Course:ECON371/UBCO2010WT1/GROUP1/Article6
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Article 6: Justice Dept. strikes back against Alaska gov. on drilling lawsuit
Summary
The article discusses the legal discourse between the Alaskan Government and the Interior Department of the United States in the wake of the BP oil spill. Alaskan Governor Parnell accuses Interior of illegally blocking and preventing any off shore drilling companies (specifically, Royal Dutch Shell) to establish or develop within the Federal waters off of the Alaskan Coast. Interior continues to state that safety regulations still need to be formed, and development studies need to be conducted within the region.
Royal Dutch Shell has continued to press Interior and the Obama administration to allow the company's plan to proceed and they plan on lobbying the government. The Interior Department continues to abide by the need to improve and change the safety regulations of off shore drilling to prevent another oil spill. Though this restriction is amplified by the impact of the BP oil spill, prior to the BP spill Interior had squashed four plans for new lease sales in Arctic waters, citing the same logic they have regarding this case. Interior believes there is still more need for study of development in the area, though they are planning allowing wider offshore leasing eventually.
The lawsuit filed against the interior department does not hold up for multiple reasons. For one, the lawsuit does not contain any valid injury to the state because Shell did not technically have drilling permit application before the lawsuit in September. There was no proposal for the department to approve, deny, defer or delay. The lawsuit also failed to prove the policies are cutting tax revenues from the state of Alaska, because the proposed location of the off shore drilling is located in Federal waters far enough offshore that Alaska is not entitled to revenue shares.
Analysis of Article
The underlying dilemma of this article regardless of the validity of the Alaskan government's lawsuit is economic wealth VS environmental safety. On one side, allowing the drilling proposal will definitely increase the total output of oil, create jobs, and therefore result in an outward shift of the U.S.’s production possibilities frontier. However, without enough additional reliable information about spill risks and spill response capabilities, the drilling of oil will in fact increase the risk of environmental pollution.
After the Gulf of Mexico, countries are more cautious in regulating policies about environmental protection, pollution prevention, and abatement. This is especially true in the case of large scale operations with a potential for large scale, border crossing environmental impacts . The blocking of Shell’s oil drilling is part of a broader review of oil and gas safety. The action that has been taken is a cautious approach to offshore oil and gas development as it has strengthen safety and oversight of offshore oil and gas operations.
Given the transboundary property of ocean waters, it is true that the state government should have little to no absolute power to control ocean related resources; however, is it also true that if there is an environmental issue offshore, the bordering states' governments will have to step in. Seeing that Shell has a history of oil spills and the catastrophe of the BP spill is still fresh in the public's memory, it is understandable that Obama and the Interior Department are making cautious decisions.
If for example, Obama allows the construction of the offshore plant, externalities will be generated by the plant. Eventually, the state government will need to use their money and clean up the coast. Alaska’s expected values will be negative. This may also cause taxes to increase which will not favour well with Alaskan citizens. Regardless of the cost's magnitude, seeing that “Alaska is not entitled to any revenue-sharing,” it would be a logical reaction for the Alaskan government to say no to Shell. Not to mention, if Shell's drilling off the coast of Alaska resulted in a catastrophic oil spill, it would likely affect Alaska the most.
Externalities will be generated by the plant whether or not a spill occurs; these will affect the ecosystem in the ocean and along the coast. The fishing and tourism industries will have to suffer the externalities. Thus it would also be understandable if some citizens from Alaska were against Royal Dutch Shell's development in the Federal waters off of the Alaskan Coast.
Conclusions
In conclusion, allowing Shell to drill will definitely increase the social cost in Alaska, but this cost may vary. In the aftermath of the Gulf oil spill, countries are strictly adhering to the precautionary principle, by taking caution in advance. The review of oil-and-gas safety that begun after the Deepwater Horizon rig blew up in the Gulf of Mexico is an example of such precautionary principle. By doing this, they will be able to anticipate any harm, based on scientific evidence, that may be caused to the environment from drilling. In the Alaska lawsuit case, the U.S has put environmental safety at the top of its scale of preference, by priorotizing environmental safety over the increase in the wealth of the nation. Regarding the validity of the Alaskan government's lawsuit, it would seem that it is lacking. Not only is it without merit, but it would seem from the article, and our analyses (specifically regarding the fact that Alaska is not even entitled to revenue-sharing if the well is more than 3 nautical miles from the coast, which the plans were for) that the Alaskan government should not even want the drilling to occur.
Prof's Comments
It should be noted that when something ends up in court, it is often a fight about clarifying property rights. It appears that the relevant property right, the right to regulate and to extract royalties, belongs to the federal government. The liability question then becomes about whether the Federal government would be liable for damages in Alaska, or whether it has the free right to damage Alaska, and the Alaskans have to pay the feds to change their behavior, a la Coase.