Updates - Foreign Policy

Biden Urged to Invoke Cold-War Powers to Blunt Energy Price Hike

Saturday, March 12, 2022 07:30 AM

By Jennifer A. Dlouhy

  • He can mandate production of oil to batteries under 1950s law
  • Presidents from Truman to Trump used Defense Production Act

(Bloomberg) —

President Joe Biden is under pressure to invoke Cold War-era powers to force more domestic oil production as the war in Ukraine strains supplies, raising gasoline prices and fueling inflation.

Lawmakers and labor activists have urged Biden to compel deployment of drilling rigs and solar panels using the 1950 Defense Production Act, the same authority wielded by Harry Truman to make steel for the Korean War and Donald Trumpto spur mask production to battle the coronavirus.

Fuel prices at a Shell gas station in San Francisco, California on March 7.

So far, the Biden administration has shown little enthusiasm for the move. “It would basically be providing money to oil companies to do something that they already probably have the capacity to do,” White House Press Secretary Jen Psaki said Thursday.

Nevertheless, Russia’s invasion of Ukraine is rapidly shifting the window of what’s possible. The administration is already weighing a narrow use of the 72-year-old law to jump-start production of electric heat pumps that can help Europe curb its reliance on Russian gas.

And in Washington, lawmakers eager to tame gasoline prices and combat Russia’s energy dominance are pushing the Defense Production Act as a prescription for supply-chain bottlenecks and languished gas projects.

Senator Joe Manchin, an influential Democrat from West Virginia, has urged Biden to wield the DPA to force construction of the Mountain Valley Pipeline to send gas to the East Coast, though the act wouldn’t overcome all of the pipeline’s legal and environmental obstacles. Separately, four senators, including Manchin and Lisa Murkowski, an Alaska Republican, on Friday asked Biden to use the act to accelerate production of lithium-ion battery materials needed to power electric vehicles.

Senator Joe Manchin

Invoking the DPA to steer energy production seems radical in times of peace, said Kevin Book, managing director of research firm ClearView Energy Partners. “It’s not so radical when you’re actually in a war that is washing onto American shores as gasoline prices and could potentially mean acute shortages in Europe for American allies,” he said.

Read More: Biden’s Demands for Oil Collide With Drillers Reining In Output

The federal law empowers the president to essentially nationalize private industry to ensure the U.S. has resources that could be necessary in a crisis. It even singles out energy as a “strategic and critical material,” giving the president wide latitude to prioritize contracts and force businesses to supply the government with materials and services.

The power isn’t only for wartime. Shortly before leaving office, President Bill Clinton invoked the law to steer natural gas to California utilities and prevent blackouts during the 2001 power crisis. The Trump administration considered using the DPA to force coal plants to keep running.

The statute is a powerful tool to help stabilize markets and forge “an industrial policy that makes sense for the 21st century American economy,” said Alex Williams, a research analyst at the labor advocacy group Employ America that published a blueprint for using the DPA to accelerate oil production.

The Biden administration has so far resorted to imploring the oil industry to increase production, casting it as a patriotic duty in wartime. Lawmakers on Thursday suggested Biden should stop asking and use the DPA to intervene directly, since energy companies and their investors are wary of cranking up drilling to generate crude a year from now, when prices are expected to have fallen well below current highs.

“You can help reduce domestic energy prices and further our nation’s energy independence while blunting the impact of President Vladimir Putin’s efforts to use Russian energy exports as leverage in the face of European and American sanctions,” lawmakers, including Representatives Jared Golden, a Maine Democrat, and South Dakota Republican Dusty Johnsonsaid a letter to Biden.

Like the Employ America proposal, their plan would not directly mandate drilling. Instead, the president could guarantee oil demand at consistent prices by loaning crude from the U.S. Strategic Petroleum Reserve today with drillers required to pay that back in a year or more using production from new, domestic wells.

Earlier: Manchin Pushes Defense Production Act for Natural Gas Pipeline

The Treasury Department’s Exchange Stabilization Fund, used to avert currency crises, could be tapped to fund oil drilling that Wall Street now shuns. And the president could invoke the Defense Production Act to ease supply chain problems that are holding back crude production, by ensuring supplies of low-cost pipes, sand and other essential equipment.

It’s a novel option in Washington, where policy makers are used to grasping for the same limited set of options to confront high gasoline prices, said Benjamin Salisbury, director of research at Height Capital Markets. “There is a growing understanding that any one of these tools is inadequate.”

Beyond gas, the DPA is being considered as a tool to combat climate change.

More than 200 environmental, indigenous and progressive groups asked the president to use the DPA to rapidly scale up the production and deployment of electric-vehicle chargers, weatherization equipment and other clean energy technology.

And environmentalist Bill McKibben has pitched government officials to invoke the DPA to manufacture electric heat pumps that can help wean Europe off Russian gas.

Climate activists warn the administration risks forfeiting the campaign against global warming by propping up fossil fuels.

“This would do nothing to help Ukraine” but would “make us more dependent on volatile fossil fuels, on this boom-bust cycle and on energy price spikes,” said Collin Rees, U.S. program manager for Oil Change International. “It’s incredibly short-sighted and cynical.”