Fool's Gold in Alaska

Amory B. Lovins and L. Hunter Lovins

From Foreign Affairs, July/August 2001

Summary:  Alaskan politicians have used every oil-price rise since 1973 to push for drilling beneath the Arctic National Wildlife Refuge. But even putting environmental questions aside, refuge oil is unnecessary, insecure, economically risky, and a distraction from the real energy debate. Market solutions that enhance efficiency can provide secure, safe, and clean energy services at much lower cost.

Amory B. Lovins, a physicist, and L. Hunter Lovins, a lawyer and political scientist, founded and lead Rocky Mountain Institute, a market-oriented, nonpartisan, nonprofit applied-research center in Snowmass, Colorado. They are long-time consultants to major oil companies and have advised the Department of Defense on energy security.

A BARREL SAVED, A BARREL EARNED

If oil were found and profitably extracted from the refuge, its expected peak output would equal for a few years about one percent of the world oil market. Senator Frank Murkowski (R-Alaska) has claimed that merely announcing refuge leasing would bring down world oil prices. Yet even a giant Alaskan discovery several times larger than the refuge would not stabilize world oil markets. Oil prices reached their all-time high, for example, just as such a huge field, in Alaska's Prudhoe Bay, neared its maximum output. Only energy efficiency can stabilize oil prices -- as well as sink them. And only a tiny fraction of the vast untapped efficiency gains is needed to do so.

What could the refuge actually produce under optimal conditions? Starting about ten years from now, if oil prices did stay around $22 per barrel, if Congress approved the project, and if the refuge yielded the USGS's mean estimate of about 3.2 billion barrels of profitable oil, the 30-year output would average a modest 292,000 barrels of crude oil a day. (This estimate also assumes that such oil would feed U.S. refineries rather than go to Asian markets, as some Alaskan oil did in 1996-2000.) Once refined, that amount would yield 156,000 barrels of gasoline per day -- enough to run 2 percent of American cars and light trucks. That much gasoline could be saved if light vehicles became 0.4 mpg more efficient. Compare that feat to the one achieved in 1979-85, when new light vehicles on average gained 0.4 mpg every 5 months.

Equipping cars with replacement tires as efficient as the original ones would save consumers several "refuges" full of crude oil. Installing superinsulating windows could save even more oil and natural gas while making buildings more comfortable and cheaper to construct. A combination of all the main efficiency options available in 1989 could save today the equivalent of 54 "refuges" -- but at a sixth of the cost. New technologies for saving energy are being found faster than the old ones are being used up -- just like new technologies for finding and extracting oil, only faster. As gains in energy efficiency continue to outpace oil depletion, oil will probably become uncompetitive even at low prices before it becomes unavailable even at high prices. This is especially likely because the latest efficiency revolution squarely targets oil's main users and its dominant growth market -- cars and light trucks -- where gasoline savings magnify crude-oil savings by 85 percent.

New American cars are hardly models of fuel efficiency. Their average rating of 24 mpg ties for a 20-year low. The auto industry can do much better -- and is now making an effort. Briskly selling hybrid-electric cars such as the Toyota Prius (a Corolla-class 5-seater) offer 49 mpg, and the Honda Insight (a crx-class 2-seater) gets 67 mpg. A fleet that efficient, compared to the 24 mpg average, would save 26 or 33 refuges, respectively. General Motors, DaimlerChrysler, and Ford are now testing family sedans that offer 72-80 mpg. For Europeans who prefer subcompact city cars, Volkswagen is selling a 4-seater at 78 mpg and has announced a smaller 2003 model at 235 mpg. Still more efficient cars powered by clean and silent fuel cells are slated for production by at least eight major automakers starting in 2003-5. An uncompromised fuel-cell vehicle -- the Hypercarsm -- has been designed and costed for production and would achieve 99 mpg; it is as roomy and safe as a midsized sport-utility vehicle but uses 82 percent less fuel and no oil.2 Such high-efficiency vehicles, which probably can be manufactured at competitive cost, could save globally as much oil as OPEC now sells; when parked, the cars' dual function as plug-in power stations could displace the world's coal and nuclear plants many times over.

As long as the world runs largely on oil, economics dictates a logical priority for displacing it. Efficient use of oil wins hands down on cost, risk, and speed. Costlier options thus incur an opportunity cost. Buying costly refuge oil instead of cheap oil productivity is not simply a bad business decision; it worsens the oil-import problem. Each dollar spent on the costly option of refuge oil could have bought more of the cheap option of efficient use instead. Choosing the expensive option causes more oil to be used and imported than if consumers had bought the efficiency option first. The United States made exactly this mistake when it spent $200 billion on unneeded (but officially encouraged) nuclear and coal plants in the 1970s and 1980s. The United States now imports oil, produces nuclear waste, and risks global climate instability partly because it bought those assets instead of buying far cheaper energy efficiency.

Drilling for refuge oil is a risk the nation should consider taking only if no other choice is possible. But other choices abound. If three or four percent of all U.S. cars were as efficient as today's popular hybrid models, they would save the equivalent of all the refuge's oil. In all, many tens of times more oil is available -- sooner, more surely, and more cheaply -- from proven energy efficiency. The cheaper, faster energy alternatives now succeeding in the marketplace are safe, clean, climate-friendly, and overwhelmingly supported by the public. Equally important, they remain profitable at any oil price. They offer economic, security, and environmental benefits rather than costs. If any oil is beneath the refuge, its greatest value just might be in holding up the ground beneath the people and animals that live there.

1 This is the mean of a range of projections, from 0.5 billion to 6.5 billion, from the USGS's 1998 study. The higher estimates that some drilling proponents cite, such as the 13.7 billion barrels mentioned by The Wall Street Journal's editorial page, exceed the USGS's highest projection at any price, because they typically ignore recoverability, economics, and geographic location. All prices in this article are in 2000 dollars (fourth quarter).

2 Amory B. Lovins was the originator of this project. A private firm, in which he holds a minor financial interest, is preparing such vehicles for commercial production.