The New Energy Order
How Governments Will Transform Energy Markets
JASON BORDOFF is Co-Founding Dean of the Columbia Climate School and
Founding Director of the Center on Global Energy Policy at Columbia University’s
School of International and Public Affairs. During the Obama administration, he
served as Special Assistant to the President and Senior Director for Energy and
Climate Change on the staff of the National Security Council.
MEGHAN L. O’SULLIVAN is Jeane Kirkpatrick Professor of the Practice of
International Affairs at the Harvard Kennedy School and the author of Windfall:
How the New Energy Abundance Upends Global Politics and Strengthens America’s
Power. During the George W. Bush administration, she served as Special Assistant
to the President and Deputy National Security Adviser for Iraq and Afghanistan.
BY

July/August 2022
JASON BORDOFF AND MEGHAN L. O’SULLIVAN
In the wake of Russia’s invasion of Ukraine, the world appears to be at an
inflection point. Business leaders have declared the acceleration of
deglobalization and sounded the alarm about a new period of stagflation.
Academics have decried the return of conquest and hailed the renewal of
transatlantic ties. And countries are rethinking almost every aspect of
their foreign policies, including trade, defense spending, and military
alliances.
These dramatic shifts have overshadowed another profound
transformation in the global energy system. For the last two decades, the
urgent need to reduce carbon emissions has gradually reshaped the global
energy order. Now, as a result of the war in Ukraine, energy security has
returned to the fore, joining climate change as a top concern for
policymakers.Together, these dual priorities are poised to reshape
national energy planning, energy trade flows, and the broader global
economy. Countries will increasingly look inward, prioritizing domestic
energy production and regional cooperation even as they seek to
transition to net-zero carbon emissions. If countries retreat into strategic
energy blocs, a multidecade trend toward more energy interconnectedness
risks giving way to an age of energy fragmentation.
But in addition to economic nationalism and deglobalization, the coming
energy order will be defined by something that few analysts have fully
appreciated: government intervention in the energy sector on a scale not
seen in recent memory. After four decades during which they generally
sought to curb their activity in energy markets, Western governments are
now recognizing the need to play a more expansive role in everything
from building (and retiring) fossil fuel infrastructure to influencing where
private companies buy and sell energy to limiting emissions through
carbon pricing, subsidies, mandates, and standards.
This shift is bound to invite comparisons to the 1970s, when excessive
government intervention in energy markets exacerbated repeated energy
crises.The dawning era of government intervention won’t be a bad thing,
however, if managed correctly. Appropriately limited and tailored to
address specific market failures, it can forestall the worst effects of climate
change, mitigate many energy security risks, and help manage the biggest
geopolitical challenges of the coming energy transition.The current
energy crisis has refocused the world’s attention on geopolitical energy
risks, forcing a reckoning between tomorrow’s climate ambitions and
today’s energy needs and offering a preview of the tumultuous era ahead.
How governments respond to these challenges, brought into sharp relief
by Russia’s invasion of Ukraine, will shape the new energy order for
decades to come.
WORSE THAN THE DISEASE
The story of the 1970s energy crises is in part a story of government
overreach. Even before six Gulf members of the Organization of the
Petroleum Exporting Countries (OPEC) cut production and instituted
an oil embargo against the United States and other countries that
supported Israel during the 1973 Yom Kippur War, Washington had
actively sought to manage U.S. oil markets. In 1959, for instance,
President Dwight Eisenhower set quotas on oil imports in order to
protect American producers.These quotas had their intended effect,
allowing U.S. producers to flourish and boost supply throughout the
1960s. But they did not protect consumers from rising costs. As
Americans took to the suburbs, buying ever larger homes and cars, oil
consumption outpaced supply, and prices eventually began to rise.
