Breaking the senseless impasse on ANWR and OCS exploration and development – a tax and rebate proposal
It’s long been obvious that:
(1) government policy concerning the use of public lands is highly bureaucratized, often inept and subject to behind the scenes sweet deals favoring insiders;
(2) discussions about how the public lands should be used often very politicized;
(3) politicization is especially prominent with respect to public lands that have potentially high commercial value but where development requires additional approvals from legislators or others outside of the Administration/regulatory bureaucracy – such as the Arctic National Wildlife Refuge (ANWR) and the native lands within it, which cannot be explored without Congressional approval, and the Outer Continental Shelf (OCS), further development of which has been blocked both by Executive Order and by annual moratoria imposed by Congress, with the strong backing of many coastal states that wish to protect their tourism industries; and
(4) supporters on both sides – whether for development of ANWR and OCS or for the continued preservation of wildlife, recreation or tourism values or protection of other objectives – have perfectly legitimate interests, and excellent arguments to make (and some not so excellent) in support of those interests.
But it has not been so obvious that the different interests are in fact irreconcilable, especially when one notes how well conservation groups that own land have been able to balance their conservation objectives with active resource extraction – which can be done carefully while providing revenues for other activities. In fact, I suppose that if any of the major environmental groups had been given title to ANWR, development would have been well underway years ago (as I have previously suggested). Likewise, the states that have until now blocked further OCS development have done so in good part because the federal government takes the lion’s share of the royalty revenues, while leaving the states and local communities with the short end of the stick and the risks of feared development disasters.
So – for the rather simple reason that there is no private owner of the resources at stake, but instead a politically-controlled legal owner (the U.S. citizens via their government) and an array of shadow owners (the various interest groups and bureaucrats) who have been unable either to conclude any deals or to force their preferences down the throats of those they disagree with – we have deadlock, with valuable resources sitting in the ground, and possibilities for mutually beneficial deals lost. This is a rather basic analysis that has been recognized by libertarian thinkers and free market environmentalists like John Baden for quite some time.
Recently, in response to a proposal by Iain Murray of CEI that ANWR and the OCS be opened to development, I indicated some further thoughts on possible paths forward:
The key is to end politicized control, not to run roughshod over conservationists. If we are serious about ANWR, we ought to simply cede it to the Sierra Club or The Nature Conservancy. They would certainly pump from it AND protect it, and use the revenues to support more important conservation projects. As for the OCS, exploration is limited only because states don`t want to bear the burden of pollution risks with a slim share of revenues. With more generous revenue sharing, more OCS development will occur.
However, I’d like to change tack a little bit, as these disputes are part of the bigger problem of federalized management, and we are unlikely to see Congress act in the near future to privatize ANWR or other federal lands, or even to turn them over to environmental groups to manage. We face a real problem with respect to most of federal lands that revenues from resource extraction go into the big black hole of general funds, with very little ability of the resource managers to capture the benefit of managing well, and very little incentive by American taxpayers to make sure that resources are well-managed, priced to receive good returns and do not leave taxpayers generally holding the bag for environmental risks. A litany of horror stories could easily be assembled on these points.
How can we get started on improving incentives on our government resource management projects? Well, a small idea occurs to me:
I’ve recently reviewed a slew of recent arguments on the climate change front and noted wide-ranging support (driven by equity, efficiency and expedience) for a federal carbon pricing scheme (whether by carbon taxes or by emission rights under a cap and trade scheme), particularly if all of the funds raised by the tax or permit sale are passed through to Americans on a per capita basis. Why couldn’t we apply the same concept to ANWR and the OCS lands, with a small percentage being kept by the relevant oversight agency to fund and incentivize oversight?
If royalty revenues are passed through to citizens, Americans will directly benefit from moving ahead (without encouraging government bloat), so that development will not be seen as simply a giveaway by politicians to evil oil and gas companies. Further, citizens (and entrepreneurial prosecutors) will have greater incentives to monitor government performance (as in not giving away the resources too cheaply, and actually collecting revenues owed), and will able use the dividend checks to fund, to their hearts’ content, further environmental protection. In the case of the OCS, clearly a greater cut of the royalties ought to go to citizens in the relevant coastal states to compensate them for the relatively higher environmnetal risks they bear.
