What If Environmentalists Own Oil and Gas Lands?

Introduction by John Baden

In the 1980s I was one of three academic members of the National Petroleum Council.  President Harry S. Truman created this federal advisory committee in 1946 to advise the executive branch on oil and gas topics. The other two academics from universities were a geologist and a professor of energy law. All but three other members were heads of oil production or service companies.

Today's FREE Insights is by Shawn Regan.  It updates an article I wrote with Montana State University colleague Richard Stroup when I was a National Petroleum Council member. The logic stands and has relevance today.  

Then, as now, energy exploration and production was highly contentious, especially among the Greens.  They were and remain today solidly opposed to exploration on federal lands that provide wildlife habitat.  What would happen, I speculated, if environmental groups owned such lands? 

The answer seemed obvious to my students.  When environmental organizations hold ownership, they can set conditions, carefully establish monitoring standards, and then sell exploration and production rights to energy companies. 

Students understood this from studying examples that my Montana State University colleagues and I discussed in popular and academic publications.  These include my WSJ column “Oil and Ecology Do Mix” in 1987 and the Reason Magazine cover story, “Saving the Wilderness, a Radical Proposal” in 1981.

Examples of conservation groups cooperating with energy companies include the Welder Wildlife Foundation Refuge in Texas and the Audubon Society's Rainey Sanctuary in Louisiana.  In the Welder case income from oil and gas leases and royalties supported the Foundation Refuge.  Audubon, a large national organization with some 400,000 members, also leased their Rainey Sanctuary lands and did so for nearly 50 years.

The logic underlying such energy production is straightforward. When an organization owns land with energy potential several things happen.  First, it can set the conditions of exploration and production to protect wildlife and its habitat.   Second, the organization faces the lost opportunities of revenue foregone if it ignores energy potential.  These opportunities include buying more land for wildlife or improving or protecting habitat on their reserve or elsewhere.

Audubon, for example, used some of the revenue from their leases on Rainey Sanctuary to lobby against drilling on federal lands in Montana.  Hypocritical?  Not really.  Audubon had no significant ability to set conditions for energy exploration and production on federal lands.  Hence, given their mission, it was better to be safe than sorry.  (Also, opposition to energy exploration was a good fund-raiser.) 

In sum, property rights matter a great deal when considering wildlife habitat.  I enjoyed reading Regan’s account of a timeless truth; property rights are important tools for achieving environmental quality and protecting wildlife habitat.

What Would Environmentalists Do If They Owned ANWR?

By Shawn Regan, Bozeman Montana

Reason Magazine, February 5, 2015 

The debate over the Arctic National Wildlife Refuge reemerged... as the Obama administration announced new protections for the vast, oil-rich Alaskan landscape. The Department of Interior is placing the 30,000 square mile ANWR off-limits to drilling, and the president wants Congress to further designate the refuge as wilderness—the highest form of federal protection.

The reactions were typical. Industry groups said the restrictions are “tying American's hands against a future of affordable and reliable energy.” Environmental groups praised the move. "Some places are simply too special to drill," said Jamie Williams, president of The Wilderness Society. The Center for Biological Diversity urged Congress to permanently protect the area “before it's destroyed for short-term profit.”

But talk is cheap, so here's a thought experiment: What would happen if we left the fate of ANWR up to environmentalists? What would they do if they owned ANWR?

Consider the National Audubon Society, one of the many environmental groups supporting the new protections for ANWR. “Drilling is a dirty and dangerous business that has historically always resulted in spills and harmed the environment,” says the group, which has long opposed any drilling in ANWR.

But cut through the rhetoric and consider how the Audubon Society manages its own private wildlife refuges. For nearly 50 years, the group allowed oil and gas drilling on its 26,000-acre Paul J. Rainey Sanctuary in Louisiana. The sanctuary protects important habitat for thousands of migratory birds and other wildlife. Beginning in the 1950s, several oil companies drilled dozens of wells in the sanctuary.

In 1981, Reason broke the story of drilling on the Rainey Sanctuary. “Gas wells in terrain managed by professional, dedicated environmentalists may seem almost as out of place as free drinks at an AA meeting,” wrote John Baden and Rick Stroup. "What happened to the hostility that has come to exist between resource developers and conservationists? Have the lion and the lamb laid down together in the same field?"

The Audubon Society ensured the drilling was done carefully. The companies had to comply with strict limits on drilling, including restrictions on pumping during bird nesting season. As one journalist observed in Audubon magazine, "There was this timelock, and when the cranes punched in, the hardhats would have to punch out." These precautions were necessary, said sanctuary manager John Anderson, because Audubon's members "would be very irate if we polluted our own environment, our own land, our own sanctuary."....

Why would Audubon allow drilling on its own sanctuaries but oppose drilling elsewhere? "Different incentives lead to different behavior," say Baden and Stroup. Private ownership forces Audubon to consider the tradeoffs associated with managing the sanctuary and the opportunity costs of leaving the oil and gas untapped. In exchange for drilling on the Rainey Sanctuary, Audubon earned more than $25 million in royalties, which it was able to use to purchase and protect even more land.

Although oil and gas production ended on the Rainey Sanctuary in 1999, Audubon has considered reopening the sanctuary to drilling. New directional drilling techniques enable companies to extract oil and gas beneath the preserve with little or no impact to its wetland habitat. The profits would help Audubon tackle marsh restoration projects and fight coastal erosion on the sanctuary.

Back in Alaska, the story is much different. Audubon opposes virtually all oil and gas production in ANWR and on all federal lands. Under public ownership, the incentives for compromise are practically zero. Audubon has no reason to consider the development potential in ANWR because, unlike with the Rainey Sanctuary, they stand to receive none of the benefits.

And those benefits could be substantial. A study by economists Matthew Kotchen and Nicholas Burger pegged the value of the oil beneath ANWR at $374 billion with an oil price of $53 per barrel—not far from today's price. With that kind of money, environmentalists would be forced to consider what additional environmental value could be gained by allowing at least some drilling in ANWR.... Under private ownership, environmental groups could assess that tradeoff, just as Audubon did on the Rainey Sanctuary, to achieve the greatest environmental value.

.... Private ownership gives environmental groups a strong incentive to balance conservation with resource development and resolve competing demands in a cooperative, mutually beneficial way.

Property rights matter. When environmental groups bear the costs of managing their own lands, their behavior is often very different than what they advocate on publicly owned lands. The experience of the Audubon Society suggests that there is a more sensible approach to environmental problems than the political environmentalism we know today. But, unfortunately, you're not likely to find it in the political debates over ANWR.