So the attempt to attach provisions to drill for oil in ANWR to a defense bill has failed. Should we be bugged about this?
I think it depends on which forecasts you believe. Here’s what I mean: over the past five years I’ve had several different group research projects in which students perform a benefit-cost analysis of ANWR drilling. They attempted to quantify the environmental variables, which is tricky, so depending on how confident you are in your quantification of those intangibles, you may or may not get a net positive. Also, the USGS has performed extensive studies in which they estimate how much oil may be extracted. You know the kind: we are 90 percent confident that we can extract X barrels per day, 80 percent confident we can extract Y barrels per day, etc. Every time my students have analyzed this, the variable to which the result is most sensitive is that estimate of the expected cost of extracting the oil. If you restrict yourself to the amount that has the high confidence, their analyses show that it’s not worth it.
In any case, the ANWR oil is not a sufficiently large amount to induce much change in world oil prices (which is a fancy way of saying it’s little more than a drop in the bucket). There are two things, however, that do bug me about this whole political exercise.
One is this annoying and ridiculous extent to which Congress has evolved toward attaching unrelated pet things to big, crucial bills. From an analytical public choice perspective, this evolution is not surprising. It’s about building the coaltions, right? But from a philosophical perspective, I have to admit that I find it disgusting. The second thing that I’ve always found troublesome about the ANWR debate is that it would not be an issue if the land were privately owned. If we abandon the farce of “public ownership” and if private individuals owned the land, we’d find out pretty darn quickly whether caribou migration or drilling is more valuable, given the available technologies.
So here’s my policy proposal: privatize ANWR. Better yet, have the federal government grant the title to the land to a joint venture of the Nature Conservancy and the residents of the area, and let them figure it out. Then if it’s worth it to drill, let the firms interested in drilling make them purchase offers. That will satisfy those worried about income distribution effects of “big oil” being able to buy their way in. Establish the property right on the other side. But if we believe Coase, establishing the property right and reducing the transaction costs will end up with the optimal combination of drilling and caribou migration.