US Policy Options to Reduce Russian Energy Dependence
Russia’s invasion of Ukraine has brought into stark relief the national security consequences of European reliance on Russian natural gas and global reliance on Russian oil. Russia accounts for more than a third of all natural gas consumed in Europe and is the second-largest oil exporter in the world, which is constraining US, European, and other allies’ responses to Russian aggression in Ukraine. This note outlines specific policy options available to the US government to reduce EU and global dependence on Russian energy, while continuing to reduce greenhouse gas (GHG) emissions.
The current energy landscape
- Natural gas: When it comes to natural gas, Europe needs Russia more than Russia needs Europe. Europe (broadly defined) relies on Russia for 34-38% of its current natural gas needs. Gas plays a critical role in European energy security at present, providing flexible capacity for peak winter heating and industrial production. Gas sales to Europe are a meaningful source of Russian export revenue (accounting for 1.5-1.6% of GDP in 2020 and likely 2.3-2.6% of GDP in 2021) but significantly less important than oil export revenue, which reached 11% of GDP last year. Reducing dependence on Russian gas is critical for European energy security but less likely to on its own compel Moscow to change course.
- Oil: Reducing Russian oil export revenue would put greater economic pressure on Moscow but also presents significant risks for oil consumers in the US and elsewhere in the world, with implications for the global economic recovery. Russia exports 7.4 million barrels a day of oil—11% of all internationally traded oil globally. Markets were already relatively tight before Russia invaded Ukraine, and complete elimination of Russian supply—an amount three times larger than Iranian oil exports in 2011 when those sanctions were adopted— would be massively disruptive (as indicated by the recent run-up in global oil prices).
Short-term US policy options
In the coming months, the most pressing priority is to reduce European natural gas demand and identify alternative sources of gas supply. While most of this burden falls on European policymakers, there are concrete actions US policymakers can take to lend support. The US will play a more central role in the effort to reduce Russian oil revenue (and global dependence on Russian oil exports), while limiting the impact on global oil prices through its expertise in administering financial sanctions.
- Reducing European dependence on Russian gas: Options for delivering large-scale reductions in European gas demand over the next 6-9 months ahead of the 2022/2023 winter heating season are largely limited to a) redirecting existing LNG supply from other parts of the world to Europe, b) maximizing the use of existing non-gas power generation resources, and c) implementing an aggressive demand response program. Some of these measures may increase GHG emissions, but the effect will be small (less than 0.1% of total global emissions) and temporary. The US can help support European efforts through diplomatic engagement with LNG importers, by providing manufacturing and technical support for a widespread European demand response campaign in buildings, and by ensuring that gas-price driven reductions in European industrial production have as limited an economic and national security cost as possible.
- Reducing Russian oil revenue while minimizing global price risk: US policymakers have a more central role to play in efforts to reduce Russian oil revenue at as little cost as possible to consumers in the US and around the world. The US ban on oil imports from Russia currently being considered in Congress would have a modest impact—both on Russian revenue and global oil prices—as the US only accounts for 9% of Russian oil exports. Were Europe to follow suit the impact (and risk) would be much larger—more than half of Russian oil exports go to Europe, with a large share being shipped by pipeline (and thus harder to quickly replace). The most important role for US policymakers in the weeks and months ahead is to steward the new sanctions regime, leveraging the Treasury Department’s deep sanctions expertise, including implementation of the 2011-2015 Iranian oil sanctions. There are important differences between that situation and the current crisis, but the Iran sanctions playbook still has a lot to offer on how to effectively reduce Russian oil export revenue while limiting the increase in global oil prices.
Medium-term US policy strategy
While short-term options to reduce dependence on Russian energy are largely limited to the redirection of existing supply and reductions in demand, investments in new energy capacity starting today can substantially improve the options available over the next 5-10 years. Here the most attractive US policy options for reducing dependence on Russian energy will also reduce GHG emissions, helping both the US and Europe stay on track to meeting their international climate commitments.
- Reduce US oil and gas demand to reduce economic vulnerability and diversify European supply: Accelerating clean energy deployment reduces US economic vulnerability to supply disruptions in Russia or elsewhere in the world and frees up oil and gas for export to Europe and other allies. For example, in our modeling of a policy pathway to the US’s 2030 climate target—a combination of federal clean energy tax incentives and grant programs, and additional actions by the executive branch and subnational actors—we find significant associated energy security benefits. US oil expenditures fall by up to 24% by 2030 compared to current policy, and US oil and LNG exports increase by up to 29% and 15% respectively.
- Scale US production of emerging low-carbon alternatives to Russian oil and gas: Providing Europe and other countries with alternative sources of oil and gas will only go so far in reducing Russian economic leverage. There are a number of options available to US policymakers to significantly accelerate the research, development, demonstration and deployment of the low-emissions technologies that will be most effective in substantially reducing European dependence on Russian gas while still meeting their climate commitments. These include technology investments in hydrogen, sustainable aviation fuels, long-duration electricity storage and advanced battery technology, and manufacturing and deployment incentives to get these technologies to scale.
- Directly support an accelerated energy transition in Europe: Alongside investments in scaling the production of key low-emissions technological alternatives to Russian oil and gas in Europe, the US can directly support the export and installation of those technologies. This can include grant programs, loan guarantees, technical assistance and trade and project finance—a Marshall Plan of sorts for energy. This could be particularly important if the current confrontation with Russia proves economically costly for Europe and limits their ability to entirely self-finance their own energy transition.
- Use the anti-Russia coalition to secure critical material supply chains for a low-carbon economy: While in general, low-carbon alternatives to current oil and gas markets provide more price stability and economic security, new clean energy technologies do come with some of their own security risks given their reliance on critical minerals like lithium, cobalt and nickel. Diversifying global supplies of these critical minerals over the next few years will be crucial to securing the clean energy economy. The current coalition of countries countering Russian aggressing in Europe is an excellent group to develop a coordinated international strategy, once the immediate crisis has passed.