Executive Summary

This report offers a responsible approach to meeting America's energy requirements. In contrast to recent energy pronouncements by the Bush administration, the path outlined here addresses America's need for energy in a way that is economically reasonable, equitable and environmentally sound. And it is balanced, recognizing the need to extract resources, while proposing a range of environmentally preferred ways to increase supply and energy-efficiency improvements that could substantially reduce the demand for energy without forcing Americans or American industry to make sacrifices.

The cornerstone of NRDC's (Natural Resources Defense Council) plan is increased energy efficiency, relying not on pie-in-the-sky, undeveloped technologies, but on already available and cost-effective processes and technologies. In the short-term, the plan calls for increased reliance on natural gas as a bridge to renewable and environmentally sound energy sources in the future. Correspondingly, the plan calls for reducing U.S. reliance on dirtier fossil fuels -- oil and coal. And the plan addresses the urgent needs of low-income households for affordable energy services.

In sharp contrast to NRDC's common sense approach is the Bush administration's controversial energy initiative. Among other things, it calls for opening the Arctic National Wildlife Refuge coastal plain to oil drilling and development, and for rolling back environmental safeguards to pave the way for more fossil fuel development. Already the plan has come under severe criticism for the irreparable harm it would cause pristine areas of the wildlife refuge. That criticism is entirely accurate. But there is another fundamental reason to reject the proposal: It is completely unresponsive to the problems it purports to address. It would make virtually no difference to America's energy supply in the short- or long-term, it would have no impact on energy prices, and it would have no practical effect on America's dependence on foreign sources of oil.

Responsible Oil Policy: Fuel Efficiency, Not Foolish Development of the Arctic National Wildlife Refuge

Key recommendations:

• Provide tax credits to individuals who buy clean and efficient advanced-technology vehicles employing hybrid gasoline-electric drive.
  
  
• Raise fuel economy standards for new cars, sport utility vehicles (SUVs) and other light trucks to an average of 39 miles per gallon over the next decade.
  
  
• Require replacement tires to be as fuel-efficient as the original tires on new vehicles.
  
  
• Expand programs to weatherize low-income Americans' housing and help pay their energy bills.
  
  
• Provide incentives for smart-growth development patterns that reduce sprawl.
  
  
• Do not drill the Arctic National Wildlife Refuge.
  
  
• Do not drill in sensitive offshore areas, including moratorium areas, Alaska, and the eastern Gulf of Mexico.
  
  
• Maintain existing protections for sensitive onshore public lands and extend protection to other special places.

The reality that proponents of drilling in the Arctic National Wildlife Refuge refuse to acknowledge is that the United States cannot drill its way out of its energy problem. America has 5 percent of the world's population, but consumes nearly a quarter of the world's oil supply. It already has extracted the majority of its available oil. The obvious conclusion is that the United States can have a much greater impact on oil prices worldwide and can do more to help ensure its own economic security by cutting its demand.

Indeed, fuel efficiency improvements can deliver more oil, more quickly and more cheaply than the Arctic Refuge. For example, simply upgrading the quality of replacement tires to match that of tires that come as standard equipment on new cars would save 5.4 billion barrels of oil over the next 50 years -- 70 percent more than the total amount of oil that would likely be pumped from the Arctic Refuge over the same time period. Updating fuel efficiency standards to reflect the capabilities of modern technology would produce even greater savings. Increasing fuel efficiency standards for new vehicles to an average of 39 miles per gallon over the next decade would save 51 billion barrels of oil over the next 50 years -- more than 15 times the likely yield from the Arctic Refuge.

Drilling the Arctic Refuge is Unresponsive to America's Energy Needs

The case for drilling the Arctic National Wildlife Refuge made by the Bush administration and its supporters on Capitol Hill makes no sense. Proponents wrongly present drilling as a solution to the current California energy crisis. They overstate how much oil will be pumped. They understate the environmental consequences. In fact, drilling in the Arctic Refuge coastal plain would have no bearing on California's current crisis, would cause huge and unnecessary environmental damage, would do nothing to address America's long-term need for greater energy efficiency, would not affect the price of gasoline at the pump, and would not significantly reduce U.S. dependence on foreign oil.