To keep prices in check, President Richard Nixon tried a number of
policies. In 1971, at the same time that his administration ended the gold
standard, he imposed a series of wage and price controls, including on oil
and gas. But these measures only increased demand for oil while pushing
down domestic supply. By the winter of 1972–73, fuel shortages had
forced some school districts to close on various days, and the media was
warning of a looming energy crisis. In the spring of 1973, Nixon relented
and revoked Eisenhower’s oil import quotas, at the same time urging
Americans to conserve gasoline. Yet by June, several months before the
Arab oil embargo, nearly half the gas stations in the country reported
problems operating normally, and drivers were struggling to find fuel.
Instead of dialing back the government’s role in energy markets, Nixon
dialed it up, and the cure proved worse than the disease. In November
1973, Nixon created a federal program through which government
officials determined how to allocate propane, heating oil, jet fuel, diesel,
and other fuels.The effort, according to William Simon, who headed the
Federal Energy Office at the time, was “a disaster.” It was against this
backdrop of government intervention that the Arab oil embargo led to
panic buying and lines at gas stations across the country.
The end of the 1970s saw yet another oil crisis, fueled by many of the
same forces. In late 1978, a popular uprising in Iran brought oil
production there to a standstill, causing shortages in the United States
and other countries and sending prices skyward. As they had during the
previous crisis, federal price controls and efforts at allocation only made
things worse. Americans waited in gas lines once again, were restricted to
fueling up on certain days, and listened as President Jimmy Carter
delivered his famous “crisis of confidence” speech.
Among the lessons learned from these failures was that too much
government micromanagement of the energy economy can backfire.
Carter began deregulating energy prices, a process that President Ronald
Reagan then accelerated. Gradually, over the next few decades, the U.S.
government pared back its role in the energy economy: it phased out
import quotas, ended oil and gas price controls, and scrapped the
allocation system.
To be sure, the government also enlarged its role in other energy-related
areas, instituting fuel economy standards and lower speed limits,
subsidizing synthetic fuels and home weatherization initiatives, creating
the Strategic Petroleum Reserve, and expanding leasing for exploration
and production in the Gulf of Mexico and Alaska. Its increasing use of
sanctions against energy-producing nations has been another exception to
the general rule. Nevertheless, many of the most significant changes to
the energy sector since the crises of the 1970s—such as deregulating
natural gas sales and creating competitive power producers and wholesale
power markets—have been guided by a bipartisan consensus that energy
security and low costs are best ensured by simply allowing the market to
operate on its own.
GATHERING STORM
The energy crisis triggered by Russia’s invasion of Ukraine could become
the worst in half a century. Many analysts have already drawn
comparisons with the 1970s oil crises, but there are important differences.
To begin with, the global economy is less energy intense. Economic
growth has outpaced growth in energy use, so the world now uses much
less energy per unit of GDP. Moreover, many more companies distribute
oil globally today than did in the early 1970s, when just a handful of firms
controlled most of the world’s oil trade. As a result, energy supply chains
are now more durable.
That said, the current energy crisis goes well beyond oil and could thus
affect a wider slice of the economy. Energy sources of all kinds stand to be
disrupted by the turmoil. Russia is not only the world’s largest exporter of
oil and refined petroleum products but also the dominant supplier of
natural gas to Europe and a major exporter of coal and the low-enriched
uranium used to power nuclear plants, not to mention many other
commodities. With coal, gasoline, diesel, natural gas, and other
commodity prices all near record highs, further disruption of Russian
energy supplies, whether initiated by Russia or Europe, would accelerate
inflation, invite recession, demand energy rationing, and force business
shutdowns.
The global energy system was under stress even before Russian President
Vladimir Putin decided to invade Ukraine. Europe and other parts of the
world faced power generation challenges as more and more of their
electricity came from intermittent sources such as solar and wind. At the
same time, years of poor returns and increased climate pressures had
reduced investment in oil and gas, resulting in limited supplies. COVID-
19-related supply chain problems compounded the scarcity and added to
pricing pressures. In 2021 and early 2022, soaring natural gas prices
pushed some European utilities into bankruptcy and forced governments
to subsidize energy bills.Things could have been even worse, but warmerthan-expected
weather in Europe and Asia eased some of the demand for
energy.
