Friday, August 27, 2010

Time to lift the partial moratorium on off-shore drilling?

The Bipartisan Policy Center, a non-profit organization that was founded by four former Senate majority leaders, has just released a report that concludes that an appropriate regulatory regime has been established to take the place of the partial moratorium on deepwater oil drilling that was imposed after the BP disaster.

Specifically, the report concludes
The Department of Interior’s drilling moratorium has served the productive purpose of allowing time for both industry and government to prepare for a safer, more vigilant, and dependable future for U.S. offshore drilling. We believe DOI and the industry have used this time effectively to develop a new regulatory regime for drilling in the Gulf of Mexico. At the same time, we readily agree with the oft-made point that drilling risks cannot be reduced to zero. But we are satisfied that compliance with the Interior Department’s NTLs 5 and 6 and other actions by the Department will achieve a significant and beneficial reduction of risk. If industry is diligent in incorporating these requirements and DOI is vigilant in oversight and enforcement, we believe this new regime will provide an adequate margin of safety to responsibly allow the resumption of deep water drilling in the Gulf of Mexico.
Lifting the moratorium and replacing it with a new regulatory regime is not a magic bullet--oil drilling would not resume immediately and the drilling that eventually would occur wouldn't be riskless.

With respect to the first point, affected drilling would continue to be halted for some time while companies bring themselves into compliance with the regulations. Thus, the lifting of the moratorium doesn't translate into an immediate resumption of drilling.

Moreover, the new regulations will increase the costs of deepwater drilling and are likely to discourage some activity. So there would be a reduction in future drilling activity. The recommendations are far from "drill, baby, drill."

With respect to the second point, the report makes clear that many risks would remain and that more steps need to be taken to prepare for possible disasters. The report also makes clear that the changes in the regulatory regime are just starting and that more work and research will be needed.

The administration's drilling ban was an appropriate but controversial (and as the report indicates "blunt") response to the BP disaster. While some criticized the economic impacts, imagine the response if another rig disaster had occurred. Given the problems and uncertainties that existed at that time, the ban was the right policy call.

The administration, however, has backed itself into a corner with the ban. The legality of the ban is in question (the initial moratorium was struck down by a federal court, and it's not at all clear whether the follow-on moratorium will survive judicial review). Moreover, the moratorium is idling work at a time when the economy is barely limping along. The administration is surely looking for a way to move forward.

Hopefully, this report will give it the political cover to do so and provide a blueprint for a more responsible energy policy.