Cost-benefit analysis can help environmentalists battle offshore drilling 2

In the last few weeks, two major barriers to renewed offshore oil drilling have fallen. In a decision on the Exxon-Valdez oil spill case, the Roberts Court severely limited liability for big spills. Now, President Bush has abrogated the executive order stopping offshore oil drilling. The only thing standing between new oilrigs and the ocean floor is Congress. In a time of fiscal crisis, environmentalists will have to make a strong case against the economic wisdom of offshore oil drilling to ensure that Congress does not pay dearly for its continued opposition.

The benefit of punitive damages

Congress and the president decided decades ago to ban new offshore oil drilling. However, even without the federal ban, the threat of big jury awards would have chilled an oil rush in the ocean. Drilling offshore is dangerous, and there is an ever-present risk of catastrophic environmental damage. If juries were free to impose big penalties for environmental destruction, the risk of catastrophe would weigh heavily on the ledger.

With the Supreme Court limiting punitive damages to a 1:1 ratio of "actual" damages, juries' hands are tied, even in the face of grossly irresponsible conduct like we saw on the Exxon-Valdez. This limit on liability will be a warm blanket for the next generation of offshore oil explorers.

Bad idea drilling

Given the massive risks of offshore oil drilling it is hard to believe that Bush or McCain -- who has also supported new drilling -- could produce a credible cost-benefit analysis showing that it makes economic sense. The value of the oil would have to offset threats to natural resources and the large value that Americans place on unspoiled wilderness and unharmed ecosystems.

Even aside from the risk of drilling, bringing more oil into the economy will produce little long-term benefit. While it might reduce the price of gas in the short run, it will also reduce incentives to develop more fuel efficient cars and alternative energy sources. Supply-side strategies like offshore oil drilling are ultimately doomed to fail. The result will be more pollution -- threatening public health and contributing to global warming -- with little tangible benefit to show for it.

Suspenders -- no belt

With the ban in place, the threat of big liability was a belt-and-suspenders safeguard. But now that the Court has taken away the belt, and the president has lifted the executive ban, all we have is Congress -- already panicking over the price of gas. This is not a comforting thought.

As long as there is a perception that environmental protection is bad for the economy, support for strong regulation will always be tepid. The fact is, that economic analysis often justifies strict environmental and public health regulation. Often, it is only when the economics are manipulated or ignored that a laissez-faire approach to the environment present a tempting mirage. But if Congress continues to labor under the false idea that good economics supports less regulation, the suspenders are in danger of coming off. Even if Congress stays strong, if the public believes that environmentalists' concerns are trumping economic values, there will be a price paid in November.

Cost-benefit analysis can help

Without the threat of big jury awards looming over offshore oil rigs, it is doubly important for environmentalists to show Congress and the public that drilling is not only unsound environmental policy, but is also bad economics.

Historically, however, some environmental groups have been hesitant to embrace cost-benefit analysis. That hesitation has historical, not conceptual, roots. Cost-benefit analysis came on the scene during the tenure of President Ronald Reagan, and was used as a smokescreen for his antiregulatory agenda. Many environmental groups developed an institutional distaste for cost-benefit analysis after seeing it continually used and abused to roll back hard fought gains on environmental issues.

In researching our book, Retaking Rationality, we found that over thirty years, antiregulatory interests have left their mark on cost-benefit analysis, creating several biases in how economic costs and benefits of regulation are measured. In order for cost-benefit analysis to realize its full potential, progressive groups will have to fight these biases.

Supporting the suspenders

Without the threat of harsh liability, Congress is the only backstop on offshore oil drilling, especially if Senator McCain wins the election in November. Cost-benefit analysis may be just the tool required to give Congress the backbone it needs to stand up to the special interests urging more drilling as a band-aid for this country's oil addiction.

To build this backbone, environmentalists will have to drop their old concerns about economic analysis, and give cost-benefit analysis the benefit of the doubt. The tool is there for them to use; they need only pick it up.

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