Since the outbreak of the war in Ukraine, energy markets have been even
more volatile. Credit markets have tightened, leaving little liquidity to
support the buying and selling of oil, and both supply and demand have
experienced large shocks. Many buyers have steered clear of Russian oil,
concerned about Western banking and financial sanctions as well as the
potential stigma of doing business with Russia. Already, the International
Energy Agency estimates that Russia is producing around one million
fewer barrels per day, a number that could climb if the European Union
follows through with its plan to ban all Russian crude oil, gasoline, and
diesel by the end of the year. Speculation that more sanctions could be on
the horizon, coupled with OPEC’s reluctance to backfill lost Russian oil
supply, has pushed prices higher still.
As of late May, oil was trading at well over $100 per barrel. U.S. gasoline
prices reached a record high that month (not adjusted for inflation), and
rocketing diesel prices raised the costs of shipping and food. U.S. natural
gas prices climbed to their highest level since 2008, nearly doubling since
the start of the year. Consumers in Europe and elsewhere face an even
sharper emergency as a result of record natural gas prices. Such prices
would be higher still were it not for two powerful factors that are at least
temporarily moving the market in the opposite direction. COVID-19induced
lockdowns in China have seriously dented global energy demand,
and the United States and its international partners have released
unprecedented amounts of oil from their strategic reserves. For the time
being, the volume flowing from strategic stockpiles roughly offsets the
loss of supply from Russia.
But the worst is likely yet to come. When Chinese lockdowns ease, oil
demand will surge, pushing up prices.The same will be true for natural
gas prices, which in turn affect electricity and heating prices. Although
Russian gas has largely continued to flow to Europe, Moscow has cut
sales to Finland, Poland, and Bulgaria; curbed exports through Ukraine
and to a Gazprom subsidiary seized by Germany; and threatened to sever
supplies to all European countries that do not pay in rubles. A complete
cutoff of Russian gas supplies to Europe is still unlikely, but hardly
unthinkable, and would probably lead to shortages, energy rationing, and
the shuttering of energy-intensive industries.
Any additional sanctions would have second- and third-order effects on
the global energy system. Already, the turmoil in markets for liquefied
natural gas, which has increasingly flowed toward Europe because of
higher prices there, has left Asia looking for alternative energy sources.
Coal, an abundant and comparatively cheap substitute for natural gas, has
won out. China and other countries have boosted coal production amid
rising fears of global energy shortages, taking some of the pressure off
global gas markets. Without Asia’s increased production of coal, Europe
would be less able to cope with the loss of Russian gas. But greater
reliance on coal has pushed its price to record highs as well, leaving lowerincome
countries such as India and Pakistan struggling to meet their
energy needs in the midst of deadly heat waves. High prices for natural
gas, used to produce fertilizer, are also driving up food prices that were
already rising because of disruptions in Russian and Ukrainian
agricultural exports.
SAFE AND SECURE
These cascading emergencies demand a reevaluation of the lessons from
the 1970s about the right balance between government involvement and
market autonomy. Reliance on market forces has yielded enormous
benefits over the last 40 years, making energy more affordable and
accessible, increasing economic efficiency, and boosting energy security by
enabling competitive pricing to shift supplies into markets where they are
most needed.Today’s crises, however, highlight certain market failures
that can only be addressed with greater government intervention.
Three market failures in particular reveal the need for a bigger role for
government in the effort to achieve the dual goals of enhanced energy
security and a timely transition to net-zero carbon emissions. First, the
private sector lacks sufficient incentives to build the infrastructure and
other assets that most countries need to ensure their energy security.
Second, market forces alone cannot encourage the building of the
infrastructure required for a more orderly energy transition—
infrastructure that by definition may be obsolete before private companies
have achieved a full return on investment. And third, private firms and
individuals lack strong enough incentives to curb emissions whose costs
society bears.
