There have been some pretty stupid ideas floating around about how to deal with this purported gasoline crisis we’re experiencing. (See, e.g., here.) Here’s one that might sound crazy at first, but is, I submit, crazy like a fox.
I propose that the government split the Arctic National Wildlife Reserve and give the pieces primarily to the major environmental organizations (Sierra Club, Audubon Society, etc.), with a small portion reserved for the major domestic oil companies.
“What?!” you say. “That’s a ridiculous suggestion!”
Is it really?
The U.S. Geological Survey estimates that ANWR contains enough oil to increase America’s proven oil reserves by 50%. The problem, of course, is that Congress won’t permit drilling in the reserve. Congress’s opposition is due largely to political pressure from well-organized environmental groups. The leaders of those groups have every incentive to fight drilling in ANWR tooth-and-nail: When they score a legislative victory (i.e., defeat of a measure that would permit drilling), they get lots of glory, which helps them raise money from their supporters. The only marginal costs they face are slightly higher prices for the gasoline they personally consume.
So how would the world be different if the Green groups owned big chunks of ANWR? Well, they’d be forced to engage in more realistic cost-benefit balancing.
Every property use — even conservation — involves a cost. Whenever a property owner selects one property use, he necessarily foregoes any competing property use and the value that competing use could generate. For example, if you could lease your backyard for parties for $1,000 per month, then your decision not to do so and instead to leave it as a little oasis of solitude effectively costs you $1,000/month. You may deem that a cost worth bearing, but it’s a real cost (an “opportunity cost”). Similarly, when environmental organizations insist on zero drilling in ANWR, they’re calling for a costly decision — they’re asking the world to forego the value that could be created by such drilling.
Now, the Green Groups may honestly believe that the total value of leaving ANWR in its pristine state exceeds the total value that could be created by allowing a measure of drilling, but I doubt that’s the case. After all, very few people ever visit ANWR, so the only human value created by leaving the reserve pristine is mainly comprised of highly speculative “option” and “existence” values (i.e., the happiness individuals experience as a result of “having the option” to visit some place in the future or knowing the place exists in a certain state). By contrast, the total value that could be created by drilling in ANWR is potentially massive. My strong suspicion is that if the Green Groups bore the full costs and benefits of the decision regarding whether to drill in ANWR, they’d come up with some way to permit limited drilling — perhaps using more costly, but more environmentally friendly, drilling mechanisms.
The problem with the current state of affairs (public ownership of ANWR) is that the Green Groups get a very high share of the benefits of opposing drilling (i.e., their opposition allows them to raise lots of cash), but they bear only a tiny portion of the cost of their opposition. If they owned chunks of ANWR and were forced to recognize the opportunity cost of foregoing drilling, they’d probably change their tune. They’d certainly have an incentive to come up with some sort of compromise plan that permitted some drilling — perhaps using the most low-impact techniques economically feasible — while leaving the most environmentally valuable areas of the reserve in their pristine state. They could sell this compromise to their members on environmental grounds: “Look, if we permit this limited drilling on our property, we’re going to make gazillions of dollars, which we can then use to conserve more environmentally sensitive areas (or areas that our members might actually visit someday).” As things currently stand, the Green Groups have no incentive to come up with a compromise solution. They maximize their returns by opposing any and all ANWR drilling.
Why am I so confident that Green Groups would permit limited drilling if they actually bore the opportunity costs associated with foregoing such drilling? Because that’s what they’ve done in the past. Since the 1950s, the Audubon Society has permitted limited drilling on its own Paul J. Rainey Sanctuary, a 26,000-acre preserve in Louisiana. This drilling — accomplished using 37 wells designed to minimize environmental impact — has netted more than $25 million for the Society. The Society, then, has been able to use those revenues to pursue other preservation goals. (Unfortunately, they’ve spent much more of it on lobbying and P.R. than on purchasing land for preservation.)
So, is this plan politically feasible? Maybe.
The legislative proposals with the best chance of passage are those that involve concentrated benefits and diffuse costs, where each individual cost-bearer has little incentive to oppose the legislation, but individual beneficiaries are motivated to seek its passage. Under my plan, both the environmental lobby and the energy lobby become beneficiaries and should therefore throw their support to the plan. The “cost-bearers” are the citizens as a whole, who collectively lose the option to earn value from ANWR in the future. Even those folks, though, don’t really bear any marginal costs from my scheme, for the current political state prohibits maximization of ANWR’s value in any event. The highest and best use of ANWR would likely be (1) to permit limited drilling, and (2) to set aside the most environmentally sensitive and/or aesthetically valuable sections. Most Americans would probably want this result, and if the Green Groups own the bulk of ANWR, that’s likely what they’ll get. Thus, even the nominal cost-bearers are beneficiaries under my plan. In any event, though, the individual citizen’s stake in ANWR is so slight that there’s likely to be any general opposition to the proposal.
OK. I’ll admit this idea is a little out there. But is it any crazier than the Republicans’ plan to give folks $100 to spend on gasoline?? I think not.
