While economists are most often going to just discuss utility as it relates to humans, drilling immediately gets a boost because the main argument against drilling deals with the protection of non-humans. The real utility of drilling, however, seems to be relatively low. Research has reported that the area of the ANWR would yield somewhere between 5 billion and 10 billion barrels of crude oil, which would become about 10% of the domestic oil production. While this seems like a large number, these barrels would only be about half of one percent of global oil consumption and would not have any impact on global oil prices. So for the average American this drilling would not change life at all, and ultimately the parties that would benefit the most would be the oil companies that have already been making record profits. One major benefit in this economy would be that this domestic production could cut the import of foreign oil by as much as $100 billion dollars, which would go to America instead of being spent to foreign entities.
The arguments against drilling are mostly associated with the fragile ecosystems that would be affected by this drilling. While the oil companies report that only 20,000 of the millions of acres of the refuge would be affected, outside sources report that the number would be much higher. The animal that would be most affected by the drilling would be the Porcupine Caribou, but also many other species would be affected. The drilling's effects on the caribou could also have effects on aspects of the ecosystem that rely on the caribou. While this ecosystem does not have much or any utility for almost anyone in the country, there are a small population of people that do live around the area that wants to be drilled. There are also many unknown global environmental effects that this could cause, and in this day of global warming, destruction of this fragile ecosystem could have adverse effects for people around the world.
So which strategy holds the most utility. Well, when discussing what would do the greatest good for the greatest amount of people, one has to go with supporting the drilling, because the creation of jobs for Americans and reduction of money being spent to foreign companies could help resurrect the ailing American economy. From an economic standpoint the refuge holds almost no utility, because it will never be a money making tourist attraction like Yellowstone. So, economically, drilling should occur in the ANWR, but taking economics out of the equation, the issue is essentially a push. This is another example of how economic utility can be very different than the value of an area or product to the world as a whole.
Adam,
ReplyDeleteYou're end conclusion that drilling should occur is correct. But I have to disagree with pretty much everything else.
1)Drilling in ANWR WOULD lower the price of oil. The reason oil was so expensive this past summer was because of speculation. This speculation was based on the uncertainty of the oil supply. This uncertainty was a result of the instability in the Middle East and OPEC. Increasing access to this domestic oil would alleviate these worries and allow oil to return to its fair value. Had congressed passed a resolution allowing ANWR/Off-shore drilling the price of oil would have immediatley fell. But that is irrelevent now that oil is back down to $50/BBL.
2)Drilling in ANWR would not disturb wildlife. The drilling area is restricted to 2000 acres of the 19 million acres in Northeast Alaska. Imagine a postage stamp on a football field...this would be the footprint of the drilling.
3)Americans would profit more than the oil companies. Credit to Sarah Palin for legislating that royalties from oil production be passed on to Alaskans in the form of $1200 rebate check. And since when is it bad that oil companies make money??? The stock of these companies is a large component of most 401K, retirement and pension accounts. The better these companies do, the more valuable these accounts become.
4)There would be NO disruption to wildlife. Prudhoe Bay is an area where drilling has occured since 1977. The Caribou population in this area alone has grown from 3000 to 23,000 since drilling began. In fact, some environmentalists report that young Caribou sometimes gather around the pipelines for warmth.
I unfortunately know nothing about drilling in Alaska, but the discussion and disagreements about natural areas reminds me of other problems we are seeing around the world. With an increasing population and an increasing demand of pretty much everything people are trying to make the best use out of the land. The wild natural areas all over the world are decreasing in favor of more profitable industry. Many times the negative externalities of doing this is pretty clear, wildlife is affected, forests holding on to a lot of carbon dioxide that are then released contributing to more global warming and so on. But other positive externalities can come from supporting a “healthy” nature. Take for example the rainforests, as we all know the areas of rainforest are decreasing rapidly, there are enormous values in these forests and locals and other companies are totally overharvesting these resources trying to raise their income and utility. But the rainforest are more than just valuable timber, currently around 120 prescription drugs sold global come from plant-derived sources. While 25% of Western pharmaceuticals are derived from rainforest ingredients, less that 1% of these tropical trees and plants have been tested by scientists. So by cutting down the rainforest and damaging other natural areas we are maybe ruining our chances of getting the rest of these positive externalities that keeping our wild ,natural areas alive has to offer us trough for example medicine that again can raise our well being and utility.
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