Deepwater Drilling and Least-Cost Energy Decision Making

Vol. 28 No. 2

By

David R. Hodas is a professor of law at Widener University School of Law and a member of the editorial board of Natural Resources & Environment.

 

The release of 35,000 to 60,000 barrels of crude oil per day from the BP Deepwater Horizon well in the should cause us to pause and consider our energy policy decision making and how we compare costs and benefits of various alternatives. Shortly after the platform exploded and the project became an uncontrolled gusher, President Obama ordered a moratorium on deepwater drilling in the Gulf while the government considered whether drilling in deep waters could be done safely.

The environmental and economic risks from oil drilling are great and long lasting. In comparison, the rewards of exploring a new oil field are relatively small within our nation’s energy context and are short-lived. The potential new oil will barely dent our dependence on imported oil to fuel our transportation system.

Reevaluating how we license, regulate, and monitor deep-sea oil drilling is important so that it can proceed without unduly risking environmental damage. Consideration of the value of additional blowout preventers and the cost of establishing an oil recovery infrastructure to protect the environment and regional  economy are important. However, it is too narrow a review. The project-based approach to reviewing proposals for oil drilling in the Gulf in deep waters does not address the larger question of whether the costs and benefits of oil drilling outweigh the costs and benefits of alternative means of providing energy for our transportation system. We must rethink how we approach energy decision making and evaluate societal costs and benefits, risks, and rewards. Unfortunately, our legal decision-making structure discourages thinking in a larger context outside specific projects or plans, and the legal tools, such as alternatives analysis under the National Environmental Policy Act (NEPA), which might help us achieve better policy, are moribund.

When we remove our project-based blinders and look at decisions within a broad spectrum of policy options, a wider range of alternatives appear. Let us consider deep-sea drilling in the Gulf for petroleum. Most of the oil we import and produce is used to meet the demand of the transportation sector of the U.S. economy. In 2008 we burned more than 13.6 million barrels of oil each day to meet our transportation fuel needs for cars, small trucks and SUVs, and large trucks. However, the domestically produced only 6.7 million barrels per day and imported  another 11 million barrels daily.

So, how much oil can we expect to get from the BP Tiber well? Oil analysts estimated the well tapped into a 3 billion-barrel to 5 billion-barrel oil field and that a 20 percent to 30 percent recovery rate, typical for this kind of oil field, could yield over its lifetime about 600 million to 900 million barrels. That would be enough oil to supply the United States with about a 30- to 40-day supply of gasoline.

Instead of heroic efforts to maintain supply by drilling the Gulf, what if we reduced our demand for gasoline? This could be done by making our fleet more efficient or by reducing the number of miles traveled or a combination of both. In May 2010 the U.S. Environmental Protection Agency (EPA) issued its final Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy (CAFE) Standards. This rule establishes new fuel economy standards for model years 2012–2016. Over their lifetimes, the cars and light-duty vehicles produced in model years 2012–2016 will save 1.85 billion barrels of oil, reduce greenhouse gas emissions by 960 million tons, and significantly reduce ground-level air pollution from motor vehicles.

A wide range of technologies to meet the new EPA mileage and greenhouse gas standards are already developed and available. There are engine improvements, the use of advanced transmissions, increased use of start-stop technology, improvements in tire rolling resistance, reductions in vehicle weight, increased use of hybrid and other advanced technologies, and the initial  commercialization of electric vehicles and plug-in hybrids.

Let us assume that the BP field has a 50-plus-year lifespan, as is typical for most “giant” fields. Over its lifetime the BP well might produce 600 million to 900 million barrels of oil. Typically, it takes about three years from discovery for a well to begin commercial production; field production rapidly increases to a peak or plateau, where maximum rates of oil are produced on average for 13 years until the field begins its steady decline at a rate of 5 percent to 6 percent annually.

