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The Environmental and Climate Stakes in Arctic Oil Drilling

by Michael Levi
May 13, 2015

Oil Drilling Arctic Environment Climate

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On Monday, the Obama administration gave Shell conditional permission to move forward with Arctic oil drilling. The New York Times captures a common sentiment well in identifying this as a “tricky intersection of Obama’s energy and climate legacies”. The reality, though, is that this intersection isn’t nearly a fraught as many assume: decisions about offshore drilling in Alaska are indeed difficult, given the local economic and environmental stakes involved, but climate isn’t a central factor.

I’m ambivalent when it comes to federal decisions on offshore Arctic drilling. The Arctic is a special place. I saw that first hand when I visited with the Coast Guard in 2008 – a trip on which I also learned how challenging oil spill response there can be. (I also learned that a buoy tender isn’t the ideal place to spend your first night ever at sea.) Opposing offshore Arctic oil development is a reasonable position. At the same time, with the right precautions, spill risks can be substantially reduced, though inevitably not eliminated. And there’s a federalism issue (perhaps not in the legal sense but in a more basic one): it’s easy to be strident in taking positions from Washington, DC, but this is a much more intimate economic and environmental issue for Alaskans – so presumably their preferences should have some special say.

Navigating these tradeoffs is difficult. But throwing climate change into the mix as a central consideration lacks empirical foundation. (Perhaps that’s why that Times article doesn’t follow through on its headline’s promise.) Yes, at a global level, more oil production means more oil consumption, and hence greater carbon dioxide emissions and worse climate change. But more oil production in one place generally means less oil production elsewhere – that’s how markets and prices work – which substantially blunts the effect. Bill McKibben drills home the conventional wisdom in a Times op-ed, blaming Obama for “climate denial” by claiming that “you can’t deal with climate on the demand side alone”, backing that up by citing a study that was unable to identify any “climate-friendly scenario in which any oil or gas could be drilled in the Arctic”. True! Also true: that claim was based on looking at a whopping two scenarios. (From the original: “none [of the oil or gas] is produced in any [Arctic] region in either of the 2C scenarios before 2050”.) And, most important, the study never asked what would happen to emissions if the Arctic oil were put off limits. Had it done so, it would have found more oil production elsewhere, and minimal net emissions impact. What the study really found – and what is entirely reasonable – is that if the world gets serious about reducing emissions, oil prices will fall, and companies won’t want to develop most Arctic oil anyhow. That points to demand-side policy, denigrated by many who are painting the Alaska decision as climate apostasy, as critical.

There is one theoretical exception. The United States, Saudi Arabia, Russia, Iran, and a bunch of other oil producers could team up to jointly restrict oil production. That prospect, of course, makes U.S.-China-India-Europe cooperation to reduce emissions through demand-side policy look like a cakewalk by comparison.

Navigating the local economic and environmental tradeoffs involved in Arctic oil development is difficult enough without turning every decision into a climate litmus test. And getting serious on climate change is plenty tough without pretending that playing fossil fuel whack-a-mole whenever possible will be effective in reducing emissions. We’ll have better policy, and better outcomes, if we don’t make every difficult energy and environment decision about climate change too.

Post a Comment 7 Comments

  • Posted by Jon Landsbergis

    The author ignores a central point why this is a climate change issue in a fundamental sense. As companies and nations start investing and drilling in areas in the Artic that used to be covered by Artic ice that is receding they have a financial and national interest in making sure that the ice continues to melt. It locks in a mindset that will view their investment as more important than containing global warming. End of game.

  • Posted by Steve Kretzmann

    “But more oil production in one place generally means less oil production elsewhere – that’s how markets and prices work” This argument – while conventional wisdom for a long time – would seem to have been well and truly rebutted over the last year by the refusal of the Saudis to restrict production to moderate prices. In a world where major oil producers are seemingly more concerned about preserving market share instead of price, this just doesn’t work anymore. At the very least, the last year makes it clear that supply reduction by other producers can’t be counted on.

  • Posted by Stephen T. Harris

    This premise is tautological as to demand equilibrium, but polemics from the likes of the charlatan Bill McKibben is really pointless. McKibben, who doesn’t shy from demanding western civilization to return to pre-industrialized levels, is not only a fool, but an insipid pied piper to college kids that have not yet learned critical thinking and adults who are essentially as informed about the subject as kindergarteners, and trying to convince such types is naturally futile. McKibben’s arguments are easily shredded as illogical and supercilious at best. However, this author passingly hovers over the central issue, which is the rights of state’s to develop their resources without federal intrusion. The recent images of the Artic show it is actually enlarging, as well as the South Pole. The sun spots are virtually gone, which historically ushered in cycles of global cooling, which if so, leads to starvation, disease, and famine (maybe we should accelerate CO2 emissions to stay warm?). It was cheap and reliable energy that a recent Oxford study concluded, beginning with the Age of Petroleum, that has reduced environmental fatalities by 98%. The very last thing Shell Oil wants is one drop of crude oil in the ocean for a thousand reasons. If this company thinks it can safely tackle some of Mother Nature’s fiercest fury (like the North Sea or even at times the Gulf of Mexico) as is in the Artic, successfully, then kudos to their engineers! The Offshore industry could drop a ship on Mars for far less budget than they spend for one of these missions, and they have the technical expertise to do either. Like the amazing shale revolution, this action by Shell will go down as another testament to American ingenuity and the “can do attitude” that is still unsurpassed anywhere else in the world. Companies like Shell, do not have time to deal with ignorant and selfish asset redistribution schemes like the UN and our President are proposing, as such activities have nothing to do with “climate” or real engineering, but everything to do with politics.

