B.C. Offshore B.C. Offshore Hydrocarbon Hydrocarbon Development:Development:

Environmental Risks and Environmental Risks and Policy PerspectivesPolicy Perspectives

Notes for RemarksNotes for Remarks

ByBy

Rod DobellRod Dobell

Professor of Public PolicyProfessor of Public Policy

University of Victoria;University of Victoria;

PresidentPresident

Maritime Awards Society of CanadaMaritime Awards Society of Canada

AtAt

B.C. Offshore Oil and Gas ConferenceB.C. Offshore Oil and Gas Conference

Western Policy ConsultantsWestern Policy Consultants

Vancouver, B.C.Vancouver, B.C.

October 2, 2001 (revised October 3)October 2, 2001 (revised October 3)

The overall The overall policy policy problem*problem*

Offshore resources offer potentially great but Offshore resources offer potentially great but highly uncertain economic benefits in a highly highly uncertain economic benefits in a highly volatile market settingvolatile market setting

If (and only if) all precautionary measures are If (and only if) all precautionary measures are taken and all regulatory constraints are taken and all regulatory constraints are respected, production and environmental risks respected, production and environmental risks may not be “unacceptably” greatmay not be “unacceptably” great

This is a standard risk/return problem, a This is a standard risk/return problem, a standard task in project appraisal or standard task in project appraisal or investment decision. Why is it not simple?investment decision. Why is it not simple?

* BC Offshore Hydrocarbon Development: Issues and Prospects. A * BC Offshore Hydrocarbon Development: Issues and Prospects. A Background Report Prepared by the Maritime Awards Society of Background Report Prepared by the Maritime Awards Society of Canada (Douglas Johnston and Erin Hildebrand, eds) October, 2000Canada (Douglas Johnston and Erin Hildebrand, eds) October, 2000

The issue is not simple because there The issue is not simple because there is:is:

Vast uncertainty around the returnsVast uncertainty around the returns and the distribution of returnsand the distribution of returns

Profound uncertainty around the risksProfound uncertainty around the risks and the distribution of risk burdensand the distribution of risk burdens

Widely varying perceptionsWidely varying perceptions of risks of risks Unknown risks of Unknown risks of possibly irreversible possibly irreversible

impactsimpactsTogether all these create another layer Together all these create another layer

of complexity in dealing with of complexity in dealing with environmental concernsenvironmental concerns

The distribution of benefits is at The distribution of benefits is at issue – jurisdiction, ownership and issue – jurisdiction, ownership and revenue-sharing problems raise revenue-sharing problems raise fundamental questions of ‘fairness’ fundamental questions of ‘fairness’ and justice, particularly with respect and justice, particularly with respect to First Nationsto First Nations

The distribution of benefits is also The distribution of benefits is also diffuse—they show up as wages for diffuse—they show up as wages for some, lower fuel bills for others,…some, lower fuel bills for others,…

Other questions of social risk arise – Other questions of social risk arise – development poses serious threat to development poses serious threat to ‘cultural sustainability’ for some in ‘cultural sustainability’ for some in remote communities, First Nationsremote communities, First Nations

Risks and returns are not aligned--the Risks and returns are not aligned--the distribution of risks will be very distribution of risks will be very different from the distribution of different from the distribution of benefitsbenefits

Perceptions of the magnitudes of Perceptions of the magnitudes of these risks will differ dramatically these risks will differ dramatically from statistical estimatesfrom statistical estimates

Cumulative risks, possibly enduring Cumulative risks, possibly enduring or irreversible, to food webs or or irreversible, to food webs or ecosystem integrity will be hard to ecosystem integrity will be hard to estimateestimate

The precautionary principle will be The precautionary principle will be invoked, but will be hard to applyinvoked, but will be hard to apply

The problem of risk perceptions is The problem of risk perceptions is crucial—we don’t reason well about crucial—we don’t reason well about riskrisk