The first of these failures has been painfully illustrated by Europe’s
vulnerability to the disruption of Russian energy exports.To achieve
energy security, countries need a range of options for purchasing energy, a
diversity of energy supplies, and adequate reserves in case of emergency—
all of which require greater government intervention. Free markets often
do a good job of ensuring that consumers have a range of options for
sourcing energy. When supplies are disrupted in one location, whether by
a natural disaster or political upheaval, free trade in highly integrated and
well-functioning commodity markets allows buyers to find alternatives
and thereby avoid shortages. (This practice was more difficult in the early
1970s, when oil was sold in long-term contracts rather than traded
globally as a commodity.) But as the current European energy crisis
makes clear, switching to alternative energy sources for political,
economic, or diplomatic reasons is only possible when the infrastructure
—ports and terminals with excess capacity, for example—is in place to
allow for the switch.The private sector lacks incentives to invest in such
infrastructure because disruptions are unpredictable and private
companies will not bear the full cost to society of the resulting
dislocations. Governments therefore need to step in.
Lithuania is a case in point. Nearly a decade ago, the country built a
floating liquefied natural gas terminal, aptly named “Independence.”The
terminal allowed the Baltic state to reduce its dependence on Russian
natural gas and negotiate better prices from Gazprom. But the
commercial operation of the terminal alone would not have justified its
costs, especially since it has often operated well below capacity.The
terminal could be financed only thanks to loan guarantees and other
forms of aid from the Lithuanian government, in addition to loans from
the European Investment Bank.This decision to invest in energy security
infrastructure is paying dividends today, enabling Lithuania to become
the first European country to completely cease importing Russian gas
after Putin’s invasion of Ukraine.
Germany is also looking to liquefied natural gas to reduce its dependence
on Russian gas. Russia has long been Germany’s cheapest source of
natural gas, leading Germany to gradually increase its imports from there
and by 2021 to source more than half the gas it used from Russia. Now, to
bring non-Russian gas into the country, Berlin has earmarked three
billion euros to support the development of four floating liquefied natural
gas import terminals. Businesses and consumers will have to pay more for
their energy going forward, but the government will have created the
infrastructure to enable a more diverse natural gas supplier base.
These moves by Lithuania and Germany build on recent efforts by the
European Commission to ensure more competition in gas markets and
provide direct funding for pipeline improvements and liquefied natural
gas infrastructure—investments that private firms alone had little
incentive to make. As a result, Europe’s natural gas market is more
resilient today than it was when Russia cut gas flows in 2009.
Government-owned stockpiles such as the U.S. Strategic Petroleum
Reserve are another tool for energy security that cannot be delivered
solely by the market. (In Europe, many governments do not hold reserves
but instead require companies to maintain above-normal levels of
inventory.) Although such stockpiles can help ease shortages in a crisis,
they also require infrastructure that private companies are unlikely to
build on their own. U.S. President Joe Biden’s administration has released
enormous amounts of oil from the Strategic Petroleum Reserve, for
instance, but the government’s ability to release even more to calm global
prices is limited by a shortage of available ports and terminals. In the past,
such infrastructure constraints were uncommon. Yet the shale boom that
made the United States a net energy exporter has dramatically increased
demand for port space, which is now mostly claimed by the private sector.
For government stocks to increase total global supply rather than simply
displace private-sector barrels, additional ports and terminals are needed
that may see limited use outside of energy crunches. Given that there is
little commercial rationale for infrastructure that is only occasionally used,
governments must play a role in developing it, as a major report by the
Department of Energy recommended in 2015.
Governments may also need to intervene in energy markets beyond those
for oil and gas.The critical minerals needed for a successful energy
transition, such as lithium, nickel, and cobalt, are likely to be in short
supply as electric vehicles become more prevalent and as solar, wind,
batteries, and other forms of low- and zero-carbon infrastructure
proliferate. One answer would be to mine more of them.To date, U.S.
companies have largely avoided producing and processing critical
minerals because of the environmental costs associated with doing so and
the easy availability of foreign sources. But having determined that several
of these minerals are critical for national security, the Biden
administration is now offering incentives to boost their domestic
production. Additional government involvement may be needed, too.