The available oil from the Arctic National Wildlife Refuge is a drop in the bucket of America's energy needs. The best U.S. Geological Survey estimate is that less than a six-month supply of oil could be economically recovered from the Arctic Refuge (about 3.2 billion barrels, spread out over a 50-year period), and that it would take at least 10 years of exploration, drilling and pipeline construction before the oil would reach refineries. In its peak year of production -- 2027 -- the Arctic Refuge would yield less than 2 percent of projected U.S. consumption in that year.

Proponents overstate how much oil would be extracted from the Refuge. Proponents of drilling maintain that as much as 16 billion barrels of oil would be pumped from the Arctic Refuge. The claim is a gross exaggeration that ignores the U.S. Geological Survey's conclusion that about 60 percent of the oil in the Arctic Refuge would not be economically feasible to produce. Even if there were 16 billion barrels of oil available in the Refuge, more than three times as much could be saved by raising vehicle fuel economy standards to an average of 39 miles per gallon.

Drilling in the coastal plain would have no impact on California's electricity problems or any other state's electricity problems. Most U.S. electric power plants do not use oil. Less than 1 percent of California's electricity is generated by burning oil, and the average for the United States as a whole is only 3 percent. And as noted above, oil from the Refuge would not flow to refineries for at least a decade.

Drilling in the Arctic National Wildlife Refuge would have no impact on the price of energy. The oil market is global, and Refuge oil would expand global oil reserves by just 0.3 percent -- a quantity far too inconsequential to affect prices at the pump or elsewhere.

Drilling in the coastal plain would spoil an irreplaceable natural treasure. America's Arctic is a fragile wilderness that would be ruined by oil drilling.

Responsible Electricity Policy: Clean Air, Energy Efficiency, Conversion to Renewables

Key recommendations:

• Establish a national "system benefits" fund to promote energy efficiency, support research and development, and maintain universal service.
  
  
• Establish a federal "portfolio standard" to ensure that renewable energy steadily increases its market share at minimum cost.
  
  
• Extend the renewable energy production tax credit, which encourages greater reliance on emerging renewable energy sources.
  
  
• Provide tax incentives for advanced energy-efficient buildings and appliances.
  
  
• Strengthen energy-efficiency standards for appliances and buildings.
  
  
• Establish comprehensive limits on air pollution from power plants covering emissions of carbon, nitrogen, sulfur and mercury.
  
  
• Require full disclosure to customers about the sources and environmental impact of their electricity.
  
  
• Reject new subsidies for so-called "clean coal" technology and nuclear power, and eliminate existing subsidies.

Another form of energy in the news today is electricity. As Californians suffer through an unprecedented electricity crunch, politicians a continent away are beginning to debate the causes of -- and solutions to -- the shortfall.

Contrary to suggestions from the White House, the California crisis is not a function of pollution regulation, and it will not be solved by drilling in the Arctic National Wildlife Refuge. The real reasons for the crisis include a market structure that failed to ensure long-term supplies as a hedge against volatile spot market prices, rapid consumption growth in neighboring states that is overloading the interstate power grid, cutbacks in electricity infrastructure investment throughout the West, and reduced hydropower generation due to low rainfall. As if all of that were not enough, investigations continue of alleged anti-competitive practices by power generators.

Also contributing to the crisis is a contraction in available natural gas supplies, leading to higher costs (almost one-third of California's electricity is generated with natural gas). Again, the upswing in natural gas prices is partly the result of industry decisions to forego exploration and cut storage levels after years of low commodity prices. Another contributor to natural gas price increases is a short-term reduction in pipeline capacity in the Southwest, due to an explosion last summer.

