From West by Northwest.org Voices of the Northwest Sadler's Sense: Draining America First Oil Policy Inadequate to the Energy Challenge By Russell Sadler Dec 23, 2005 Drilling in Alaska’s Arctic National Wildlife Refuge has little to do with reducing America’s dependence on foreign oil since much of any increase in production will be exported to Japan and China. ANWR has everything to do with Alaska’s local politics. It’s all about the money -- not oil company money, but Alaska tax revenues. Here’s the story behind Sen. Ted Steven’s frantic, high-handed effort to drill in ANWR. After 46 years of statehood, the Alaskan economy still cannot support itself without hefty federal subsidies to finance public infrastructure that makes private investment attractive. More seriously for Alaska’s political class, the taxes generated by 671,000 souls rattling around a state twice the size of Texas did not provide enough money to pay for the services Alaskans want in this most expensive of states. Alaskans finally found their revenue stream when oil was discovered in Prudhoe Bay on the isolated North Slope in 1968. It became America’s largest oil field -- over 5,000 acres and 3898 exploratory wells. It meant wealth for oil companies. It meant cheaper petroleum prices up and down the West Coast. More importantly, it finally meant wealth for Alaskans who have long felt they were treated like a colony by business interests in Portland and Seattle. The discovery of oil forced the Alaskan government to come to terms with the native Alaskan land claims they had ignored since statehood. Oil companies wanted clear title to oil rights before they invested in production. That meant Alaskan natives got money. The oil companies’ eagerness to exploit the North Slope and get the oil to market created pressure that led to the creation of national parks and wildlife refuges of unprecedented size for the nation and generous oil royalties for Alaskans. The royalties were so large, Alaska’s political class was forced to share them with Alaska residents in unique ways. Half the oil royalties go into the state’s treasury to finance state government. The other half of Alaska’s oil royalties are invested in a constitutionally protected “Permanent Fund,” professionally managed in stock market investments. Every Alaskan receives an annual “dividend” from the earnings of the Permanent Fund. Some 671,000 Alaskans share millions in oil royalty earnings and pay modest state taxes. If the whole scheme seemed too good to last, it was. During the go-go years of the 1990s, the stock market produced so much in earnings that Alaskans were sharing an annual dividend of just under $2,000 for every man, woman and child in the state. The stock market’s lackluster performance over the last five years has reduced Alaskans’ Permanent Fund dividend to around $800 this year. Alaskans are not amused. Alaska’s oil royalties are calculated on the number of barrels of crude oil that pass through the Alaska Pipeline. As oil production on the North Slope stabilized, the royalties did too. But the cost of maintaining government in Alaska keeps rising -- Alaska, like other remote locations with extreme climates, is an expensive place to live. Any Alaskan politicians first priority is to keep oil moving through that pipeline in order to keep royalties flowing into the state treasury and the Permanent Fund. In 1998, Alaska Sen. Ted Stevens successfully used the Republican-controlled Congress to blackmail President Bill Clinton into repealing the ban on exporting Alaska oil in exchange for unrelated legislation Clinton wanted. Repeal created a spike in oil moving through the Alaska Pipeline, boosting the state’s royalties for a short time. About 20 percent of the oil from Alaska is now exported to Japan, Korea and China. But this boost was soon offset by the oil companies that shut down refineries on the West Coast as the industry “consolidated” in a frenzy of buyouts and mergers. Now oil passing through the Alaska Pipeline has stabilized again -- along with Alaska’s royalties. The relentless effort to open ANWR is part of Stevens’ strategy for boosting Alaska’s oil royalties. In the larger national oil consumption picture, the estimated reserves under ANWR are small. The oil will help meet American -- and Asian -- consumption for less than a year. But every barrel means more royalties flowing through Alaska's treasury and the Permanent Fund. But what’s good for Alaska is not necessarily good for the rest of the country. Stevens is helping maintain our de facto energy policy -- Drain America First. It would be smarter in the long run to emphasize more efficient energy consumption and stretch our country’s limited remaining domestic oil reserves as a hedge against a political disruption of our foreign oil supplies. But energy efficiency doesn’t put any new royalties in Alaska’s treasury, so Sen. Stevens has no incentive to pursue it. Copyright ©2005 by Russell Sadler Russell Sadler is a journalist and a lecturer at Southern Oregon University. You may write him c/o publisher at westbynorthwest.org. Visit Sadler's Sense column's at West By Northwest.org: Sadler's Sense: Holly, Folly and Why Its Ok to Cut Christmas Trees Sadler's Sense: We Need the Constitutional Limits of the Initiative Process Sadler's Sense: Learning from the Katrina Moment Sadler's Sense: A Right to Die? Sadler's Sense: Who Are These Candidates Representing? 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