To incentivize the environmental groups to support this type of approach, as well as to provide better assurance of environmental oversight, I would suggest that new leases to explore or develop in ANWR and the OCS include as a contracting party an environmental group, either as the direct lessee (subcontracting to a preferred oil and gas company) or as environmental risk manager, in either case capturing a share of the royalty. The environmental groups will reap some benefit (that they can use for other projects) and will be subject to oversight by their members, and to competition from other environmental groups to protect wildlife and other values.
Such schemes would incentivize all stakeholders to work together in a win-win manner, while minimizing environmental risk, and directly rewarding citizens and leading to improved resource management.
Maybe the strong desire of many to see carbon pricing at the federal level can be leveraged to enhance both environmental protection AND economic growth, while streamline government and rewarding good resource management, at least in the case of ANWR and the OCS. (Next up, federal lands – forests, hard rock mining and oil and gas – generally!)
Just a thought.
Jeff, clearly privatization of most of the federal lands is desirable. Federal “management” has often been inept (information problems and incentive mismatches) and/or corrupt (good ol’ rent-seeking). But outright privatization simply isn’t going to happen, as politicians like to have royalty and other payments coming into the Treasury for them to play with. If privatization were to occur, I would agree that the feds should simply auction off the land to the highest bidder.
My point in referring to environemental groups was not they they should be favored, but simply that, if they owned these lands, they WOULD develop them too – the point being that the current deadlock is simply a result of federal ownership preventing parties from agreeing to compromises, while incentivizing grandstanding and rigidity.
What I have suggested here is simply a way to break the current deadlock over ANWR and the OCS, while paving a way for improved federal resource management generally.
My chief grounds for skepticism here is not that environmentalists or oil and gas firms are not interested in compromising, but that the federal government/Congresscritters will be reluctant to let Americans directly capture the benefit of resources that, after all, WE are supposed to own. Instead, politicians like to sport about in fields of cash, with administration relatively unfettered by citizen oversight(other than by those evil enviros).
But I do see a great opportunity here that is worth exploring. Congresscritters would be very popular if they found ways to give royalty checks to citizens – and this would set the path for further quasi-privatization as well as for a recycled carbon tax.
Ok, so long as you are on the hotseat, another angle here: why bias the ownership in favor of environmental groups? Why not just privatize the thing by selling it to the highest bidder? Aren’t you merely “picking winners and losers” in the marketplace, same as a central planner?
In general, you have real insight here, but I’m not for limiting the privatizing possibilities to only those that conform to my values.
James, thanks for the comments.
The environmentalists and others supporting them have until now prevailed over those advocating development in ANWR using the argument you mention (and others). But I think they should be interested in shifting, for a number of reasons; primarily because if public/legislative opinion shifts, then a portion of ANWR will be developed, but with little control by environmnetalists. I think that environmentalists ought to be more proactive, and look at a wider big picture that improves federal resource management greatly, rather than playing these continuous rear-guard battles that are inevitable when a resource is owned by the government.
“the point of refuges is usually to preserve ecosystems in a pristine state”. I appreciate your idealism, but in the real world “reserves” are set up only in very remote places that are difficult to develop, and for which a primitive state (open for recreation) is probably the best economic use. Even where the demand for recreation/environmental use is high, much of our vast BLM and USFS lands are used for tree and mineral resource extraction. Our politicians love to cave to whomever makes the greatest campaign contributions.
And, as noted, there are important concerns to balance. If TNC, Audubon or Sierra Club owned ANWR, they would certainly proceed with careful, limited development. Besides protecting ANWR, they could use the revenues to protect the Amazon, Western rivers (and salmon), etc.
I don’t see any reason why environmentalists would (for example) pump oil out of the ANWR. Resource extraction is intrinsically an environmentally damaging activity, no matter how well managed, and the point of refuges is usually to preserve ecosystems in a pristine state, not an only-moderately-degraded state. Any financial benefit would be more than offset by their massive loss of credibility with the public if they pursued such a strategy. That said, I could see such groups getting involved in e.g. the ecotourism business.
John, thanks for your comments.
The right way to manage the primary environmental risk is through a carbon tax. Even with such a tax, ANWR is valuable, primariliy because natural gas and coal are much preferable in many ways to coal.
BTW, I do not assume that all lands with “high commercial value” should be developed. Rather, all values should be considered and balanced. That doesn’t happen when resources are socialized, either because one party wins the political battle or gets favorable treatment for bureaucrats, and because bureaucrats have few incentives to really balance all interests fairly.
Such a balancing would also happen if we turned our public lands into public trusts that had to live on their own budgets.