Private developers are understandably nervous about making large
investments that could take a decade or more to pay off while major
efforts are underway to find alternatives to these minerals or to
commercialize their recycling.The U.S. government might consider
guaranteeing such markets, as it did for COVID-19 vaccines, to ensure
the production of critical minerals on a larger scale.
Government intervention to enhance energy security need not be limited
to subsidies, tax breaks, and other incentives. Diplomacy, too, can help
secure adequate energy supplies in a crisis. When Europe faced natural
gas shortfalls last winter, for example, the United States sent envoys to
Japan and South Korea, among other places, to persuade them to forgo
some natural gas cargoes that could then flow to Europe instead.The
United States also encouraged Qatar to allow its gas to be sold to
European buyers, third-party transactions that were often prohibited by
destination clauses in long-term contracts.
TIMED OUT
The second market failure that necessitates government intervention in
energy markets stems from the relatively short time frame that the world
has to achieve its climate goals. New oil and gas assets that are needed to
ensure energy security during the transition may need to be retired before
the companies can pay their investors back. After all, what company
would risk capital to keep the lights and heat on in the near and medium
term while policymakers make increasingly ambitious pledges to render
the necessary infrastructure obsolete? To the extent that any companies
are willing to make those investments, they should not have to bet against
the world’s ability to reach its climate goals. Moreover, such investments
should not create obstacles to climate action by strengthening economic
forces that oppose faster progress because they have vested financial
interests in today’s energy system.
Creative policymaking can help meet today’s energy needs without
undermining tomorrow’s energy transition. Governments might, for
instance, designate certain types of oil and gas installations as “transition
assets” and take a more active role in helping private companies build
them. Assets such as regasification terminals and pipelines that are
needed today but are at risk of being stranded if the goal of net-zero
emissions is achieved by 2050 might also be required to be “transition
ready”—that is, built equipped for carbon capture technology or for lowcarbon
fuels such as hydrogen and ammonia—and governments might
bear some of the additional costs in the early years.
Alternatively, governments could develop innovative tools to plan for
obsolescence. For instance, they might favor the permitting of
hydrocarbon infrastructure investments with shorter payback periods,
condition that permitting on having a right to pay to wind down the asset
after a specified time, or shorten the payback period by lowering the cost
of capital for private firms in exchange for the right to retire the asset
after the investment yields a certain return.
Governments will need to take great care in adopting such policies.They
should be limited to hydrocarbon projects deemed necessary for nearterm
energy security needs. And they should favor projects with more
versatile uses, such as those that can deliver clean energy or might redirect
energy to other destinations. Moreover, policymakers must carefully assess
what components of the oil and gas industry are really suitable for
transition-ready projects, so that untested claims that some oil and gas
projects can be “hydrogen ready,” for example, do not become a loophole
for companies to exploit. Finally, governments should require project
developers to meet the strictest emissions standards—for methane leaks,
for example—so that infrastructure can have the smallest carbon footprint
possible.
OWN THE PROBLEM
The third market failure that necessitates greater government intervention
in the energy market is by now the most familiar: private firms and
individuals do not bear the full costs to society of the carbon and other
pollutants they emit. Governments must therefore require producers and
consumers to “internalize” these costs, through carbon pricing or other
mechanisms. Stronger government climate policy, including carbon taxes,
subsidies, mandates, and standards, is necessary to achieve rapid
reductions in carbon emissions. As the most recent report from the UN
Intergovernmental Panel on Climate Change made clear, time is running
short to avoid the most severe consequences of climate change. If
emissions are not slashed immediately, it will not be possible to limit the
rise in global temperature to 1.5 degrees Celsius, the threshold above
which the worst environmental, health, economic, and other effects will
occur. And as the impacts of climate change become more frequent and
severe, the urgency of government action will grow.
Market forces alone cannot deliver a sufficiently low-carbon economy.
Without greater government intervention, real and anticipated shortages
of natural gas will translate into greater coal use, for instance, as the
current crisis has already demonstrated.This may have been an acceptable
response to energy insecurity in the 1970s, when G-7 countries
committed to ramping up coal production and trade in the face of oil
shortages. But as the most carbon-intensive fuel, coal is no longer an
appropriate alternative, even if it is a workable substitute for Russian gas.
