A Sustainable Development Framework for Coalbed Methane Development
| Jurisdiction | United States |
(Nov 2002)
A Sustainable Development Framework for Coalbed Methane Development
Pendergast Sarni Group LLC
Denver, Colorado
ROCKY MOUNTAIN MINERAL LAW FOUNDATION
SPECIAL INSTITUTE ON REGULATION AND DEVELOPMENT OF COALBED METHANE
INTRODUCTION
Coalbed methane is a resource with important potential. Whether that potential is realized depends heavily on the framework in which that resource is developed.
The goal for development of any resource - particularly one which is in large part publicly owned - should be maximising human welfare in the long run. This objective is particularly important in the case of depletion of a non-renewable resource such as coalbed methane. Achieving it requires that at the end of the day the total fund of capital available to society and the individuals within it is greater than it was at the outset. But it also requires an understanding that the available capital on which we all depend takes a number of forms - that natural capital and human capital, for example, also need to be counted in the equation.i There are many examples of natural resource development that have by this measure been successful; there are also many which have proven unsuccessful.
The promise is use of coalbed methane to create capital that will continue to yield benefits as the resource is depleted: better educated people, stronger communities, useful infrastructure, more productive ecosystems. The threat is a short sighted development that squanders and irreplaceable resource and leaves depleted ecosystems, destabilized communities, and useless capital equipment.
Whether our actions today to develop coalbed methane will ultimately prove to be successful or unsuccessful depends in large part on our ability to create an enabling framework that allows economic incentives and competition to function effectively, while insuring that other forms of capital are protected and enhanced in the process. That framework is in many ways the focus for this Special Institute which comes at a time when many of the elements of the regulatory system are still emerging and important questions are unanswered.
All economic activity takes place within a framework. Part of this framework is provided by law: the Constitution, statutes, regulations, and judicial decisions, and the public institutions that enact, administer and resolve disputes under these provisions. These broad systems that apply to everyone shade into the rules created by private agreements such as leases, contracts and conveyances, and private dispute resolution mechanisms such as arbitration. These in turn are closely related to non-legal but very
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important customs and social conventions such as customary trade practices, expectations based on course of dealing, and socially accepted ideas of what is fair or appropriate behavior. In total, all of these things combined are sometimes referred to as a system of governance for an industry or economic sector.
But what is the set of ideas that can orient the activities of the public actors who are so important to establishing the parameters of any framework, and those who seek private economic benefit from it, and those who are in one way or another affected by it? Surely the idea of a shared framework has to be based on some set of shared values or ideas; some vision of where society and individuals are going and how to get there.
There has been considerable interest in the body of ideas referred to as sustainable development as a potential organizing principle to guide both the broad framework and the activities of companies, individuals, and other organisations within that framework. In a relatively new and growing industry such as coalbed methane development, where much of the framework is still in development and there are many unanswered questions, the need for some set of orienting principles may be particularly acute.
Sustainable development offers multiple potential benefits as such an organizing concept. Among these are:
• A useful and sensible framework for officials to make tradeoffs among competing values and priorities.
• A way for companies to build business value.
• A way to ensure that the use of a nonrenewable resource leaves society better off when we are done.
• Ways to manage inevitable conflicts in a manner that reduces transaction costs and comes to better results.
I. BASIC CONCEPTS
The idea of sustainable development is not new. It was given wide exposure by the work of the Brundtland Commission,"ii accepted by virtually all governments in the 1992 Rio Declaration, and again endorsed at the recent World Summit on Sustainable Development in Johannesburg.iii This is not the place for a history of the idea of sustainable development.iv But certain basic concepts are important to the argument.
The Brundtland Commission definition is still widely used and accepted:
"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."
From this definition and considerable subsequent thinking it is possible to derive perhaps five core ideas:
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• Sustainable development is in part about development; meeting the economic needs of the present generation.
• Human welfare depends not just on economics. Quality of life is also critically dependent on social development.
• Sustainable development is about meeting everyone's basic needs. Benefits need therefore to be distributed as equitably as possible.
• Development is not Sustainable if it does not respect ecosystem limits.
• Our current actions must build the basis on which future generations can meet their own needs.
These general principles are more easily subject to quantitative analysis if the human resource base is regarded as divided into a series of at least potentially quantifiable capital stocks.
"The idea of 'capital' lies at the heart of Sustainable development. This goes well beyond the common idea of financial capital and has five main forms:
• Natural capital, which provides a continuing income of ecosystem benefits, such as biological diversity, mineral resources, and clean air and water;
• Manufactured capital, such as machinery, buildings, and infrastructure;
• Human capital, in the form of knowledge, skills, health and cultural endowment;
• Social capital, the institutions and structures that allow individuals and groups to develop collaboratively; and
• Financial capital, the value of which is simply representative of the other forms of capital."v
The central idea is clear: activities that build these capital stocks are consistent with principles of Sustainable development. Activities that detract from them leave us as a society worse off and are inconsistent with principles of Sustainable development. The framework for development therefore needs to provide means to ensure that activities do not accumulate one form of capital at the expense of an impermissible drawdown of other forms of capital.
One other concept is important to the analysis. This is the idea of scale. Sustainable development cannot be measured on a single scale. A usable concept is that actions must be judged on three scales: locally, where both positive and negative impacts are often (but not always) most evident; nationally, where the sovereign adopts many important policies and laws; and globally, where in a globalized world, some of the problems have to be solved.
These ideas are highly relevant to lawyers. As will be seen below, these general concepts can be refined into some very specific tools that can guide business
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behavior, help bring coherence to laws, policies and regulations, and help those affected by development steer that development into channels that create more positive and less negative externalities.
II. DEVELOPMENT OF NONRENEWABLE RESOURCES
Development of a nonrenewable resource poses some special challenges for sustainable development. In general, most of those who have examined this issue in depth have concluded that use of nonrenewable resources is consistent with principles of sustainable development, provided (i) that there is an important need for them; and (ii) that the rate at which they are used is slower than the rate at which substitutes are becoming available.vi The clearer these eventual substitutes are and the more vigorously they are being pursued, the more the nonrenewable resource can be developed with confidence that it is not leading us into a very uncomfortable future box.
These issues can be termed need and availability. They determine the rate of use that is consistent with sustainable development, and the time scale on which substitutes must be in place.
Existence of a market demand is an important element of analysis of need. If the market is free of subsidies and there is no market demand, development will certainly be problematic. But need is more complex than this. There may well be people who would like to use whale oil to light their homes, and are willing to pay a price at which an entrepreneur could make a profit producing it. But we have made a social decision that they do not need this commodity. There may be people who have trouble keeping warm this winter but who cannot afford to buy the coalbed methane they need to meet this most basic of human requirements. It is therefore clear that what constitutes need requires a more sophisticated analysis than simply to say that market demand equals need. The elements of that analysis have been identified and are known.vii
Similarly, physical availability of coalbed methane is a key part of the question of availability, but far from the whole story. There is some uncertainty about the size of the physical resource, and varying estimates about how much coalbed methane remains to be discovered.viii There is also uncertainty...
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