Exploratory drilling in the arctic outer continental shelf.

• Author: Hoverman, Taylor

I. INTRODUCTION II. THE BACKGROUND OF THE PROPOSED RULE III. THE PROPOSED RULE IV. ECONOMICS OF REGULATION V. REACTIONS TO REGULATION VI. OTHER CONCERNS VII.CONCLUSION I. Introduction

In February 2015, the United States Department of the Interior ("DOI"), acting through the Bureau of Ocean Energy Management ("BOEM") and the Bureau of Safety and Environmental Enforcement ("BSEE"), released a proposed rule aiming to ensure effective, responsible, and safe future exploratory drilling activities on the United States Arctic Outer Continental Shelf ("OCS") while protecting the environment and Alaskan Native population. (1) To achieve this protection, the proposed rule employs more stringent standards and requirements for offshore exploration drilling operations, specifically in the Beaufort Sea and Chukchi Sea Planning Areas. (2)

Recently, there has been renewed interest in these areas due to projections indicating that they "contain sizeable quantities of commercially recoverable oil and gas resources." (3) To BSEE and BOEM, this increasing interest in exploiting the mineral resources of this area, as well as the many factors unique to the Arctic environment such as the "short operational season ..., geographical remoteness, and environmental conditions like sea ice encroachment," stress the need for a more stringent regulatory regime. (4)

The proposed rule's new requirements focus on several major concerns, among others: 1) ensuring that operators engage in adequate pre-operation planning, 2) enhancing the safety and environmental quality of exploration activities, and 3) improving the planning process for oil spill responses for activities on the Arctic OCS. (5) As will be explained in more detail below, the rule has received varied responses since its initial proposal. Environmental groups, such as Oceana, have expressed their support for the proposed rule, while also arguing that the rule still falls short of ensuring safe operations. (6) Conversely, industry has criticized the rule as having redundant and unnecessary requirements. (7) The biggest concern with the proposed regulation is the likelihood that it will impose significant costs on exploration operations, which will discourage exploration and production efforts. (8) This concern is even more alarming considering how low oil and gas prices are currently. (9)

The DOI accepted comments on the proposed rulemaking until May 27, 2015. (10) As of May 2016, the proposed rule and its accompanying comments are still undergoing the adjudication process, according to a BSEE official. (11)

This comment will begin by outlining the history of exploratory drilling operations in the OCS and the legislative and administrative background surrounding the DOI's recently proposed rule in Section II. Section III explains the various provisions of the proposed rule and how it will regulate exploratory drilling operations in the Arctic OCS. Section IV will provide an economic analysis of the proposed rule, as well as a discussion on the efficacy and efficiency of using economic analysis to evaluate environmental regulations. Lastly, Sections V and VI will discuss the reactions of various interest groups to the proposed rule, as well as various other concerns surrounding the proposed regulation, including issues such as environmental justice.

II.

The background of the Proposed Rule

The proposed rule will regulate exploratory drilling operations in the OCS seaward of Alaska ("Alaska OCS"), but more specifically, the Beaufort and Chukchi Sea Planning Areas ("Arctic OCS"). (12)

It is well known that the Arctic region has extensive potential for undiscovered and technically recoverable oil and gas.

"According to BOEM's 2011 Assessment [], there are approximately 23.6 billion barrels of technically recoverable oil and about 104.4 trillion cubic feet of technically recoverable natural gas in the Beaufort Sea and Chukchi Sea Planning Areas combined." (13)

As a result of the increase in melting sea ice, more areas of the Arctic OCS are opening up for longer periods of time, leading to an increase in commercial and recreational activities. (14) Previously, oil and gas exploration and production has been limited on the Arctic OCS because of "the challenging operational environment, distance from offshore infrastructure, and underdeveloped regulatory context." (15) Due to the vast amount of oil and gas potential, the energy industry is clearly among those interested in pursuing commercial activities in the Arctic OCS.