California already has acted to reduce its exposure to volatile short-term electricity markets by providing for a more balanced portfolio of longer-term purchase contracts. Looking ahead, the fastest, cheapest and cleanest response to the electricity crisis is to take advantage of the state's many immediate opportunities to ramp up its energy-efficiency and renewable-energy investments. These measures already are contributing more than 15,000 megawatts to the Western power grid, which never needed them more. And the California Energy Commission has just issued emergency upgrades for efficiency standards governing all new buildings, which will yield the equivalent of two giant coal-fired power plants (1,000 megawatts) in the next five years. Also, last September, the Legislature and Gov. Gray Davis created a 10-year, $5.5 billion investment fund for energy efficiency and other sustainable energy technologies. The current California legislative session should help the state do more, starting with a large additional energy-efficiency and renewable energy investment from California's budget surplus.

California also needs more highly efficient natural-gas-fired power plants. NRDC and other environmental groups support the ongoing additions of such plants, which have had no difficulty meeting California's siting requirements. Since April 1999, nine plants totaling nearly 6,300 megawatts have received siting approval. Six are under construction, and at least three are expected to be on-line by the end of this year (2,368 megawatts). At least 14 more plants capable of generating about 7,000 megawatts are poised to follow, rebutting claims that environmental safeguards are somehow preventing additions of generation capacity. The new plants (both renewable and fossil) are dramatically cleaner than their aging gas- and coal-fired competitors across the Western power grid. Indeed, the capacity additions anticipated over the next several years are both clean and large enough to begin improving air quality by displacing those dirtier competitors during at least some hours of the year.

Nonetheless, President Bush said recently, "If there's any environmental regulations . . . preventing California from having a 100 percent max output at their plants -- as I understand there may be -- then we need to relax those standards." But as reported by the Los Angeles Times on January 25, Richard Wheatley, spokesman for Houston-based Reliant Energy Co., which operates four Southern California power plants, said that the assertion that environmental regulations are holding back output "is absolutely false. We're making every megawatt available on request. We factor the air quality regulations into our daily operating basis, and they are not causing us to withhold power." The Times could find only one small, obsolete plant that had to suspend operations temporarily to comply with air quality standards, and it accounted for less than 0.2 percent of California's peak power needs.

In the long-term, the best path for California is the best path for America: strong clean air standards, increased reliance on energy-efficiency measures; a shift away from obsolete, inefficient fossil-fueled plants as a source for electricity; and, eventually, full conversion to renewable and environmentally sound forms of energy.

Taken together, these measures will reduce power plant pollution. The electricity-generating sector today is the single largest source of the four pollutants responsible for the most serious local, regional, national and global air pollution problems we face. These "four horsemen" of power plant pollution are: sulfur dioxide (causing acid rain and producing fine particles), nitrogen oxides (causing ozone smog), mercury (a neurotoxin) and carbon dioxide (causing global warming). Policies to limit air pollution are balkanized and based on outdated assumptions, resulting in excessive emissions and distorted electricity markets. As a result, support is growing for integrated requirements to reduce the four horsemen. A major benefit of an integrated pollution cleanup approach is that it would provide a clear road map for business in planning long-term investments.

Large pollution reductions can be achieved at reasonable cost while meeting America's electricity needs by maximizing energy efficiency and reliance on renewable energy technologies. Market barriers have inhibited the widespread deployment of environmentally preferred electricity demand and supply options. Two of the most effective and market-compatible public policies to address this problem are "public goods" or "system benefits" funds, and renewables portfolio standards.

A public goods or system benefits charge -- a small surcharge on customers' electricity bills -- can help fund cost-effective, long-term investments in energy efficiency, low-income services and renewable energy resources. At least 20 states have some form of system benefits charge.

Renewables portfolio standards encourage greater diversity of energy resources, which enhances reliability, by requiring that electricity providers include a minimum percentage of renewable energy resources in the electricity mix they deliver to their customers.

