Some policymakers are urging U.S. President Joe Biden to invoke the Defense Production Act to boost domestic energy production amid the loss of Russian oil and gas from global markets. But the U.S. must ensure "the cure is not worse than the disease," one expert warned.

Russia's invasion of Ukraine has prompted the U.S. to ban imports of Russian energy products, including oil and natural gas. The European Commission has also announced plans to eliminate the EU's reliance on fossil fuels from Russia, helping to send spot crude markets to multiyear highs in recent weeks. The lost supply from Russia has compounded inflationary pressures affecting energy markets as world economies recover from the coronavirus pandemic.

Although Russian imports are a small piece of the U.S. petroleum mix, lawmakers have pushed Biden to use the rarely tapped Defense Production Act, or DPA, for a range of energy-related relief.

Enacted in 1950 in response to the Korean War, the law allows the president to direct private companies to sign contracts with the government to fulfill orders for scarce materials needed for national defense. The act also authorizes the government to make loans and loan guarantees to avoid shortfalls of critical resources.

"The situation that is unfolding in Ukraine is so devastating that a lot of things that would not have been the normal tools to employ suddenly need to get a careful look," Jonathan Elkind, a senior research scholar at Columbia University's Center on Global Energy Policy, said in an interview.

Although some type of DPA directive may be necessary, "that is strong enough medicine that we need to think about it really carefully before we act," Elkind cautioned.

Growing number of calls for DPA

U.S. Sen. Joe Manchin, D-W.Va., recently called for using the DPA or other means to finalize the permitting and construction of the 304-mile Mountain Valley Pipeline in West Virginia and Virginia. In addition, a group of U.S. House of Representatives members asked Biden to invoke the DPA to "expedite and expand domestic oil and gas production," including through subsidies and loans to procure raw materials and implement refinery enhancements.

Some lawmakers and environmental groups have shown interest in using the DPA for clean energy production. Supporting renewable energy development through the DPA "is a practical and logical next step for the administration," U.S. Rep. Raúl Grijalva, D-Ariz., said during a March 10 webinar.

Grijalva, who chairs the House Committee on Natural Resources, said potential investment in renewable energy research and development is the "wise way to go" in light of the country's climate goals and as sanctions on Russian exports drive interest in alternative energy.

On March 17, the Congressional Progressive Caucus called on Biden to declare a "national climate emergency" and invoke his powers under the DPA and Trade Expansion Act to mobilize domestic manufacturing of renewable energy technologies and build distributed energy facilities.

The Biden administration, however, has so far given a cool reception to calls for relying on the DPA, at least for oil production.

"Without ruling out or ruling in any options, let me explain to you what the Defense Production Act would do in this regard," White House press secretary Jen Psaki said during a March 10 briefing. "It would basically be providing money to oil companies to do something that they already probably have the capacity to do."

Alternatives to using DPA

Before taking executive action to bolster energy security, the Biden administration must consider the potential impacts, including on other major energy-producing countries, Elkind said.

"Does [helping U.S. oil producers] send the right signal to OPEC? Or does OPEC simply turn around and say, 'OK, we're happy to tune down our production by an amount equal to what you are increasing,'" said Elkind, who served in the Obama administration as the U.S. Department of Energy's Assistant Secretary for International Affairs.

Elkind also urged caution on using the DPA or similar measures to support alternative energy. Some clean energy advocates have said the DPA could be used to help manufacture heat pumps for European consumers to cut reliance on Russian gas.

Elkind, however, said the administration must consider the efficiency of such a solution and how shipping U.S.-made heat pumps abroad could affect European manufacturers of the technology. "We want to make sure that the cure is not worse than the disease," Elkind said.

More broadly, with oil prices now back around $100 per barrel and rig counts rebounding, the government might not need to step up to better align U.S. supply with demand, said Zongyuan Zoe Liu, a fellow for international political economy at the Council on Foreign Relations.

Giving companies resources under the DPA "might end up wasting a lot of, not just money, but also political resources," Liu told S&P Commodity Insights.

Rather than tapping the DPA or other emergency wartime measures, Liu said the government could foster public-private partnerships through existing institutions such as the Export-Import Bank of the United States or the U.S. International Development Finance Corp., or DFC. During the coronavirus pandemic, the DFC has approved federal funding to increase vaccine manufacturing and support other COVID-19 response efforts.

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