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 â€” accomplished using 37 wells designed to minimize environmental impact â€” 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, theyâ€™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.