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i think so, too.
rs_jane@yahoo.co.jp
A nice article written in 2000 spells out the economics of such a plan and the current ownership of lands by the Audubon Society that are dual use, i.e., enviromental protection and gas drilling:
http://www.independent.org/pdf/tir/tir_06_2_lee.pdf
B.C. & FXKLM–
Certainly the environmental groups would have some explaining to do if they changed their tune on drilling. But if they owned ANWR, they’d have a powerful incentive to do so. They would be sitting on literally billions of dollars of potential revenue, which they could use to fund all sorts of conservation efforts. It would be fairly easy for them to say to their supporters, “Look, we’ve discovered a more sustainable way to do this drilling, so we’re going to allow limited drilling and use the money we make to pursue other environmental goals. For example, we’ll use the money to buy millions of acres of rainforest.” Undoubtedly, some of the groups would refuse at first, but then one would give in, start making money hand over fist, print glossier brochures, hire more sophisticated fundraisers, and begin to pass the others in terms of prestige and influence. The others, then, would likely cave. Money this big is just too hard to pass up. And that’s the way it should be. The wealth created from drilling in ANWR could be used to fund far more important conservation efforts elsewhere.
Interesting post, Prof. Lambert, but I’m inclined to agree with argument that it might be too late for this proposal to work. Protecting ANWR from oil companies has been vital to the greens for so long now that it seems to represent the larger “cause” rather than just the option and existence values that you describe. If those were truly the only benefits gained by protecting ANWR, then the opportunity costs of their refusal to allow drilling may arguably outweigh those benefits. But giving in to drilling at this point would require those groups to retract their position in a highly publicized debate – an added cost that the rank & file members are likely to find considerable. The oil companies that sought to drill would thus have to pay significantly more for that opportunity, and given the somewhat speculative nature of their benefit (exactly how much oil is there? and how easy will it be to get, given the extra safeguards required to drill in the area?), it is far from certain that the oil interests would be willing to pay enough to overcome the greens’ perceived benefit in maintaining their long-standing opposition to drilling.
Of course, the perceived benefit in maintaining the “cause” is likely to diminish over time, especially if the rank & file members continue to experience skyrocketing costs at the pump.
Take a look at the USDOE website and try to find a detailed estimate of actual resources in ANWR. Try to find out how manys bores have been sunk. THE USGS estimare is based on a smapling of global geological sites wiuth similar charactoristics – it is a wild ass guess.
Then look at how hard the oil majors are lobbying to get at ANWR. They are not.
If there was really that much oil in ANWR I would say drill it. In fact, I don’t really care that much and would say go ahead and drill just to find out. But the reality is ANWR’s stand out as a pawn in political arguments – not as a source of oil.
The issue is too high profile and the environmental groups have already invested too much of their credibility in their claims that ANWR drilling is damaging. It would be far too embarrassing for them to change their minds once they had a financial stake in the oil. The leaders of the environmental organizations might be sensible enough to realize that their money would be better spent elsewhere, but I don’t think the rank and file members would tolerate a leader who opened up ANWR for oil drilling. This might have worked if it had been done years ago, but it’s too late now.
Interesting idea. I’d suggest the ideal “Green group” to gift would be the Nature Conservancy (or similar group). Presumably, rather than steer profits into Audobon-esque lobbying, they’d just purchase more land worthy of preservation. And with the same efficiency-maximizing incentives.
I must admit that I usually fall on the enviro side of these debates, but a very right wing client of mine suggested the outline of this idea many years ago and I have always thought it made an immense amount of sense. As long as the gov’t owns the land, everybody has the right to fight about how it should be used (and don’t we ever). But other than historical inertia, there really isn’t a good reason for the federal government to continue to own significant amounts of land. The demise of the BLM and Forest Service would be a day of great celebration.
Steven–
I am, as you might suspect, sympathetic. Public ownership practically guarantees that land will be mismanaged.
This idea should be adopted on a broader scale to include all public lands. Let the environmental groups and the states choose 25 to 33% of the public lands and transfer ownership to them. Then sell the rest to the highest bidder. There is really nothing not to like about this plan. The spaces that people want preserved will be. The federal government will be out of the land management business. Republicans and Democrats will have one less thing to fight about. Libertarians will think the Rapture has occurred.
Bob,
Why do you say the Green Groups have opportunity costs only if they have to pay property taxes? Even if the state of Alaska were to rescind the property tax on the land given to the Greens, their decision to forego drilling on their land would be quite costly for them — it would require them to forego a tremendous amount of wealth that would otherwise be available to them. Property taxes might provide additional motivation to drill (i.e., in order to raise the money needed to cover the taxes), but they’re not necessary to create opportunity costs.
Green groups only have opportunity costs if they’re stuck paying property tax on all that land. Would they agree to such a deal if they were stuck with substantial costs? It would be a good deal for the government to move a bunch of wilderness with no oil or other valuable mineral reserves into private hands where they could then tax it, while allowing drilling on the rest which they could then tax. Or more precisely, the state gets property taxes and the feds get income and excise taxes plus lease fees.