Drilling the Arctic won't create a significant number of jobs.
One big reason the House voted to allow oil drilling in the Arctic Refuge: The Teamsters union pushed hard for it. But the Teamsters made their case to lawmakers by citing an oil industry study that's been widely discredited over the last decade. Read on to learn about some of the major flaws in this study.
Back to THE ARCTIC NATIONAL WILDLIFE REFUGE: POLICY REPORTS AND ANALYSES
In early August, the House of Representatives passed the "Securing America's Future Energy Act" (H.R. 4) that included a provision opening Alaska's Arctic National Wildlife Refuge coastal plain to oil drilling. The bill, which mirrored Vice President Cheney's energy task force recommendations, got a boost from President Bush's support. But it was the Teamsters union that played the pivotal role in securing its passage. According to Rep. Ed Markey (D-Mass.), "If labor hadn't weighed in, the environment would have won."1
The Teamsters used a misleading oil industry study to persuade lawmakers that drilling in the Arctic Refuge would generate more than 700,000 jobs nationwide. The 1990 study, which was produced by Wharton Econometric Forecasting Associates (WEFA) for the American Petroleum Institute (API), has been discredited by a number of independent analyses over the last decade. Those analyses found that the number of jobs that could be generated by oil development in the Arctic Refuge would be significantly less than WEFA's projection, and many of those would be temporary. Below NRDC provides a look at some of the major flaws in the WEFA study.
Oil Development Wouldn't Generate a Significant Number of Jobs
The WEFA study predicted that Arctic Refuge development and oil production would generate 735,000 jobs.2 How did WEFA arrive at this conclusion? It assumed that oil from the refuge would lower world oil prices by as much as $3.60 a barrel, which would have a ripple effect on the U.S. economy, producing jobs in the petroleum, trucking, steel, shipping and manufacturing industries nationwide.3
How credible is the WEFA job scenario? A number of critiques found it implausible.
- In 1992, the Congressional Research Service (CRS) concluded that WEFA's estimate of employment gains and effects on GNP were "generous" and were based on "the more, or most, optimistic of underlying scenarios."4 A more recent CRS report, issued in October, predicted that oil drilling in the refuge would generate 60,000 to 130,000 jobs.5
- In 1994, economist Eban Goodstein, who analyzed the WEFA numbers for the Economic Policy Institute, argued that a more sensible calculation would have attributed job gains to an increase in demand for labor and domestic capital goods generated by oil development. Using that yardstick, Goodstein concluded drilling in the Arctic Refuge would generate only 55,000 jobs nationwide -- less than 8 percent what the WEFA study predicted -- for a period of five years.6
- In 1996, the Oil, Chemical and Atomic Workers Union -- which represents hundreds of workers in the Alaska oil fields -- came out in support of protecting the Arctic Refuge from drilling. In a letter to President Clinton, OCAW (now the Paper, Allied-Industrial, Chemical and Energy Workers International Union (PACE)) said the oil industry's claims that Arctic Refuge development would produce hundreds of thousands of jobs across the country are "highly dubious." According to the union, the industry's job estimates "derived from an economic model based on the effects of presumed lower oil prices across the nation and is not a characterization of new, real oil patch of manufacturing jobs."7
- In September 2001, Dean Baker, an economist at the Economic Policy Institute, found that the WEFA study's conclusions rested on "clearly wrong and improbable assumptions." Basing his calculations on current estimates for oil prices and Arctic Refuge oil reserves, and the relationship between U.S. employment and global oil markets, Baker projected that refuge development would create only 46,000 new jobs, many lasting a decade at most. According to Baker, "This number of jobs is fewer than what the economy generated in an average week over the years 1997 through 2000."8
Arctic Refuge Oil Would Not Lower World Oil Prices
The WEFA study's job projections are predicated on the unsupportable assumption that Arctic Refuge oil would lower world oil prices by as much as $3.60 per barrel. Americans consume 25 percent of the world's produced oil, but our nation holds less than 3 percent of the world's oil reserves.9 The amount of economically recoverable oil in the refuge, according to U.S. Geological Survey (USGS) estimates, would increase world reserves by only 0.3 percent -- not nearly enough to significantly cut our imports, and too little to influence world prices.10 A 1996 CRS report stated as much. "[T]he anticipated quantity of [Arctic Refuge] production is very small relative to the total world oil supply," CRS said. Any global market price change due to refuge oil would be "either exceedingly small or uncertain."11