The problem of dirty fuels replacing cleaner ones in times of upheaval also
highlights an even greater challenge: that of delivering low-carbon energy
to developing countries whose need for energy is growing rapidly.
Developed countries will need to help make private investment in lowcarbon
energy for developing countries less risky.To achieve net-zero
emissions by 2050, more than 70 percent of the clean energy investment
in developing and emerging markets must originate from the private
sector, according to the International Energy Agency. Governments must
do more to help mobilize that capital. For example, institutions such as
the World Bank and the U.S. Development Finance Corporation could
lend to local banks at affordable rates, finance projects in local currency,
and expand the availability of loan guarantees.These institutions could
also lend to project developers directly. Capital from development finance
institutions can go a long way toward spurring private investment.
The good news is that in the long term, many of the government actions
needed to reduce emissions—in particular by reducing demand for oil and
gas—will also boost energy security.That is in part because energy
security comes not just from producing more oil but from using less of it.
Fifteen years ago, the United States imported two-thirds of the oil it
consumed; in 2021, it exported more oil than it imported. Yet Americans
remain just as vulnerable to gasoline price hikes when global oil supplies
are disrupted. Households in Europe would similarly be more secure if
they consumed less natural gas, either by using substitutes or being more
energy efficient. Here, too, there is a role for government: public
information campaigns and incentives for efficiency-related investments
can help drive the technological and behavioral changes needed to
conserve energy during crises.
EUROPE’S 9/11
A more expansive role for government is likely to be a defining feature of
the new global energy order that will emerge from the Russia-Ukraine
crisis. And just as greater government intrusion into energy markets had
profound economic, political, and geopolitical ramifications in the 1970s,
such activity will be transformational today—although not in a negative
way, if done right. Structured and managed properly, greater government
engagement in the energy and climate realm can help smooth the
volatility of markets, mitigate the risks that will inevitably arise from the
energy transition, and shorten the path to net-zero emissions.
To the extent that they enhance energy security, for instance, well-crafted
government policies can reduce the risk of populist backlash, such as
France’s “Yellow Vest” protests, against climate initiatives. By the same
token, more options for sourcing energy will diminish the geopolitical
leverage that may accrue to traditional oil and gas producers in the short
term, before the energy transition is complete. As we warned in these
pages earlier this year, if Western governments leave these decisions to the
market, low-cost suppliers such as Russia and the Arab Gulf countries
will end up producing a greater share of the world’s oil and gas during the
multidecade period in which consumption falls but remains substantial.
This dynamic could be particularly problematic if pressures to curb fossil
fuel investment lead to a decline in production by Western energy firms
even as demand rises or plateaus. But if Western governments can
facilitate investment in transition assets, over time they can reduce both
carbon emissions and dependence on traditional producers that may
exploit the transition for their own economic and geopolitical benefit.
Government efforts to secure financing for clean energy projects in
emerging markets can also reduce another set of risks: those stemming
from the growing rift between developed and developing countries. In the
absence of such measures, the resentment of poor and middle-income
countries toward rich ones that refuse to finance fossil fuel projects in the
developing world—even as they scramble to secure more oil and gas to
offset their own losses from the current crisis—will continue to build,
compromising cooperation not just on climate change but on other
critical issues such as pandemic preparedness, conflict resolution, and
counterterrorism.That the burden of a warming climate falls
disproportionately on the very countries that have the least responsibility
for global emissions only exacerbates their rancor.
Most important, government intervention to accelerate the reduction of
carbon emissions can prevent some of the climate change outcomes that
have the worst geopolitical and security implications. As the U.S.
National Intelligence Council concluded last year, climate change will
amplify strategic competition over the Arctic, stoke conflict over water
resources and migration, and potentially spark new kinds of geopolitical
disputes as countries unilaterally test and deploy large-scale
geoengineering initiatives.The emissions reductions needed to prevent
these outcomes cannot be achieved without government action.