The upper hand that the environmentalists have had up until now on ANWR and OCS is obviously unsteady, and they could improve their overall position by trading for a general rebated carbon tax and royalty pass through, that would probably be loved by taxpayers worried about the costs of climate change policies.
I disagree with you on how royalties should be used. Without a deal such as I propose, they will continue to go into our general pork barrel slush fund, from which we can expect nothing but more Congressional giveaways. The administrators could use incentives like a slice of the royalties in order to be a little more concerned about actually collecting them. I also think that cutting a roylaty check to citizens, like Alaska does, would help boost support for better oversight, and end the favoritism and uneconomical giveaways we see in BLM and USFS.
I am NOT in favor of using extraction royalties to give poliicians more money to spread around to well-connected friends and on boondoggles, or expand the range of bureaucratized activities (which is why I see a carbon tax as much preferrable to cap and trade). We already do enough environmental damage with our sugar and ethanol subsidies, and as we saw with synfuels, the government is just not the right actor to be determining what we should invest in. For this, simple carbon pricing without further meddling (other than continuing general climate research, emissions monitoring and dissemination of information) is the best way.
Regards,
Tom
Frank, I see my proposal as a way to defuse debate, improve resource management and to even win a better climate deal. If the land were given away to Sierra Club, TNC or Audubon, would they develop it? You’d be darned sure! They could use the funds to protect the Amazon, Kalimantan, and do a bunch of other things – even bring climate law suits and push for carbon taxes. Locking up resources in public lands means these groups have no interest in balancing even their own priorities, as the best they can do under the current situation is to simply to stall.
As the Arctic warms, other resources up there will be developed. In fact, OCS development, which is much riskier that land development, is already being considered.
Another factor is that Inupiaks have development rights in ANWR that Congress locked up after the Inupiaks bartered away other land to the US. We should uphold our end of that deal, and allow exploration and development of at least their portion.
David, this is not so much an anti-commons tragedy as a classic battle for control over a socialized commons. Up until now, those who prefer environmental, recreatational and other values over development value have been winning.
The political consensus that supported the status quo is unsteady, and environmentalists and others ought to be able to recognize the advantages gained from improved managment.
Environmentalists could perhaps also, by agreeing to the steps mentioned here, help to persuade Congress to approve a carbon tax/rebate program.
I’ll limit the scope of my response to oil and natural gas resources.
As a matter of pure, present, economic efficiency, your proposal may make sense. But when future economics and environmental concerns are factored in, I’m not sure it does.
The underlying assumption — that all lands with “high commercial value” should be developed — seems to me misguided. The implication is that we should design our land management policies to insure the extraction of all “valuable” oil and gas. The problem is that it makes no sense to extract it unless we’re going to burn it. And if we pump out and burn everything that’s economically feasible to pump out and burn, we’re going to cook ourselves. The politically incovenient truth is that we’re ultimately going to have to decide to leave some of the ancient sunlight in the ground if we want to survive, no matter how “valuable” that sunlight may appear to be in the short term.
On another note, if we’re going to distribute the proceeds of any extraction tax, those proceeds should go primarily towards the development of alternative energy sources, as the carbon tax in England does. This would offset the costs, in the form of global warming, that are presently being externalized onto posterity. Distributing the proceeds in the present on a per capita basis would constitute generational exploitation.
“we have deadlock, with valuable resources sitting in the ground, and possibilities for mutually beneficial deals lost.”
Eh, not so fast. Oil companies haven’t even used up all their existing offshore drilling leases at the Gulf of Mexico, so why on earth is ANWR and OCS suddenly so “valuable”?
And I’m not sure how opening them up will be “mutually beneficial”. I mean, Sierra Club drills oil and causes more global warming, so that Sierra Club can later use the proceeds from selling oil to, um, protect against global warming? I don’t know… this sounds like a win-win situation, where the winners don’t include the public.
(Could it be that the proposal to open up ANWR and OCS is just an election gimmick by McCain that only benefits vote count? That can’t be, right?…)
Anyway, if you ask me, I’d probably suggest the government cede the land to wind power companies. Or Al Gore.
— bi, http://frankbi.wordpress.com/
Tom — I like the idea, esp. the twist with giving ANWR to the Sierra Club. Life is about tradeoffs, and many interest groups want to eat their cake and have someone else pay for it.
You are also (accidentally?) invoking the tragedy of the anti-commons. See this post:
http://aguanomics.com/2008/03/water-and-public-trust.html