Responsible Natural Gas Policy: Sensible Extraction, Sensible Pipeline Siting

Key recommendations:

• Provide tax incentives for the construction of energy-efficient buildings and for manufacturing energy-efficient heating and water-heating equipment.
  
  
• Adopt a comprehensive pipeline approach ensuring that pipelines are constructed and operated in an environmentally sensitive manner with strong safety oversight and, whenever possible, along existing routes.
  
  
• Reject plans to construct an offshore pipeline off the Arctic National Wildlife Refuge coastal plain.
  
  
• Plan an Alaska gas pipeline if needed to deliver Prudhoe Bay gas to the lower 48 states that follows the Trans-Alaska Pipeline System and the Alaska-Canadian Highway right-of-ways, complies with all U.S. and Canadian environmental laws, has a thorough new environmental impact statement, and incorporates the best pipeline safety and environmental measures.
  
  
• Do not drill in sensitive offshore areas, including the moratorium areas, Alaska, and the eastern Gulf of Mexico.
  
  
• Maintain existing protections for sensitive onshore public lands and extend protection to other special places.

Of the three fossil fuels that dominate the U.S. energy market, natural gas is by far the cleanest burning fuel. It is, therefore, a key part of NRDC's energy policy -- the bridge to greater reliance on cleaner and renewable forms of energy. Increased energy efficiency in homes and factories not only would lower consumers' energy bills; it would free up large amounts of natural gas to help meet the needs of new highly efficient combined-cycle (combustion and steam turbine) power plants. Stronger and better-enforced building codes augmented by tax incentives for constructing buildings that exceed code requirements would pay a double dividend: lower heating and electric bills, and less pollution.

But natural gas is not sufficiently clean to be considered the long-term answer to America's energy needs. Extracting gas, transporting it to market, and burning it all cause pollution in various forms.

NRDC recognizes the need for continued exploitation of America's natural gas resources, but believes that certain federal lands should be afforded special protection. This applies to existing protected areas, including roadless national forests and the Rocky Mountain Front. Additional areas that should be protected include Wyoming's Red Desert, Utah's fabled red rock country, and the area in and around Vermillion Basin in northwest Colorado.

Industry and its champions in Washington sometimes assert that America's public-lands natural gas resources have been put off limits, but in fact, 95 percent of onshore federal public lands in the Rocky Mountain region managed by the Bureau of Land Management are open to exploration and production leasing. Similarly nearly 70 percent of the nation's untapped economically recoverable offshore oil and gas resources are open for these purposes. Oil and gas development should be excluded from sensitive offshore areas, including existing moratorium areas, Alaska, and the eastern Gulf of Mexico.

Another important natural gas issue involves siting pipelines to carry gas from drilling sites to market. NRDC believes that pipelines should be constructed and operated in an environmentally sensitive manner with strong safety measures and oversight and, whenever possible, along existing routes. For example, plans to construct an offshore pipeline off the Arctic National Wildlife Refuge coastal plain should be rejected. Instead, if Prudhoe Bay gas supplies are needed to serve markets in the lower 48 states, any Prudhoe Bay natural gas pipeline should follow the Trans-Alaska Pipeline System and the Alaska-Canadian Highway right-of-ways, undergo a thorough new environmental impact statement, comply with all U.S. and Canadian environmental laws, and incorporate the best pipeline safety and environmental measures.

Conclusion

Eventually the United States will have no choice but to turn to greater energy efficiency and renewable sources of power. Demand for fossil fuels surely will overrun supply sooner or later, as indeed it already has in the case of U.S. domestic oil drilling. Recognition also is growing that the air and land can no longer absorb unlimited quantities of waste from fossil fuel extraction and combustion. As that day draws nearer, policymakers will have no realistic alternative but to turn to power sources that today make up a viable but small part of America's energy picture. And they will be forced to embrace energy efficiencies -- those that are within our reach today, and those that will be developed tomorrow. Precisely when they come to grips with that reality -- this year, 10 years from now, or 20 years from now -- will determine how smooth the transition will be for consumers and industry alike.

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