When the proposed rule becomes final, it will be one of many regulations governing the Arctic OCS. Twenty-five years after enacting the Outer Continental Shelf Lands Act ("OCSLA") in 1953, Congress made significant amendments to the OCSLA in 1978 to make the Arctic OCS "available for expeditious and orderly development, subject to environmental safeguards in a manner which is consistent with the maintenance of competition and other national needs." (16) Additionally, Congress stressed that development should be performed with:

"technology, precautions and techniques sufficient to prevent or minimize the likelihood of blowouts, loss of well control, fires, spillages, physical obstruction to other users of the waters [], or other occurrences which may cause damage to the environment or to property, or endanger life or health." (17)

Since then, the OCSLA has been further amended to create an "oil spill liability trust fund" to accrue a reserve for cleanup costs, (18) as well as a mechanism for awarding a portion of proceeds from leasing sales to affected coastal states. (19)

Under the OCSLA, the Secretary of the Interior is tasked with administering the leasing program for mineral exploration and development of the OCS. (20) Fifty-two years after the passage of the original OSCLA, the Energy Policy Act of 2005 added a subsection to the OCSLA, granting the Secretary of the Interior the authority to "grant a lease, easement, or right-of-way on the outer Continental Shelf" for producing and transmitting energy from sources other than oil or gas. (21) The Secretary of the Interior later delegated most of its authority under the OCS oil and gas program to the Minerals Management Service, which is now BOEM and BSEE after reorganization. (22) Accordingly, BSEE and BOEM are currently the two agencies responsible for overseeing OCS oil and gas activities. (23) BOEM is tasked with ensuring that oil development proceeds in an environmentally and economically responsible manner, which includes issuing leases, reviewing individual Exploration Plans, and overseeing environmental review. (24) The BSEE, on the other hand, enforces safety and environmental regulations, which separates and strengthens environmental analyses from resource management functions. (25)

Many events have led to BOEM and BSEE proposing this rule. First and foremost, the unfortunate Deepwater Horizon oil spill in the Gulf of Mexico in 2010 generated significant public concern and resulted in agency restructuring and further regulatory actions. (26) Fortunately, a similar incident has not occurred in the Alaska OCS. However, Shell Oil Company, which was actively involved in the Alaska OCS, nevertheless experienced many challenges to its exploratory drilling operations in 2012 due to:

"environmental and weather conditions, geographical remoteness, social and cultural considerations, and the absence of fixed infrastructure to support oil and gas activity, including resources necessary to respond in the event of an emergency." (27)

In response, the DOI released a report reviewing Shell's OCS oil and gas exploration program. (28) The report "identified a number of lessons learned and recommended practices to ensure future Arctic oil and gas exploration activities continue to be carried out in a safe and responsible manner." (29) These findings and recommendations included: integrating all phases of offshore operations, from preparations to drilling to emergency response plans, while providing extensive management and oversight by both the operator and the government; robustly managing and overseeing contractors; ensuring operators have an adequate understanding of the challenging environmental and weather conditions in Alaska; and coordinating with local and potentially affected communities. (30)

Additionally, BOEM and BSEE have developed this proposed rule in response to, and in coordination with, many previously articulated executive priorities. In July 2011, President Obama signed Executive Order 13580, which established the Interagency Working Group on Coordination of Domestic Energy Development and Permitting in Alaska ("Working Group"), a coalition chaired by the Deputy Secretary of DOI. (31) The Working Group is directed to facilitate "coordinated and efficient domestic energy development and permitting in Alaska while ensuring that all applicable [health, safety and environmental protection] standards are fully met." (32) In March 2013, the Working Group developed a report entitled "Managing for the Future in a Rapidly Changing Arctic, A Report to the President," which has helped to shape Arctic policies. (33) The purpose of the report was to provide policymakers with guidance when making decisions concerning the Arctic. (34) The report sought input from Alaska stakeholders and advocates for coordination among regulatory bodies, as well as the use of best available science, to integrate "economic, environmental, and cultural sensitivities and trends" into the decision-making process for development in the Arctic region. (35)

In March 2012, at Prince George's Community College in Largo, Maryland, President Obama addressed national energy policy, stating, "[w]e've got to invest in a serious, sustained, all-of-the-above energy strategy that develops every resource available for the 21st century." (36) The President's all-of-the-above strategy seeks to:

"expand[] production of American energy resources...