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.

THE BOTTOM OF THE BARREL?

Oil prices have fluctuated randomly for well over a century. Heedless of this fact, oil's promoters are always offering opportunities that could make money -- but on the flawed assumption that high prices will prevail. Leading the field of these optimists are Alaskan politicians. Eager to keep funding their state's de facto negative income tax -- oil provides 80 percent of the state's unrestricted general revenue -- they have used every major rise in oil prices since 1973 to advocate drilling beneath federal lands on the coastal plain of the Arctic National Wildlife Refuge. Just as predictably, environmentalists counter that the refuge is the crown jewel of the American wilderness and home to the threatened indigenous Gwich'in people. As some see it, drilling could raise human rights issues under international law. Canada, which shares threatened wildlife, also opposes drilling.

Both sides of this debate have largely overlooked the central question: Does drilling for oil in the refuge's coastal plain make sense for economic and security reasons? After all, three imperatives should shape a national energy policy: economic vitality, secure supplies, and environmental quality. To merit serious consideration, a proposal must meet at least one of these goals.

Drilling proponents claim that prospecting for refuge oil will enhance the first two while not unduly harming the third. In fact, not only does refuge oil fail to meet any of the three goals, it could even compromise the first two. First, the refuge is unlikely to hold economically recoverable oil. And even if it did, exploitation would only briefly reduce U.S. dependence on imported oil by just a few percentage points, starting in about a decade. Nor would the refuge yield significant natural gas. Despite some recent statements by the Bush administration, the North Slope's important natural-gas deposits are almost entirely outside the refuge. The gas-rich areas are already open to industry, and environmentalists would likely support a gas pipeline there, but its high cost -- an estimated $10 billion -- would make it seem uneconomical.

Furthermore, those who suppose that any domestic oil is more secure than imported oil should remember that oil reserves almost anywhere else on earth are more accessible and more reliably deliverable than those above the Arctic Circle. Importing oil in tankers from the highly diversified world market is arguably better for energy security than delivering refuge oil to other U.S. states through one vulnerable conduit, the Trans-Alaska Pipeline System. Although proponents argue that exploiting refuge oil would make better use of taps (which is all paid for but only half-full), that pipeline is easy to disrupt and difficult to repair. More than half of it is elevated and indefensible; in fact, it has already been bombed twice. If one of its vital pumping stations were attacked in the winter, its nine million barrels of hot oil could congeal into the world's largest Chapstick. Nor has the 24-year-old taps aged gracefully: premature and accelerated corrosion, erosion, and stress are raising maintenance costs. Last year, the pipeline suffered two troubling accidents plus another that almost blew up the Valdez oil terminal. If taps were to start transporting refuge oil, it would start only around the end of its originally expected lifetime. That one fragile link, soon to be geriatric, would then bring as much oil to U.S. refineries as now flows through the Strait of Hormuz -- a chokepoint that is harder to disrupt, is easier to fix, and has alternative routes.

Available and proven technological alternatives that use energy more productively can meet all three goals of energy policy with far greater effectiveness, speed, profit, and security than can drilling in the refuge. The untapped, inexpensive "reserves" of oil-efficiency technology exceed by more than 50 times the average projection of what refuge drilling might yield. The existence of such alternatives makes drilling even more economically risky.

In sum, even if drilling in the Arctic Wildlife Refuge posed no environmental or human rights concerns, it still could not be justified on economic or security grounds. These reasons remain as compelling as they were 14 years ago, when drilling there was last rejected, and they are likely to strengthen further with technological advances. Comparing all realistic ways to meet the goals of national energy policy suggests a simple conclusion: refuge oil is unnecessary, insecure, a poor business risk, and a distraction from a sound national debate over realistic energy priorities. If that debate is informed by the past quarter-century's experience of what works, a strong energy policy will seek the lowest-cost mix of demand- and supply-side investments that compete fairly at honest prices. It will not pick winners, bail out losers, substitute central planning for market forces, or forecast demand and then plan capacity to meet it. Instead, it will treat demand as a choice, not fate. If consumers can choose optimal levels of efficiency, demand can remain stable (as oil demand did during 1975-91) or even decline -- and it will be possible to provide secure, safe, and clean energy services at the lowest cost. In this market-driven world, the time for costly refuge oil has passed.

DOING MORE WITH LESS

Unstable oil prices have historically triggered new energy strategies. In the years following the oil-price jump in 1973, Presidents Richard Nixon and Gerald Ford sought to reduce U.S. dependence on oil imports by stimulating domestic energy supplies. With the country beset by inflation, however, they also controlled oil and gas prices, so the new supplies often appeared cheaper than they really were. President Jimmy Carter repeated this supply mistake by promoting a costly flop in synthetic fuels, but he also trusted the market enough to deregulate oil and gas prices. (Paradoxically, he discouraged exploration for natural gas by prohibiting its use in most new power plants.) The fall of the shah of Iran again hiked oil prices in 1979 and contributed to Carter's political demise. Yet that second shock also stimulated a nationwide, seven-year drive for greater energy efficiency. Cheaper ways of delivering "energy services" (e.g., hot showers and cold beer) by using energy more productively left the energy-supply industries with costly surpluses as their prices collapsed in 1985-86. This crash benefited consumers but punished the same energy producers that the Reagan administration had sought to help. Underlying this energy glut was not just a response to higher prices but a basic policy shift: Carter had emphasized the efficient use of energy, especially in cars, and Americans then discovered how quickly demand-side policies can swing the global oil market.

Greater efficiency bore dramatic results. Carter's policies made new American-built cars more efficient by seven miles per gallon (mpg) over six years. During Carter's term and the five years following it, oil imports from the unstable Persian Gulf region fell by 87 percent. From 1977 to 1985, U.S. GDP rose 27 percent while total U.S. oil imports fell by 42 percent, or 3.74 million barrels a day. That savings took away from the Organization of Petroleum Exporting Countries an eighth of its market. The entire world oil market shrank by a tenth; OPEC's share of it was slashed from 52 percent to 30 percent, while OPEC's output fell by 48 percent. The United States accounted for one-fourth of that reduction. More-efficient cars -- each driving one percent fewer miles on 20 percent fewer gallons -- were the most important cause; 96 percent of those savings came from smarter design, whereas 4 percent came from smaller size. Other countries also improved car efficiency, but they used higher fuel taxes instead of higher efficiency standards to do so.