Climate Implications of the Ukraine Crisis & Volatile Fuel Markets

LNG vessel crossing atlantic ocean during good weather

With Russian troops entering and engaging in conflict within Ukraine the potential impacts this foreign policy crisis on climate change are becoming increasingly salient for those involved.

The Biden administration is currently amidst a foreign policy crisis with large ramifications for energy and climate. The Ukraine-Russia conflict, which appears likely to escalate into a full-blown war, highlights the precarious energy security situation in Europe, Europe’s reliance on both Russia and the United States for traditional energy supplies, and contradictory signals on decarbonization coming from both the Biden administration and European leaders. In this post, we explore options for the United States in supporting Europe as it sees a winter energy supply crunch which could deepen if tensions escalate and what this means for the administration’s climate agenda, the country’s status as a major oil and gas exporter, and the growing unlikelihood that the United States will meet its NDC target of a 50-52 percent emissions reduction by 2030.

Risks to President Biden’s Climate Agenda

The Ukraine crisis shows that President Biden is first and foremost a traditional peace and security policymaker. With this situation, President Biden will prioritize European security and economic stability – through stable oil and gas prices – over climate action if there is a conflict between the two. President Biden’s world view has been shaped by his decades in the Senate Foreign Relations Committee, and his commitment to NATO and European security seem to outweigh his commitment to climate action.

Moreover, he understands that climate action will be more difficult if consumers face high energy prices. President Biden’s strategy is likely to keep oil and gas prices low, while also making renewables even cheaper over time. President Biden understands that support for climate action in the United States and most likely elsewhere would decline significantly with substantially higher prices. But given the urgency of the Ukrainian situation and its potentially large impacts on energy security, increased tensions with Russia – whether in a new cold or hot war – priorities in Washington could significantly shift, undermining the climate agenda.

U.S. Actions Against Russia

As Russia has now recognized the self-proclaimed republics in Luhansk and Donetsk in east Ukraine as independent states and engaged in military action across Ukraine, the Biden administration and U.S. allies are taking steps through economic sanctions to weaken Russia and deter it from fully invading Ukraine. So far, though, President Biden has not wanted to target Russian energy exports that are currently flowing to keep any disruptions to Europe from occurring as gas prices have soared and crude oil markets have passed $100 per barrel.

But the administration and Germany are aligned in taking aggressive action in countering Russia by halting certification of the Nord Stream 2 gas pipeline, which is in the final stages of construction and would transport gas from Russia to Germany by bypassing Ukraine. Germany and the Biden administration had originally not wanted to go after Nord Stream 2 because such an action might cause a greater counter-reaction by Russian President Vladimir Putin. Moreover, cancellation of the project could threaten future exports to Europe at a time it is highly reliant on Russia.

Many European countries, particularly Germany in light of its decision to phase out nuclear power, are in a bind when it comes to Nord Stream 2: it is significantly important for the continent’s energy security yet sanctioning it could be a significant weapon against Russia to deter invasion. Even if Germany and other countries were to go forward with suspending North Stream 2, Russia would likely remain the main supplier of gas to the EU until it fully transforms to renewable energy, which is still at least more than a decade away despite its increasingly ambitious initiatives.

U.S. Role in European LNG Markets

The European gas crisis has put the Biden administration in a difficult situation climate-wise. To minimize Russia’s leverage over Europe, President Biden has stated that the United States will provide as much LNG as European buyers need. “We intend to work together, in close collaboration with EU Member States, on LNG supplies for security of supply and contingency planning,” the White House said in a statement with European Commission President Ursula von der Leyen. While it is understandable from an energy security and geopolitical perspective to offer increasing volumes of LNG to Europe, it forces President Biden to be defensive about climate ambition.

Increases in gas supplies, whether for domestic use or export, is at odds with his goal of transitioning the country off fossil fuels in the power sector by the middle of the next decade and undermines President Biden’s climate credentials with Democratic party activists. In the statement with European Commission President Ursula von der Leyen, the administration appears to have anticipated criticism from climate groups, saying that LNG provides short-term energy security while continuing “to enable the transition to net zero emissions.”

The LNG industry in the United States is growing significantly and there have been continued calls from climate activists to either curb or halt exports. The amount exported in 2021 was about double that of 2019, and the United States is now the global leader in LNG exports. China, Japan, and South Korea are the largest importers of U.S. LNG, but France, Spain, the Netherlands, the UK, and Poland are also consistent buyers, cementing the U.S.’ presence in Europe’s market. Despite the boom in U.S. exports, Washington-based energy experts say that while LNG from the United States and other markets can help ease supply constraints, they cannot easily make up the difference from any Russian stoppages.

