the expense of the general public, but that we should remove policy barriers that hamstring what the market would otherwise support. Policies like the Jones Act make domestic resources artificially hard to come by—ironically, in the guise of protecting the U.S. shipping industry.
Pursuing Energy Abundance
As Stand Together fellow Adam Millsap implores, with energy security in doubt, now is the time to advance an energy abundance agenda. AEI’s Jim Pethokoukis emphasized a similar point in November, reminding readers that the U.S. should combat perceived energy scarcity first and foremost by maximizing the energy available, rather than obsessing over how to squeeze out every conceivable efficiency gain.
To our grave detriment, the U.S. has historically responded to energy security threats with the scarcity mindset Pethokoukis warns us about. This mindset has often sparked autarkic impulses—think of the discredited oil export ban—and quixotic subsidy schemes—remember the Synthetic Fuels Corporation? The dynamics of the current moment show why this inclination is counterproductive. With an alleged national defense justification, the Jones Act actually harms our ability to connect trustworthy producers of U.S. energy with willing buyers in other parts of the country.
While energy security and broader supply chain issues are ripe for examination, experience shows these questions are best answered by businesses and households, rather than by politicians. Sourcing energy domestically and reshoring supply chains make a great deal of sense—in some cases and to some companies. In other cases and to other companies, the risks entailed by complex international supply chains are worth bearing in order to deliver goods and services at competitive prices. As consumers, we, too, face a panoply of choices and are capable of selecting options that match our preferences. For some, that will mean seeking the lowest price; for others, the more stable or more vetted supply line. Stability and transparency, we ought to recognize, are priced in, and are available to us if we are willing to pay for them.
Enabling More Choices
The best route to securing abundant energy isn’t by blocking exports or legislating that we “Buy American.” It is to expand the scope of economic freedom so that palatable domestic options are available to the firms and households that are wary of geopolitical risk and related ethical quandaries.
Enormous potential for new domestic energy production goes unrealized due to stifling public policies. Along with erecting barriers to fossil fuel shipments, energy restrictionists have stymied the developments needed to spur industrial-scale alternative energy solutions. In January, the Biden administration nixed a Minnesota lease to mine critical minerals. In April, it reaffirmed a burdensome review process that ecomodernists like the Breakthrough Institute’s Alex Trembath say slows down the proliferation of low-carbon technologies.
Nuclear, geothermal, hydropower, renewables and fossil energy alike can flourish across this country and provide the energy abundance needed to blunt geopolitical shocks. But that will happen if and only if we allow Americans to overcome energy security challenges through free enterprise.
While a mindset shift is clearly needed, tactical gains can be achieved in the meantime. One idea that should not be too controversial is to apply rules consistently in a resource-neutral way. Our hodgepodge of regulations frequently gives special treatment to one resource alone—for example, the Energy Policy Act of 2005 presumption exempting shale drilling from environmental review. As the Center for Growth and Opportunity’s Eli Dourado suggests, we could accelerate advanced geothermal energy development simply by treating it the same way we treat shale. This is the sort of broadly appealing fix we can make in the near term, with the hopeful result being a long-term shift to a mindset of progress and abundance.
To protect against geopolitical shocks, to cut off funding for unsavory regimes and to boost our general productivity, we need to liberate the American energy economy. Doing so gives companies and households the ability to hedge against risk and to withhold support from regimes and practices they deplore. As a result, the U.S. will have more—and more conscionable—options to power our economy forward despite turmoil abroad.