By comparison, over that same 50-year span, ten tranches of five car model years will supply cars and light-duty vehicles to our roads. Thus, assuming the new CAFE standards remain in place and are improved over time to reflect technological advances, the CAFE savings will be repeated ten times during the field’s life, for a savings of 18.5 billion barrels of oil—20 to 31 times more oil saved than the field would produce—at a savings of about $1.89 trillion. In addition, 9.6 billion tons of carbon dioxide emissions would be avoided. And the oil will still be underground, available for use by future generations.

So, why has this less-expensive and dramatically better alternative not been chosen when drilling in the Gulf was evaluated by the government? Why is the Department of the Interior moratorium on drilling focusing only on how to drill safely in deep water? Obviously, the decision as to whether we reduce demand is a major federal action that will significantly affect the quality of the human environment and so requires an environmental impact statement (EIS) that addresses this choice. Moreover, Council on Environmental Quality regulations promulgated in the 1970s (40 C.F.R. § 1502.16(e)) direct that the evaluation of “adverse environmental consequences . . . the relationship between short-term uses of man’s environment and the maintenance and enhancement of long-term productivity, and any irreversible or irretrievable commitments of resources which would be involved in the proposal . . . shall include discussions of . . . energy requirements and conservation potential of various alternatives mitigation measures.”

However, in 1978, the Supreme Court refused to require the Nuclear Regulatory Commission to consider whether energy conservation might obviate the need for a nuclear power plant. It held that 40 C.F.R. § 1502.16(e) did not apply to EISs prepared prior to adoption of the regulation. It also ruled that consideration of energy conservation as an alternative in future matters would be governed by a “rule of reason.”

Ten years later, the Secretary of the Interior’s Outer Continental Lease program was challenged on the grounds that the Secretary had failed to consider CAFE standards as an alternative to offshore oil drilling, even though using energy conversation would achieve the same transportation fuels needs but would save 15.8 billion barrels of oil, thereby eliminating or dramatically reducing the need for the offshore drilling. The challenged EIS contained an appendix with a broad, general discussion of energy conservation. Without mentioning 40 C.F.R. § 1502.16(e), the court deemed this general discussion to be sufficient for NEPA “informational” purposes.

And so, without a change of law, deepwater drilling will continue without serious consideration of least-cost alternatives. NEPA must be amended to require us to question business-as-usual assumptions, to consider new approaches to old problems, and to require that external environmental costs be monetized and included in all decision-making analyses. 

 

FOR MORE INFORMATION ABOUT THE SECTION OF ENVIRONMENT, ENERGY, AND RESOURCES

- This article is an abridged and edited version of one that originally appeared on page 55 of Natural Resources & Environment, Fall 2010 (25:2).

- For more information or to obtain a copy of the periodical in which the full article appears, please call the ABA Service Center at 800/285-2221.

- Website: www.abanet.org/environ.

- Periodicals: Natural Resources & Environment, quarterly magazine; Trends, bimonthly newsletter;  The Year in Review, annual summary of legal developments; committee newsletters.

Books and Other Recent Publications: Brownfields: A Comprehensive Guide to Redeveloping Contaminated Property, 3d ed.; The Law of Green Buildings: Regulatory and Legal Issues in Design, Construction, Operations and Financing; Endangered Species Act: Law, Policy, and Perspectives, 2d ed.; The Evolution of Natural Resources Law and Policy; Nanotechnology: Environmental Law, Policy, and Business Considerations; Capturing the Power of Electric Restructuring; Environmental Litigation: Law and Strategy; Ocean and Coastal Law and Policy; The Law of Environmental Justice, 2d ed.; Global Climate Change and U.S. Law; Toxic Tort Litigation; Wetlands Law and Policy; and the Basic Practice Series with titles including FERC, 2d ed.; RCRA; CERCLA, 2d ed.; EPCRA; Clean Air Act; Clean Water Act; ESA; FIFRA; and TSCA.

CLE and Other Educational Programs:  19th Section Fall Meeting, October 12–15, 2011, Indianapolis, Indiana.

 

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