U.S. LNG is costly for Europe to import, and it is difficult to reach all markets in Europe. Still, U.S. LNG exporters see the tension between Europe and Russia as an opportunity to make further inroads in the European market. This dynamic, although it can chip away at Russia’s geopolitical power and support a growing U.S. industry, makes it more difficult to curb the U.S. natural gas industry at a time the administration wants to accelerate the transition to zero emissions in the power sector.

The Russia-Ukraine situation highlights the ongoing split between the Biden administration and climate groups over U.S. exports of fossil fuels. As noted above, exports of oil and gas have increased sharply in recent years from growing domestic production and liberalization of trade laws. High domestic production is expected to keep oil and gas exports elevated for possibly decades to come. The Biden administration has shown no signs that it will try to slow this trend. Energy Secretary Jennifer Granholm put her full support behind LNG exports during her confirmation hearings last year.

“I believe U.S. LNG exports can have an important role to play in reducing international consumption of fuels that have greater contribution to greenhouse gas emissions,” Granholm told senators. Climate NGOs argue that exporting oil and gas incentivizes domestic producers to increase output, slowing down the transition away from fossil fuels. Groups like the American Petroleum Institute, on the other hand, point to the importance of exports in helping shore up the oil and gas industry and creating jobs.

U.S. Role in European Oil Market

Russia’s significance in the global oil market also brings about a precarious situation for President Biden. Global oil prices recently rose above $100 per barrel, the highest level since 2014. Prices are already more than 70 percent higher than year-ago levels, which have been a factor in undermining the President’s approval rating.

The Biden administration wants to avoid a volatile oil market, which will keep the White House from imposing sanctions that target oil or petroleum projects from Russia since it is a big supplier to Europe. Should the oil market continue to remain high or strengthen due to heightened geopolitical threats and a Russian invasion of Ukraine, President Biden would have limited options to bring down oil prices. President Biden could call on OPEC producers to increase output or release oil from emergency stockpiles.

Also, U.S. producers could boost their crude oil exports to Europe to offset any losses from Russia. The United States now exports more than 3 million barrels per day. Similar to U.S. LNG exports, overseas oil sales are dominated by Asian customers, but European countries also buy U.S. crude oil. The EU gets about 25 percent of its oil imports from Russia, the main source, compared to just under 10 percent from the United States.

But these three actions – higher OPEC production, an emergency stockpile release, and higher U.S. exports to Europe – would likely have only modest and potentially short-term effects on oil prices and would not fully alleviate European energy security problems. President Biden wants to avoid higher oil prices not only because of how they would continue to be a drag on his approval ratings with the American public but also because his rhetoric and actions on oil markets and oil supply have upset climate activists and NGOs.

For instance, while at COP26, President Biden tried to pressure OPEC producers to increase oil supply as gasoline prices were rising. This call for more oil production contradicted his administration’s message at COP26 that focused on the need to accelerate climate ambition to keep warming below 1.5 degrees. President Biden’s plea to OPEC also opened him to criticism from Republican lawmakers who believe his climate agenda has slowed American production growth and led to higher gasoline prices. Similarly, the administration’s release of oil from the Strategic Petroleum Reserve (SPR) in November to lower oil prices showed the limitation of using strategic stockpiles to weaken prices and brought about criticism from a wide variety of stakeholders, particularly Republican lawmakers. Climate activists were not excited about using the SPR to weaken gasoline prices but used the news to further highlight the need to reduce dependency on oil and accelerate the shift to electric vehicles.

Domestic Oil & Gas Lease Sale Controversy

President Biden may see investment in and development of domestic oil and gas as beneficial for dealing with geopolitical events that threaten global markets. Renewed concerns about energy security (along with high prices) have forced the administration to rethink its strategy on balancing long-term climate goals with shorter-term energy needs. After promising (during the 2020 Presidential campaign to stop new leasing for fossil fuels on public lands), it is unclear why the administration has backtracked. Even though his administration’s actions could be the result of worries over high oil prices and geopolitical threats, the development of these resources would take years to have an impact.

The biggest example of President Biden’s dilemma on transitioning from fossil fuels to clean energy is the administration moving forward with oil and gas lease sales on public lands and waters. This has brought the most ire from climate activists since the administration has in its power to either halt or slow these sales. In November, right after COP26, the Department of the Interior held a lease sale for more than 80 million acres for oil and gas development in the Gulf of Mexico. Estimates said that this development would produce over 1 billion barrels of oil and approximately 4.4 trillion cubic feet of natural gas.

This undermined his credibility with climate groups. “All the negotiation in the world is ultimately hollow unless Biden acts boldly to end the fossil fuel era at home,” said Jean Su, energy justice director at the Center for Biological Diversity, who criticized President Biden for specifically being unwilling to halt oil and gas leasing on public lands. “Biden contradicts his own moral imperative by leaving on the shelf his own tools to literally save lives and our planet from climate catastrophe.”

