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Valuation of Ecosystem Services in Proposed Offshore Drilling by Ella Wagener

Posted by: | April 11, 2011 Comments Off on Valuation of Ecosystem Services in Proposed Offshore Drilling by Ella Wagener |

Since the Deepwater Horizon oil spill wreaked havoc on the Gulf of Mexico’s environment and economy, there is a consensus that the laws and regulations surrounding offshore energy development must change.  Part of this change should be the inclusion of ecosystem services valuation as part of the decisionmaking process.  Earth Economics just released a report concluding that  the Mississippi River Delta’s natural capital has a minimum asset value of anywhere from $330 billion to $1.3 trillion.  The report also highlights the important ecosystem services of the Delta, such as protection from floods and hurricanes, water supply, water quality, recreation, and fisheries.  While, the total cost of damage to the delta’s ecosystem from the oil spill will not be certain for years, there is little dispute that the oil spill resulted in significant degradation of these valuable ecosystem services, a huge loss to the Gulf’s economy, which is greatly reliant on these services.

            Looking at history, these types of catastrophes have and will continue to happen, and the damages will be felt long into the future. For instance, ecosystem services damaged by the infamous Exxon Valdez Oil Spill are still recovering 20 years later. Therefore, future offshore energy development must be more sustainable by considering the effect of the current  development of natural resources on future generations’ abilities to benefit from the Earth’s natural capital as well.  From both an ecological and economic standpoint, valuation of ecosystem services will lead to more sustainable decisionmaking, because it will provide a more accurate evaluation of the costs and benefits of the development and create greater protection for the valuable assets that ecosystem services provide. There are, of course, risks in valuing ecosystem services.  For instance, in valuing ecosystems solely in terms of dollars, the inherent, unquantifiable value of these ecosystem services might be lost in the dialogue.  On the other hand, money speaks to everyone, so quantifying ecosystem services may garner broader support from both sides of the aisle. Therefore valuation of ecosystem services should try to encompass both the quantitative and qualitative value of ecosystems.

            One way to easily include the valuation of ecosystem services in the decisionmaking process would be as part of the National Environmental Protection Act (NEPA) process.[i] Section 102 of NEPA requires agencies to “initiate and utilize ecological information in the planning and development of resource-oriented projects.[ii] Also, if an agency action is expected to have significant environmental effects,  the agency must address “the relationship between local short-term uses of man’s environment and the maintenance and enhancement of long-term productivity.”[iii]   Valuation of ecosystem services would support these substantive goals, because as scientists understand ecosystem services better and economists innovate new ways to quantify these services, valuation of ecosystem services can give new insight to the ecological effects of resource development and balance the short-term benefits of resource development with the long-term benefits of maintenance and enhancement of ecosystem productivity.

            Valuing  ecosystem services in the NEPA process will create decisions that are more informed, more efficient, and more sustainable. First, valuation of ecosystem services should be done as part of the environmental analyses for both large-scale and site-specific offshore drilling proposals. Considering the value of ecosystem services would not only help to identify regions of high ecological value, but also proposed drilling sites with particular ecological value, such as sites close to irreplaceable wetlands that have important ecosystem services, such as flood protection, increasing water quality, and maintaining biodiversity.  While these analyses would vary in specificity based on the area encompassed by the proposal, alternative regions and sites could be considered, so that energy development takes place in less ecologically valuable areas, leaving critical ecological areas intact for future generations.  

            One of the major concerns with permitting offshore development, is how to properly regulate risk. While worst-case scenarios have happened with both the Deepwater Horizon and Exxon-Valdez spills, the risk of  such large-scale oil spills are relatively low.  Offshore drilling does not generally have significant, long-term effects on the environment.[iv] However, the facts that these spills have happened, will continue to happen, and cause significant damage in terms of both dollar figures and biodiversity, are clear indicators that more should be done to minimize these risks. The first step would be considering these worst-case scenarios in the NEPA analyses. Again, valuing ecosystem services as part of a NEPA analysis would help BOEM better understand the risk by putting both a quantitative and qualitative values on those resources that would be destroyed in a worst-case scenario.  Furthermore, BOEM’s approval of permits for exploration and drilling could be conditioned on increased monitoring, mitigation, and prevention of the damaging effects of energy development on these ecosystem services.

            The legal process surrounding offshore energy development in the Gulf is changing.  The New York Times recently reported that “environmental groups have dispatched attorneys to the Gulf Coast to challenge drilling under [NEPA],” indicating a “legal shift” in the Gulf where drilling projects have historically been unchallenged. These legal challenges to offshore energy development under NEPA could assert that environmental assessments are inadequate unless they include the valuation of ecosystem services, and that any approvals of offshore energy development projects must include mitigation and prevention plans for damages to important ecosystem services. While these types of challenges may not be successful in court, they would send signals to the Secretary of the Interior and BOEM, that valuation of ecosystem services should be considered in the new and improved agency planning of offshore energy development.

            The federal government is currently restructuring the NEPA process for offshore energy development.  On August 16, 2010, the Secretary of the Interior, Ken Salazar, and the Director of BOEM, Michael R. Bromwich, announced that BOEMRE (BOEM) would restrict the use of categorical exclusions for offshore oil and gas development, while the department undertakes a comprehensive review of the NEPA process for exploration and drilling on the Outer Continental Shelf. As part of this review, the federal government should strongly consider the use of ecosystem services valuation in the NEPA process to more accurately portray the costs and benefits of proposed exploration and drilling. 

            The importance of ecosystem services is not a new concept among governmental agencies working in the Gulf.  Government agencies have already begun to incorporate protection and restoration of ecosystem services into future planning in the Gulf.  On February 9, 2010, the NOAA Administrator, Jane Kubchenco delivered a keynote address entitled “Beyond Recovery: Moving the Gulf Toward a Sustainable Future,” in which she highlighted the inseparable nature of the environment and the economy, particularly in the Gulf,  and how ecosystem services have been “often taken for granted, and rarely valuated.” Therefore, involving the valuation of ecosystem services in the NEPA process is a natural next step for BOEM and will enable the agency to make more efficient and more sustainable decisions regarding future offshore energy development.

[i] See, e.g., Robert L. Fischman, The EPA’s NEPA Duties and Ecosystem Services, 20 Stan. Envtl. L. J. 498 (2001).

[ii] 42 U.S.C. § 4332(2)(H) (2006).

[iii] 42 U.S.C. § 4332(2)(C)(iv) (2006).

[iv] Donald F. Boesch, et al., An Assessment of the Long-Term Environmental Effects of U.S. Offshore Oil & Gas Development Activities: Future Research Needs in Long-Term Environmental Effects Of Offshore Oil And Gas Development 1, 28 (2003).

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