WEFA also overstated the amount of economically recoverable oil in the refuge at 9.2 billion barrels, which it conceded was a "high case" scenario.12 The most recent USGS analysis projected that the amount of economically recoverable oil -- the fraction that can be extracted, transported and sold at a profit at various prices -- is 3.2 billion barrels at $20 a barrel.13 WEFA based its economic projections on a price of nearly $45 per barrel.14 The price of a barrel of oil, however, has been under $20 for seven of the last 10 years, and is expected to be well below $30 over the next decade. In fact, earlier this year, Alaska's Department of Revenue forecast a steady price drop to less than $13 per barrel in 2009 to 2010 -- about the earliest date that refuge oil would reach refineries if exploration and development started now.15
Finally, WEFA ignored the very real possibility that the Organization of Petroleum Exporting Countries (OPEC) could lower its production in response to a new U.S. supply from the Arctic Refuge. In fact, such a scenario played out this summer when Iraq re-entered the world oil market. OPEC responded by cutting production by 1 million barrels per day to shore up world prices. "It would be child's play for the OPEC countries to neutralize any impact of oil from the Arctic Refuge on world oil prices," Philip Verleger, an economist and oil analyst, commented at the time.16
Energy Efficiency Would Create More Jobs than Drilling in the Refuge
Improving fuel efficiency would decrease U.S. dependence on foreign and domestic oil and help prevent future energy shocks by reducing demand. Fuel efficiency also could save more oil than could be economically extracted from the Arctic Refuge. Using government data, for example, NRDC estimated that raising vehicle fuel economy standards to 40 miles per gallon over the next decade could save more than 50 billion barrels of oil over the 50-year lifespan of the refuge oil fields -- 10 to 15 times more oil than the refuge could yield. Likewise, requiring tire manufacturers to sell replacement tires that have as low rolling resistance as original equipment tires could save about 5.4 billion barrels of oil over the next 50 years -- 70 percent more than the total amount of oil that could be economically extracted from the refuge.17
Beyond these savings, investing in the energy efficiency of our nation's automobiles, homes and businesses would create substantially more jobs than comparable investments in oil production. For example, a study conducted by the Tellus Institute in 1993 for The Wilderness Society projected that improving energy efficiency and motor vehicle efficiency would generate more than 1.3 million jobs in 15 years.18
Energy-efficient technology and services produce far more new jobs than increased oil production. This is because oil production is one of the least labor-intensive industries. According to Howard Geller of the American Council for an Energy Efficient Economy (ACEEE), energy efficiency increases job opportunities in more labor-intensive economic sectors -- manufacturing, construction, retail and service industries -- and would create 185 percent more jobs than domestic oil production. While oil production supports fewer than three direct jobs per million dollars of investment, energy efficiency supports nine commercial sector jobs and 18 industrial sector jobs per million dollars of investment, according to Geller's analysis.19
In the mid-1990s, ACEEE did two studies that showed that energy efficiency initiatives in only a handful of states would generate many more jobs than drilling in the Arctic Refuge. A 1995 ACEEE study estimated that by implementing energy efficiency measures, Illinois, Ohio, Minnesota and Indiana could increase net employment from 3,000 jobs in 1995 to 205,000 by 2010.20 A 1997 ACEEE study projected that similar energy efficiency policies in New York, New Jersey and Pennsylvania could reduce their collective energy use by more than 20 percent, save them $150 billion in energy expenditures, create 164,000 jobs, and cut air pollution 24 percent.21
ACEEE estimates that investments in energy efficiency are 150 percent more productive than investments in energy production.22 Last year, an Energy Department study arrived at similar conclusions. It found that $1 spent on petroleum production creates only $1.51 in economic value to our economy, while that same dollar, when invested in energy efficiency programs and incentives, creates $2.23 in economic value.23 Dollars earmarked for energy efficiency stay within the United States, while petroleum expenditures are typically "lost" to the profits of foreign energy suppliers.
