Here's a key to understanding national politics. Politicians are rewarded when they advance policies with immediate benefits and distant costs. Under current arrangements, oil exploration and development in the Arctic National Wildlife Refuge (ANWR) fails this test.

Yet, last week a page one feature in the Wall Street Journal, "Influence Market", lead with the statement "Industries that Backed Bush Are Now Seeking Return on Investment". In the past election the oil industry donated more than ever, $32 million, 80% to "Republican causes". Roger Herrera, head of the lobbying effort drill ANWR opined, "all the stars are aligned this year".

But for whom? For President Bush only if he is highly innovative and persuasive. Here's why. There are huge and immediate political costs to drilling in ANWR but about 10 years to develop a remote oil field.

The Greens have won a political veto on energy exploration and production on environmentally sensitive federal lands. Some of the shortfalls we face in energy production are a predictable consequence.

This offers America an opportunity to explore new institutions that promote responsible energy development while protecting environmental values. The Bush administration could foster superior arrangements for managing and protecting natural resources. Such reforms must respect three principles:

… prices must reflect real costs, including environmental costs,

… institutions that create incentives to act responsibility and consider these costs, and

… recognize that while markets coordinate wonderfully, they ignore much that is intangible and often destroy that which has no price and no owner.

Numerous environmental groups, including the Sierra Club and the Wilderness Society, adamantly oppose any development on the ANWR. It's easy for the Greens to yell "NO!" to oil exploration when they gain nothing from its development but can raise funds to fight it. However, if these organizations gained control over the oil royalties from ANWR, their incentives would change dramatically. Here's an idea for Bush.

When considering potential exploration of a sensitive site, permit environmental groups to bid not money, but rather environmental projects funded from the oil and gas revenues. The Sierra Club, for example, may bid to recover 10 urban brownfields, restore 100 miles of specified salmon spawning streams, and buy easements to protect the habitat of an endangered species. Other groups would offer competing bids: for example proposing to preserve 10,000 acres of ancient redwood forests in northern California.

Bids expressed in dollars are easy to compare. However, when bidders compete to provide environmental services, comparison is inherently difficult and subjective. How does one weigh the value of preserving 10,000 acres of estuary with that of restoring 15 miles of salmon stream and 5 brownfields? There simply is no clear answer. Only a panel of knowledgeable, respected individuals could evaluate the tradeoffs and defend their decisions.

For example, the National Academy of Sciences could evaluate bids. Based on their recommendations, the Minerals Management Service of the Department of Interior would award drilling rights to the groups offering the most environmentally valuable and promising proposals.

Developing an oil and gas field is not like finding a treasure chest and counting the gold. When first discovered, no one knows either the value or the volume of the resource. How much one gets depends upon how and when it's gotten.

The economics supporting this proposal is straightforward. When an organization owns a resource, it sets constraints on development. It can place environmental standards at any level, e.g., "to minimize impact, all exploration must be from helium balloons". However, they face the costs of such silliness.

There is an optimal amount of care. But only when people face the consequences of their actions do they have incentives to find it, e.g., on ANWR all exploration must occur when the ground is frozen and must cease while caribou are calving.

No Green organization will operate an oil field. Rather, just like Audubon and other conservation groups with oil properties, the winners will contract with professionals. The contracting companies would bid on two margins, royalties and environmental sensitivity.

Oil exploration is an evolutionary process. The technology is improving dramatically and the footprint of exploration has become ever lighter. Bush's challenge is to advocate policies which incorporate this progress and harmonize it with our heightened environmental sensitivities. Otherwise, the stars are aligned to favor Green Peace not George W.