The Magazine

Dick Cheney Was Right

The energy debate is about virtue

Jun 11, 2001, Vol. 6, No. 37 • By ROBERT H. NELSON
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The problem here is that the pragmatic arguments fall apart under close scrutiny. It is often said by opponents of ANWR oil development, for example, that it would further enrich oil "giants" like Exxon-Mobil. Actually, the oil reserves in ANWR are owned by the federal government. The Interior Department leases oil and gas reserves through competitive bidding and then collects royalties (which are currently bringing in about $5 billion per year from previous federal leases). In ANWR, the federal government would divide the revenues with the state of Alaska.

Most of the economic "surplus"—the revenues minus the costs—in ANWR would go to governments. The federal government and the state of Alaska might receive from $20 billion to $40 billion each over the long run. Assuming the Interior Department does a good job in running the leasing program, the oil companies will end up with little or nothing more than their normal rate of return.

The opponents of ANWR development also argue that the expected oil can provide only six months of U.S. oil consumption (actually, the figure is more like two years). However, if you divide any large project into enough parts, no one part will be essential. This argument recalls the dieter who says: "It is okay to eat this piece of cake now because any one piece will have no effect on my weight six months from now." People who think that way do not get very far in their diets.

Opponents further contend that ANWR oil development is not necessary because there are many opportunities for energy conservation in the United States that could save just as much or more oil. This form of reasoning is analogous to saying a person should avoid one stock market investment because another good investment is also available. Obviously, any good investor will compare the relevant returns. But he is also likely to want a diversified portfolio.

Even the bedrock argument that ANWR has been little touched by human hand is flawed. A military facility was built there in the 1940s. And the Inupiat people have occupied the area for centuries. This argument thus carries the unfortunate implication that the Alaska Natives are something other than human.

If most of the "practical" arguments against ANWR oil development are weak, truth in advertising requires a recognition that many of the arguments in favor of ANWR development are also weak. Indeed, rebutting these flawed arguments has been the best thing the environmental movement has had going for it.

Some of the advocates of developing ANWR oil seem to suggest it will solve the energy problems of California or of the nation over the next few years. But the earliest that oil could be produced from ANWR is six or seven years from now.

The most recent 1998 estimates of the U.S. Geological Survey put expected oil production from ANWR at 7.8 billion barrels. In itself, however, the physical availability of this huge amount of oil means little. If the price of oil falls below $18 per barrel, 40 percent of the ANWR oil would not be economical to pump. Though higher now, world oil prices were frequently below $18 during the 1990s, and reached $10 as recently as 1999.

It is said that ANWR will reduce the dependence of the United States on foreign oil supplies. The reality is that there is a global oil market in which national boundaries are largely irrelevant. The logical place to sell most ANWR oil is probably Japan. The amounts of oil that might be produced in ANWR could never have more than a very small effect, if any, on the international price of oil. There is a genuine problem with overdependence on the Persian Gulf for world supplies of oil. But it is a problem for every nation, perhaps even greater for Europe and Japan. For the United States to seek to resolve this problem by itself makes as much sense as acting alone on matters of climate change.

So what is the real case for developing ANWR? It is simply that its expected oil reserves are a huge economic asset. By themselves they would add perhaps $40 billion to $80 billion to net national income over the next few decades (the exact amount depends on the future price of oil). This income would largely come in the form of additional revenues divided between the federal government and the state government of Alaska.

On the other side, the real case for keeping ANWR oil in the ground is that it offers the chance to make a religious statement—a sacrifice that would affirm American "virtue," the very thing that Cheney was correct to perceive as the underlying element in the national energy debate.