Externalities, Conflict, and Offshore Lands: Resolution through the Institutions of Private Property

By Bratland, John | Independent Review, Spring 2004 | Go to article overview

Externalities, Conflict, and Offshore Lands: Resolution through the Institutions of Private Property


Bratland, John, Independent Review


How should coastal ocean lands be used? The answer to this question has been the source of intense political and legal conflict in recent decades. The ostensible cause of the conflict is the external costs (externalities) associated with offshore petroleum development. An externality occurs when petroleum producers engage in activities for which they do not bear the full opportunity costs of their actions. The legitimate concerns about environmental externalities are focused most directly on the risks of oil spills arising from blowout accidents on offshore petroleum facilities. Oil spills such as the 1969 Santa Barbara accident are matters of historical record, but it is important to note that since that event most spills have occurred in connection with transportation of crude oil rather than with offshore production operations (Anderson and Leal 2001, 82). Moreover, no serious accident has occurred in connection with exploration and production since the use of blowout-prevention technology has become part of standard universal practice.

A second type of externality appears to account for much of the conflict over the use of these lands. Here, too, one segment of the public is engaging in activities for which the actors avoid beating the full opportunity costs of their actions: political externalities occur because political stakeholders bear little of the opportunity cost of the policies they advocate and succeed in implementing with respect to the use of offshore lands. Thus, government ownership and control have fostered institutions that facilitate and aggravate discord. This article proceeds from the premise that both categories of externality are a source of discord and that a reasonable resolution to both can be found in the institutions of private-property rights.

Government Ownership and the Discordance of Current Policy

One might reasonably make the case that modern-day conflict over offshore lands has its origins in the Santa Barbara oil spill, an event that is generally recognized to have imposed genuine environmental externalities. Since that spill, public policy with respect to public offshore lands has been directed toward the implementation of stringent sanctions on petroleum leasing designed to prevent the repetition of such an accident. First, the five-year leasing programs implemented by the federal government include cost-benefit analyses ostensibly to ensure that the social costs do not outweigh the social benefits of leasing. Second, stakeholder participation has been designed to deal with the possibility that the rights and preferences of affected constituencies are not ignored in leasing decisions. The leasing procedure that emerged from this process is routinely implemented within Five-Year Plans mandated by the 1978 Amendments to the Outer Continental Shelf Lands Act (OCSLA). These procedures are designed to assure maximum political participation by all possible stakeholders at the federal, state, and local levels. Also, the Five-Year Plan must satisfy the requirements of Coastal Zone Management Consistency as mandated under the Coastal Zone Management Act. Third, although the petroleum industry has a good record on environmental issues since the Santa Barbara oil spill, legislatures and courts have resorted to broad, sweeping moratoria on leasing in several regions of federal offshore lands, including the federal waters off California.

Cost-Benefit Analysis: Issues of Scientific Legitimacy and Rights

The 1969 National Environmental Protection Act mandates that federal agencies must prepare an environmental impact statement (EIS) "for any major federal action significantly affecting the quality of the human environment" (42 USC Sec. 4321). The Five-Year Plan mandated under the OCSLA lays out planned leasing activity for a particular five-year period--an obvious example of a federal action requiring an EIS. A central element in each EIS done for federal offshore leasing is the assessment of benefits and costs. …

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Externalities, Conflict, and Offshore Lands: Resolution through the Institutions of Private Property
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