  • Posted by David Pacey

    So much for Obama catering to the environmentalists eh. And this from a Canadian perspective.
    You know about the Exon Valdez, you know about the dangers of off shore drilling, look at the Gulf of Mexico and BP, and you know a blow out in the Arctic will NEVER be cleaned up, but Obama and the Democrates and the Republicans snuggle up to big money, big oil and dead environment and money for their re elections.
    Stupid, short sighted and insulting
    Sorry Americans, but that is how much of the world sees the cynical and self serving actions of your politicians and your money lobbies.

  • Posted by Fernando Leanme

    It helps to have a long term outlook when we think about oil exploration and production, and its impact on global green house emissions. More oil production in one place does reduce oil production elsewhere, simply because it reduces oil prices VERSUS WHAT THEY WOULD HAVE BEEN. The lower oil price environment has already led to production drops in some regions, for example in North Dakota’s Bakken light oil fields.

    Offshore drilling and production in the Arctic is extremely expensive. This implies the companies engaged in exploration use extremely high internal oil price forecasts…which in turn implies they expect the cost to extract oil will be much higher within 10 to 15 years.

    It would take volumes to discuss the enviromental issues involved. A lot of what happens depends on the effort made by the oil company, regulatory authorities, and the Alaskan government. The effort made by Shell in previous years wasn’t good enough, this is clear by the results we have seen. Hopefully they will proceed with extreme care and using competent personnel.

    Returning to the global warming issue, the US government needs a more rational approach. President Obama is poorly advised, and seems to lack an executable plan based on solid analysis. For example, we know any USA actions to cut emissions yield minute impacts. But the USA has limited financial resources it can apply to this particular problem. I don’t think this president will change much, nor does he have long enough to reach a sound agreement with Congress, but hopefully the next president will.

    A better approach would involve a careful consideration of the money invested by the USA versus the actual range of benefits, using a sound estimate of the climate’s sensitivity to greenhouse gas emissions, coupled to a better understanding of fossil fuel resources and how much they will cost to extract. I see a disconnect between the work done by climatologists and the real world; when they make projections such as the IPCCs “Representative Concentration Pathway 8.5” they enter a surreal world with cornucopian, nearly endless, oil supplies. This of course renders much of the subsequent work nearly useless.

  • Posted by Jerome Carman

    It feels like this very important discussion is lost in the weeds of supply and demand theory. Backing up, the common objective here from both Mr. Levi and Mr. McKibben is reducing GHG emissions. The argument relates to the production and consumption of oil. Mr. Levi’s specific point seems to be that it is not always appropriate to add climate change to the equation when hashing out the logistics associated with an individual event within the broader oil production and consumption landscape. Mr. McKibben brings in supply and demand in his op-ed in an attempt to defend the active protest against drilling in the Arctic. My take away from Mr. McKibben’s op-ed is not that this is a discussion of economic theory but an argument that any action associated with the production or consumption of oil must inherently be a discussion about climate change. Supply and demand theory is an important part of this discussion, but it is not the thesis.

    As grueling as it is, I think this needs to back up to a discussion about what the primary drivers are. On the topic of whether or not societies and governments should continue to consider oil as a resource, my guess is that both Mr. Levi and Mr. McKibben would generally stand on the side of eliminating oil (ignoring the fact that oil will probably always have some utility in our economy since we have found so many varied uses for it). However, I don’t think their motivations are the same.

    It seems to me that if the driver for removing oil as a resource is GHG emissions and climate change, then climate change absolutely must be part of every discussion associated with oil. If the driver is energy security or political strategy, then climate change should not be part of the discussion. Climate change is the central motivation for Mr. McKibben, significantly outweighing all other competing interests regardless of the original intent of every specific action associated with oil. Mr. Levi, however, weighs multiple interests in his work, likely being pulled in multiple directions by often competing objectives and wrestling with how to reconcile them. This blog entry reads more like an expression of frustration associated with the multiple interests that Mr. Levi has to deal with rather than a solid argument against the inclusion of climate change in every discussion about oil.

    Fernando Leanme’s comment above states “…the US government needs a more rational approach. President Obama is poorly advised, and seems to lack an executable plan based on solid analysis.” This gets at the need for policy that clearly defines the motivation that drives U.S. involvement with the production and consumption of oil. Mr. Levi’s work is motivated by government policy while Mr. McKibben has the freedom to define his own motivation. I see Mr. Levi’s frustration as a symptom of confused and poorly rationalized government policy regarding oil.

  • Posted by David44

    I’m tired of hearing CO2 concerns trump the real environmental and economic problems in Alaska and elsewhere. The real concern in the Arctic is the very real potential for local/regional environmental damage from oil spills, well blow-outs, ship and drilling wastes and on and on. Alaskans care about their environment and don’t want any more Exxon Valdez events or Pebble gold mine fights. Arctic oil should be left as a reserve for future generations with better technological safeguards.. We will always need oil for many purposes besides heating and transportation fuels regardless of progress on renewables and nuclear. Save it for its best purposes.

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