Chapter 1: Environmental Values and Policies

 Problem Exercise: Should ANWR Be Open to Oil Drilling? p. 53 (5^th edition):

The long-standing stalemate over drilling in the ANWR has led some oil companies to shift attention to the Outer Continental Shelf (OCS) off Alaska, a region that also holds promise for new production, and one that might be less controversial than the ANWR.  As  crude oil prices hit $147/barrel and gasoline prices at the pump exceeded $4.00/gallon in July 2008, OCS drilling became an issue in the presidential campaign.  Are you open to persuasion that OCS drilling would be more acceptable than drilling in the ANWR?  If so, what might persuade you?  As the global economic slump intensified, by February 2009 the price of crude oil had plunged to below $40/barrel and gasoline prices at the pump were below $2.00/gallon.  How, if at all, should these dramatic fluctuations in oil prices affect decisions on drilling in ANWR or on the OCS?

In September 2008, economists Robert Hahn and Peter Passell prepared a cost-benefit analysis of expanded domestic oil drilling in ANWR and the OCS.  Their study assumed that seven billion barrels of oil could be extracted from ANWR and 11 billion from the OCS and that crude oil prices would remain at least as high as $100/barrel.  Their study concluded that the expanded production would have a barely discernible impact on global oil prices (reducing them by just 1.3%), but that the extra oil would be worth $2.l trillion.  Hahn and Passell estimated that the cost of developing the oil resources and cleaning up spills would be slightly less than $400 billion, making what they called a "compelling" case for expanded drilling.  They argued that it was unlikely that environmentalists placed a non-use value on ANWR as high as the $1.7 trillion in net benefits, particularly if hundreds of billions of these benefits could be used to restore environmental treasures like the Everglades and Louisiana coastal wetlands.  See Robert Hahn & Peter Passell, Save the Environment: Drill, Baby, Drill, N.Y. Times, Sept. 14, 2008. How would you respond to their analysis?  Presumably, Hahn and Passell would support measures to restore the Everglades and other wetlands only if they independently passed cost-benefit tests.  If so, is it not the case that the merits of such alternative projects should be assessed independently of the merits of expanded drilling?