The Wall Street Journal: Shell Game

August 23, 2007; Page A10

Just about everyone claims the U.S. must urgently become “energy independent,” yet at the same time just about every policy that may actually serve that goal is met with environmentalist opposition. That contradiction has impeded the Bush Administration’s attempts to increase domestic energy production. And even the modest progress so far may be blocked because litigation is driving the conflict out of politics and into the courts.

To see this trend at work, look north to Alaska, where lawsuits are blocking an offshore drilling program. Last week, the Ninth Circuit Court of Appeals granted an emergency stay that will suspend all operations until at least September, when the court will hear full arguments. The decision noted that the litigants — environmental pressure groups like the Natural Resources Defense Council — had shown “a probability of success on the merits.” Uh-oh.

This is bad news for Shell, whose three-year exploration program in the Beaufort Sea was green-lighted by the Department of the Interior in February. The company planned to sink up to four temporary wells this summer to determine the available resources. But there’s a limited open-water window before the winter ice moves back in, so the Ninth Circuit could delay work for a year, even if it decides in Shell’s favor.

The worst ramifications, however, could hit environmental and regulatory law. The greens argue that the environmental review process of the Interior agency responsible for domestic energy leasing, the Minerals Management Service, was incomplete. Allegedly, there are not enough protections for bowhead whales as they migrate to their winter grounds. They also say that the program could affect other wildlife and that there could be oil spills.

In fact MMS conducts a comprehensive environmental review. Ultimately, it found that the project would have “no significant impact” on the ecosystem. The agency has also spent more than $20 million studying the feeding and migratory behavior of the bowhead whales in the Beaufort Sea. Based on that research, it attached additional approval conditions on Shell beyond the statutory law designed to mitigate any possible effects.

Part of the environmental complaint was that Shell would disrupt the Inupiat Eskimos’ annual subsistence whale hunt. But the company brokered a “conflict avoidance agreement” that will stop all work for part of the migration season. As for oil spills, the two drill ships Shell would deploy were specially engineered to operate safely in the conditions of the Beaufort Sea. Plus, they’d be attended by an armada of barges to respond in case of an accident.

Even this painstaking and very expensive process wasn’t enough. In short, it’s hard to imagine any further precautions that would satisfy the environmentalists — short of a total ban on offshore drilling, which of course is their real objective. The environmentalists are pursuing a litigation strategy against every government agency involved. They have appealed decisions of the Environmental Protection Agency, threatened to sue the National Marine Fisheries Service, among others, and even sued to retroactively roll back all lease sales. With the Ninth Circuit, they finally found a court partner amenable to their demands.

Precisely because of the stringency of the review process, the environmentalists are developing some creative legal theories. The 1970 National Environmental Policy Act requires an Environmental Impact Statement. This orders the government to consider a “range of alternatives” when issuing any permits, and then to choose the one that offers “maximum protection” to the environment. The greens say that the option that provides “maximum protection” is not drilling. Ergo, the courts should stretch the statute to ban any exploration whatsoever.

But Congress and the executive are charged with determining what areas should be opened to development, balancing the public interest with environmental concerns. The law then provides for “maximum protection” within that context, which MMS has clearly done here.

The public interest in this case is domestic energy. The U.S. is one of the only countries in the world that chooses to lock up its natural resources. Since 2003, the Administration and Congress have lifted the federal moratoria on a few select areas of the Outer Continental Shelf. The Beaufort basin, which is estimated to hold 27.2 trillion cubic feet of natural gas and 8.2 billion barrels of recoverable oil, was one of those. A successful exploratory program could open a new frontier of energy.

That public purpose is what drives the greens bonkers, so they’re trying to create a legal backstop to prevent any Administration from doing what President Bush has done. The Shell case shows that even a long and expensive effort to address every conceivable concern can still be undone by lawsuits. If anyone wants to know why we’re still “dependent on foreign oil,” this is it.

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