Perceptions of Perceptions of likelihoodlikelihood or frequency or frequency of risks are distorted, but through of risks are distorted, but through discussion might be brought to discussion might be brought to converge toward statistical estimatesconverge toward statistical estimates

Perceptions of the Perceptions of the magnitudemagnitude of risks of risks hinge on many characteristics, differ hinge on many characteristics, differ widely among people, and can not widely among people, and can not readily be brought into line with readily be brought into line with quantitative estimates. (E.g., almost quantitative estimates. (E.g., almost ten times as many people die in traffic ten times as many people die in traffic accidents every year in the US as died accidents every year in the US as died due to terrorist actions last month—due to terrorist actions last month—but the response is not proportional)but the response is not proportional)

Overhanging all is the question of global Overhanging all is the question of global change, climate warming, greenhouse gas change, climate warming, greenhouse gas emissionsemissions

There have been international commitments There have been international commitments to stabilize GHG concentrations in the to stabilize GHG concentrations in the atmosphere at levels that do not pose risk of atmosphere at levels that do not pose risk of dangerous consequences for humansdangerous consequences for humans

As a first step toward that goal, the Kyoto As a first step toward that goal, the Kyoto protocol established targets for reductions protocol established targets for reductions of GHG—but impassable implementation of GHG—but impassable implementation problems remainproblems remain

And now, overhanging even issues of And now, overhanging even issues of global atmospheric risks, are rising global atmospheric risks, are rising geopolitical conflicts and emerging geopolitical conflicts and emerging imperatives of continental energy imperatives of continental energy policypolicy

If there is no escaping the need to feed If there is no escaping the need to feed the US demand for fossil fuels, perhaps the US demand for fossil fuels, perhaps Canadians would be safer feeding it Canadians would be safer feeding it from here than by supporting continued from here than by supporting continued US demands for unrestricted access to US demands for unrestricted access to supplies everywhere else in the world, supplies everywhere else in the world, especially the Middle Eastespecially the Middle East

That is, perhaps BC will have to make That is, perhaps BC will have to make some unilateral sacrifices to reduce the some unilateral sacrifices to reduce the North American ecological footprint North American ecological footprint

So, in the medium-term, our provincial So, in the medium-term, our provincial government seems to face a choice government seems to face a choice between between

possibly massive economic returns possibly massive economic returns from extraction and export of oil and from extraction and export of oil and gasgasand and

a social commitment to responsible a social commitment to responsible behaviour in moving off fossil fuels behaviour in moving off fossil fuels and hydrocarbon energy sources and hydrocarbon energy sources towards alternative renewable energytowards alternative renewable energy

But then it is unclear which way the But then it is unclear which way the decision on the moratorium plays outdecision on the moratorium plays out

The existing moratoria on exploration The existing moratoria on exploration and development began as a ploy in and development began as a ploy in a jurisdictional fight; they were left in a jurisdictional fight; they were left in place in the late 1980s as a result of place in the late 1980s as a result of concern about oil spills from tankersconcern about oil spills from tankers

Since then they have transmuted, in Since then they have transmuted, in the public image, into environmental the public image, into environmental protection measuresprotection measures

A decision to lift the provincial A decision to lift the provincial moratorium, even if accompanied by moratorium, even if accompanied by complementary federal action, would complementary federal action, would only be a first step in policy only be a first step in policy measures to frame future private measures to frame future private sector decisions sector decisions

For the government, this introduces For the government, this introduces an interesting dilemma, the an interesting dilemma, the

appropriate appropriate choice of instrumentschoice of instruments in pursuing the policy goal of a shift in pursuing the policy goal of a shift ‘off-oil’ and promotion of alternative ‘off-oil’ and promotion of alternative

energy sourcesenergy sources

With the existing moratorium in place, one With the existing moratorium in place, one could pursue this policy goal through what could pursue this policy goal through what is essentially the regulatory instrument: is essentially the regulatory instrument: simply leave the moratorium on simply leave the moratorium on exploration and development as it standsexploration and development as it stands