Certainly, greater government intervention in energy markets is not
always desirable. As the U.S. experience in the 1970s showed,
governments that go too far toward national planning or unconstrained
industrial policy will squander the many benefits of the free market.To be
successful, policymakers must narrowly tailor their policies toward specific
market failures. As Alexander Hamilton wrote, “In matters of industry,
human enterprise ought, doubtless, to be left free in the main; not fettered
by too much regulation; but practical politicians know that it may be
beneficially stimulated by prudent aids and encouragements on the part of
the government.”
Some European countries have already gone too far in their response to
the present crisis. Spain and Portugal have approved caps on natural gas
prices that are just a fraction of the market price. Some Democrats in the
U.S. Congress have proposed a measure that would prohibit price
increases during national energy emergencies declared by the president.
As recent history suggests, such price controls will be counterproductive.
In taking a more active role in energy markets, governments must resist
the temptation to direct their energy sectors in the ways that those with
nationally owned companies do.The U.S. government, for example,
allocates permits to companies that wish to export natural gas, but it does
not direct where that gas goes—market forces do. A more active role for
government that favors some countries over others risks politicizing the
energy trade and reducing the ability of global markets to allocate
resources efficiently.
Governments must also be careful about relying too heavily on energy
diplomacy, especially that which seeks to influence what should be
market-based decisions about buying and selling energy. Recent
American efforts to free up supplies of liquefied natural gas for Europe by
discouraging Asian purchases were justified in a crisis, but caution should
be exercised going forward. Injecting politics into otherwise commercial
matters risks undermining the faith of U.S. trading partners in the
sanctity of long-term contracts, which could ultimately hurt U.S.
companies, undermine investment, or risk retaliatory efforts to politicize
trade in other goods and services.
Also risky are aggressive government efforts to achieve energy security by
disconnecting from the global energy economy. Some members of the
U.S. Congress, noting that the United States now exports more energy
than it imports, advocate curbing U.S. exports of oil and gas in order to
meet American energy needs first. Such actions would likely backfire,
undermining energy security as well as free trade. Diversifying supply by
stimulating domestic production of key commodities can bring benefits,
but so too does integration into a well-supplied and flexible energy
market. Energy self-sufficiency may seem like a route to security, but it
would be highly inefficient and impose unnecessary costs. It would also
leave the United States without the necessary global energy linkages to
meet demand in the event of a future crisis or dip in U.S. shale
production.
Finally, governments must avoid inflaming domestic partisan divisions,
which in the United States are already deep with regard to the question of
the role of government. In the years to come, a growing number of
legislative proposals aimed at boosting energy security, smoothing the
transition to net-zero emissions, and coping with climate change promise
more political flash points and partisan wrangling. American leaders must
therefore make a concerted effort to build a bipartisan and broad-based
coalition in support of these measures, one that includes everyone from
environmentalists to the oil and gas industry. Another coalition of strange
bedfellows existed two decades ago, before the shale boom, when the
United States imported huge quantities of oil from sometimes unstable
regions that posed a national security threat. A broad spectrum of
interests, each motivated by different arguments, pulled together then to
push the United States to consume less oil.Today, a similar coalition
could be built around the need for an integrated strategy that ensures
both climate security and energy security.
Europe has called the Russian war in Ukraine its 9/11.The terrorist
attacks of that day brought about a new security order that dominated the
international landscape for 20 years and is still a dominant feature of
world affairs. One legacy of the Ukraine war will be a new energy order,
originating in Europe but radiating to the farthest reaches of the global
economy. It will be defined by the dual imperatives of energy security and
climate action. Pursuing them at the same time, without allowing one to
compromise the other, will require harnessing the power of markets. But
it will also require a much more expansive role for government to
leverage, shape, and steer those markets, correcting the failures thrown
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into sharp relief by today’s crisis. Without government intervention,
tailored and restrained but nonetheless increased, the world will suffer a
breakdown in energy security or the worst effects of climate change—or
both.