In the United States, the Department of the Interior (Interior) is in charge of leasing offshore lands to private companies for oil and gas drilling. Drilling activities can generate substantial benefits, including cheap energy for consumers. However, they also generate significant externalities, including oil spills and greenhouse gas emissions from consuming the extracted fuel.
The Outer Continental Shelf Lands Act (OCSLA) requires Interior to consider the “economic, social, and environmental values” of outer continental shelf resources when issuing an offshore leasing plan. Specifically, Interior must develop a five-year plan that identifies the appropriate “size, timing, and location” of offshore leases it will offer for oil and gas development. This report examines how Interior’s methods for evaluating the economic, social, and environmental values of offshore leasing have evolved over the past 45 years.
As the report explains, Interior’s methodology underpinning its five-year plans has become more complete and consistent over time. Interior’s first five-year plan only considered producer surplus. This approach failed to meet the statute’s directive, as it did not consider the economic, social, and environmental values of the Outer Continental Shelf (OCS) resources.
Over time, Interior developed a more rational and balanced framework that also accounts for consumer benefits and externalities. Although Interior’s current methodology has room to improve, the agency has developed a more complete and consistent methodology over time.
To best fulfill OCSLA’s mandate, Interior should continue to consider and balance producer surplus, domestic consumer surplus, upstream externalities, and downstream externalities. Failing to consider any of these buckets would reverse the agency’s long-term progress toward a more balanced resource valuation framework, and may result in an analysis that does not fulfill OCSLA’s mandate that Interior rationally consider economic, social, and environmental values when managing OCS resources.