Or one could pursue the same goal through Or one could pursue the same goal through economic instruments or market mechanisms economic instruments or market mechanisms (Ecological Fiscal Reform; Tax Shift): (Ecological Fiscal Reform; Tax Shift):

introduction of substantial carbon taxes;introduction of substantial carbon taxes; introduction of trading systems which permit introduction of trading systems which permit

purchase of emissions rights, but at purchase of emissions rights, but at potentially high prices; potentially high prices;

introduction of very high royalties and introduction of very high royalties and charges to ensure that the value of the charges to ensure that the value of the resource is reflected in costs to firms and resource is reflected in costs to firms and revenues to public resource owners revenues to public resource owners

Issues of revenue sharing will raise Issues of revenue sharing will raise the question whether all owners the question whether all owners (federal, provincial, local, and First (federal, provincial, local, and First Nations) are receiving the appropriate Nations) are receiving the appropriate return to their ownership (adequate return to their ownership (adequate to offset risks assumed); Pacific to offset risks assumed); Pacific Accord; EqualizationAccord; Equalization

High basic charges for the resource, High basic charges for the resource, and high penalties for its use as fuel and high penalties for its use as fuel may serve to divert the resource to may serve to divert the resource to higher value uses in petrochemicals higher value uses in petrochemicals or as resource inputs into a hydrogen or as resource inputs into a hydrogen economy (fuel cells and such like?)economy (fuel cells and such like?)

In effect, the government stance could be In effect, the government stance could be to promote development of the resource, to promote development of the resource, but only on a but only on a full-cost basisfull-cost basis, taking fully , taking fully into account all social and environmental into account all social and environmental costs and risks incurred by use of the costs and risks incurred by use of the resource, as an energy source or resource, as an energy source or otherwise otherwise

(This free-market environmentalism might (This free-market environmentalism might find favour with many supporters of the find favour with many supporters of the present government) present government)

If so, the moral commitment to a If so, the moral commitment to a clean environment and a medium-clean environment and a medium-term move to alternative energy to term move to alternative energy to support massive reduction in GHG support massive reduction in GHG emissions will mean a very high emissions will mean a very high cost track for offshore hydrocarbon cost track for offshore hydrocarbon developmentdevelopment

Hence, ironically, the Hence, ironically, the decision decision problemproblem for the industry may be for the industry may be

more difficult than that for the more difficult than that for the government.government.

Realistically, if there is full Realistically, if there is full enforcement of and compliance with enforcement of and compliance with all the precautionary regulatory all the precautionary regulatory measures requiring best available measures requiring best available technologies, there may be relatively technologies, there may be relatively little (insignificant, or acceptable) little (insignificant, or acceptable) risk to development of offshore risk to development of offshore resourcesresources

BUT: The financial exposure and risk BUT: The financial exposure and risk arising from development with very arising from development with very long lags in highly volatile markets, long lags in highly volatile markets, with governments increasingly with governments increasingly committed to increasingly activist committed to increasingly activist action on carbon taxes and like action on carbon taxes and like measures, may make the necessary measures, may make the necessary investments very risky from a investments very risky from a corporate perspectivecorporate perspective

IN THE END: The basic tensions may IN THE END: The basic tensions may be between the be between the proponentsproponents of of rapid development emphasizing rapid development emphasizing the large the large aggregate economic aggregate economic benefitsbenefits, ,

and and opponentsopponents who see the development who see the development

as introducing fundamentally as introducing fundamentally unacceptable human impactsunacceptable human impacts on a on a pristine natural world – as, morally pristine natural world – as, morally or aesthetically, inappropriate or aesthetically, inappropriate human conduct: human conduct:

‘‘the wrong way to use the oceans’the wrong way to use the oceans’

To resolve that dispute will To resolve that dispute will demand consultation and demand consultation and

deliberation, not calculation deliberation, not calculation and (cost-benefit) analysis.and (cost-benefit) analysis.