While the ACEEE studies are projections, Sacramento provides a real-world example of the economic benefits of energy efficiency. After spending $59 million on energy efficiency technologies, the Sacramento Municipal Utility District (SMUD) saved $45 million on power, created 880 direct-effect jobs (250 of which were SMUD jobs), and increased regional income by $124 million. 24
1. The Teamsters' position is not endorsed by organized labor as a whole. An NBC/Wall Street Journal poll released this spring found 62 percent of union households oppose drilling in the refuge. In July, the United Electrical, Radio and Machine Workers of America (UE) issued a statement urging House members to support Rep. Ed Markey's amendment to strip Arctic Refuge drilling from the House energy bill. Other major unions that recently announced their opposition to Arctic drilling include the 630,000-member Communications Workers of America, the National Federation of Independent Unions, the National Writers Union, and the 1-million-member Service Employees International Union.
2. The WEFA Group, "The Economic Impact of ANWR Development," Prepared for the American Petroleum Institute, May 1990, p. 3.
4. Gelb, Bernard, "ANWR Development: Analyzing Its Economic Impact," Congressional Research Service, February 12, 1992.
5. Gelb, Bernard, "ANWR Development: Economic Impacts," Congressional Research Service, October 1, 2001.
6. Goodstein, E.B., "Jobs and the Environment: The Myth of National Tradeoffs," Economic Policy Institute, 1994. (http://www.lights.com/epi/virlib/Studies/1994/jobsa.pdf)
7. Alaska Coalition, "The Arctic Truth," Volume 1, Issue 118, July 31, 2001.
8. Baker, Dean, "Hot Air Over the Arctic: An Assessment of the WEFA Study of the Economic Impact of Oil Drilling in the Arctic National Wildlife Refuge," Center for Economic Policy and Research, September 5, 2001.
9. Energy Information Administration, "U.S. Crude Oil, Natural Gas and Natural Gas Liquid Resources, 1999 Annual Report," DOE/EIA-0216 (99) (December 2000).
11. Corn, Lynne, et al., "CRS Issue Brief: Arctic National Wildlife Refuge," Congressional Research Service, September 5, 1996. (http://www.cnie.org/NLE/CRSreports/Biodiversity/biodv-14.cfm)
12. WEFA study, p. 6.
13. Bird, Kenneth J., "Assessment Overview: The Oil and Gas Resource Potential of the Arctic National Wildlife Refuge 1002 Area, Alaska," U.S. Geological Survey, USFS OFR 98-34, 1999.
14. WEFA study, p. 56.
15. Lovins, Armory and Hunter, "Fool's Gold in Alaska," Foreign Affairs, July/August 2001.
16. Quoted in Oil Daily, July 26, 2001.
17. Lashof, Daniel et al., "Oil from the Arctic National Wildlife Refuge: Too Little, Too Late," Natural Resources Defense Council, 2001. (http://www.nrdc.org/air/energy/rep/repinx.asp
18. Breslow, Marc, et al., "Creating Jobs for the '90s: A Report to the Wilderness Society," The Tellus Institute, 1993. (A .pdf file of the Tellus report is available from NRDC.)
19. Geller, Howard, et al., "U.S. Oil Import Dependence and How It Can Be Reduced," Energy Policy 22 (6) 471-485, 1994.
20. Laitner, Skip, "Energy Efficiency and Economic Development in the Midwest," American Council for an Energy Efficient Economy, 1995.
21. Nadel, Steven, et al., "Energy Efficiency and Economic Development in New York, New Jersey, and Pennsylvania," American Council for an Energy Efficient Economy, February 1997.
22. Laitner, Skip, "Energy Efficiency and Job Creation: The Employment and Income Benefits from Investing in Energy Conserving Technologies," American Council for an Energy Efficient Economy, 1998.
23. DOE Interlaboratory Working Group, "Scenarios for a Clean Energy Future," November 2000. (http://www.ornl.gov/ORNL/Energy_Eff/CEF.htm)
24. DOE Interlaboratory Working Group, "Scenarios for a Clean Energy Future," November 2000. (http://www.ornl.gov/ORNL/Energy_Eff/CEF.htm)
last revised 11.02.01
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