The administration’s lease sale, however, has been blocked, at least for the time being, by a federal judge’s decision that said the administration did not properly consider the climate impact of the new leases. U.S. climate groups saw this as a major victory. They want to see it as imperative that climate risks are taken into consideration by the Executive Branch when making decisions about the use of public lands. Just as crucial, climate groups want the United States to lead the international community by example.  Having such a large sale of fossil fuel leases on public lands undermines U.S. credibility in their eyes. The judge said that the environmental analysis that led to the sale was a “serious failing,” and he ordered the Department of Energy to vacate new leases until the agency conducts new analysis that considers climate effects of moving forward with drilling and production. It is unclear whether the administration will conduct a new analysis and advance the sale or completely scrap it.

The U.S. View on Europe’s Challenge

While the situation between Russia and Ukraine has called attention to the administration’s contradictions on climate change and energy security, U.S. experts see a similar dynamic playing out in Europe. Within the G20, Europe has the most ambitious climate plan globally and its Green Deal has set the continent on the path to reaching carbon neutrality by 2050. However, the tension with Russia has exacerbated its current energy woes and exemplifies how rocky Europe’s energy transition will be.  Interestingly, U.S. analysts have concluded that conflict with Russia has strengthened the resolve of Germany and many other European governments to speed up the clean energy transition.  It’s unclear whether that resolve would last a prolonged energy shock of the type a war in Ukraine could trigger, but for now, U.S. analysts see the current conflict with Russia as strengthening the hand of climate activists.

Despite increased political will in Europe to move ahead with their climate policies, the current situation could have negative short-term implications for Europe’s climate progress. One Washington-based energy expert said, “In the event of a severe interruption of gas flows, there could be switching to coal or fuel oil in power generation, which would certainly drive-up emissions in the near term. It would also be costly.” Even if Russia does not cut off supply to Europe, U.S. experts see energy problems there to continue for the foreseeable future.

“The prospect of dire energy shortages if Russia shuts the taps has grown so acute that it risks obscuring a far more fundamental threat to European energy security,” said Jason Bordoff, who held senior climate and energy positions in the Obama administration. “Europe will be increasingly exposed to the volatile price of imported gas in the years to come unless its leaders take steps to reduce the risk of energy price spikes and prepare for inevitable and unpredictable swings in energy supply and use.” In an example of Europe’s heavy reliance on Russia, Germany has long-term contracts with Russia’s Gazprom through 2035. With the growing awareness of expected volatility during the energy transition, U.S. experts expect increased momentum to accelerate clean energy there. European Green Deal advocates see fossil fuels as inherently volatile, which is only reinforced by heavy reliance on Russia for oil and gas.

Against the backdrop of high energy prices and perpetual concerns of supply, U.S. experts believe European leaders will continue to struggle with the possibility of consumer backlash and negative economic effects. The desire to avoid situations like the yellow vest protests that occurred in France in 2018-2019 in response to fuel taxes will be paramount for green organizations and lawmakers. The perception that the move to renewable energy has contributed to high prices, interruptions, and outages could slow or undermine the green transition.

Some U.S. experts see Europe ultimately using the current situation as an opportunity to speed up action on clean energy infrastructure to build a more reliable and resilient energy system, while at the same time creating jobs and making the continent less vulnerable to geopolitical threats, spikes in demand because of weather, and price volatility. However, that outlook could be too optimistic. The short term will strengthen political will on climate but sustained high energy prices could lead to longer-term erosion of European support for current climate targets. Such a situation could lead to EU leaders saying they need more time for a transition

Looking Forward

Even if the Russia-Ukraine tension abates and there is no full-scale energy crisis, it certainly underscores the obstacles of President Biden’s goal to transition the United States off fossil fuels. The massive increases in fossil fuel exports, and the expectations that they will continue to rise to help provide energy security for key allies, undermine the administration’s desire for an accelerated move to clean energy, weakening the case that the United States will reach its 2030 NDC target of a 50-52 percent cut in emissions versus 2005 levels. War in Ukraine will bring about the importance of peace and security and other immediate needs while depressing the importance of long-term issues such as climate change. A similar dynamic took place in the aftermath of the September 11 terrorist attacks. Prior to September 11, the Bush administration faced pressure to come up with a climate plan, but after the attacks, the pressure went away quickly as voters were more concerned with domestic security and the war on terror. The same fundamental shift in voter priorities could occur now.

Climate activists, however, hope that for the longer term, the current geopolitical tensions will reinforce the argument that reliance on fossil fuels is not only negative from a climate perspective but also from a national security and energy security perspective, which could lead to an acceleration of renewables and more ambitious climate goals. But in the meantime, there will likely continue to be a disconnect between rhetoric for the need for a long-term trend to clean energy and actions that boost the use of oil and gas to meet energy security needs.