The basic issue is one of value The basic issue is one of value judgmentsjudgments

Not Not ““Sound Science”Sound Science”

And it raises the question how And it raises the question how long one can delay decision long one can delay decision

while waiting for consensus to while waiting for consensus to emergeemerge

What is perhaps even more difficult, in What is perhaps even more difficult, in the present climate, is that it also the present climate, is that it also

asksasks““Who is ‘us’?”Who is ‘us’?”

What are the bounds of our community What are the bounds of our community of concern? Who are ‘local’? of concern? Who are ‘local’?

Who have a claim to be recognized? Who have a claim to be recognized? Adjacent communities?Adjacent communities?

Vancouver shipyards and suppliers?Vancouver shipyards and suppliers?BC residents?BC residents?

Canadian citizens?Canadian citizens?All people, even outside North All people, even outside North

America?America?

And what is new now is: And what is new now is: *heightened concern for sustainable *heightened concern for sustainable

development (with a formal commitment development (with a formal commitment set out in the Premier’s mandate letter to set out in the Premier’s mandate letter to

Ministers);Ministers);*increased advocacy of a precautionary *increased advocacy of a precautionary

approach; approach; *widespread expectation of greater voice *widespread expectation of greater voice

and more inclusive participation; andand more inclusive participation; and*insistence on synthesis of traditional and *insistence on synthesis of traditional and

local ecological knowledge with local ecological knowledge with conventional scienceconventional science

All of these expectations are now All of these expectations are now entrenched in the legislative and entrenched in the legislative and

administrative marching orders for administrative marching orders for governments and public servantsgovernments and public servants

Thus, formally, what is new includesThus, formally, what is new includes Canadian Environmental Assessment ActCanadian Environmental Assessment Act BC Environmental Assessment ActBC Environmental Assessment Act Emerging environmental assessment Emerging environmental assessment

regimes of First Nations (e.g., Nisga’a)regimes of First Nations (e.g., Nisga’a) Joint review panels (e.g. Sable Island)Joint review panels (e.g. Sable Island) Joint environmental assessment processJoint environmental assessment process Judicial scrutiny (e.g. Tulsequah Chief)Judicial scrutiny (e.g. Tulsequah Chief) And another whole layer of scrutiny with And another whole layer of scrutiny with

the Commission on Environmental the Commission on Environmental Cooperation (e.g. BC Hydro factual Cooperation (e.g. BC Hydro factual records re enforcement of Fisheries Act)records re enforcement of Fisheries Act)

In issues of social risk, broadly In issues of social risk, broadly participatory deliberative processes participatory deliberative processes are essential to public acceptance of are essential to public acceptance of actionaction

The Process Design Team report and the The Process Design Team report and the recommendations of Northern recommendations of Northern Development Commissioner Development Commissioner Backhouse have not dampened Backhouse have not dampened community expectations about community expectations about consultations at allconsultations at all

Minister Neufeld announced a legislative Minister Neufeld announced a legislative committee to design a process, and a committee to design a process, and a scientific panel to review the issues; it scientific panel to review the issues; it remains to be seen what emergesremains to be seen what emerges

But with corporate bottom lines more But with corporate bottom lines more starkly drawn, and public starkly drawn, and public expectations about scrupulous expectations about scrupulous attention to ecological integrity and attention to ecological integrity and sustainability more strongly sustainability more strongly entrenched, and new legislation entrenched, and new legislation insisting on synthesis of traditional insisting on synthesis of traditional ecological knowledge in project ecological knowledge in project appraisal, and government appraisal, and government commitments to openness if not commitments to openness if not participation,participation,

it is perhaps unrealistic to expect oil it is perhaps unrealistic to expect oil or gas to flow from below the waters or gas to flow from below the waters off British Columbia any time soonoff British Columbia any time soon