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U.s. Oil Policy And The Environment

March 2023
2min read

In a recent report Secretary of the Interior Walter Hickel, among others, argued in support of the government’s current program limiting the amount of low-cost foreign oil allowed into this country by pointing out that “At the world market price of oil, [Alaskan] exploration and development would have been unlikely.” The statement also mentioned that “billions of barrels of oil … on offshore leases have been developed as the result of the economic incentives preserved by the [import] controls. At substantially lower oil prices this development would not have occurred.”

As the conservative economist Milton Friedman has written, “Few industries sing the praises of free enterprise more loudly than the oil industry. Yet few industries rely so heavily on special government favors.” The special government favors started in 1926 with a percentage depletion allowance that exempted from taxation a whopping 27½ per cent (reduced last year to 22 per cent) of gross income from oil wells, up to 50 per cent of net income. The allowance can be deducted through the entire life of the oil well, even after all costs have been met. The depletion allowance encouraged excessive production and led in the early 1930’s to a system of state-controlled production rationing based on market demand. The resulting high-cost domestic oil was further protected (in the name of national defense) from the competition of cheaper foreign oil by the introduction in 1959 of an import quota system.

The recent intensive scrutiny of government oil policy—through the presidential task force on the oil-import question, Senate Judiciary Antitrust and Monopoly Subcommittee hearings, Senate debate on the depletion allowance—has focused only on the economic ramifications of that policy and on the question of national self-sufficiency from a military point of view. The question of what might constitute an environmentally rational oil policy has hardly been raised, except by a few conservationists such as Malcolm Baldwin, a lawyer with the Conservation Foundation.

We are told by the petroleum industry that domestic demand for oil will nearly double by 1985, while at the same time our domestic supplies are growing short, and the largest source of foreign oil, the Middle East, is politically unstable. What options do we have? If we leave Alaskan oil in the ground does it mean we must risk more offshore disasters like the ones at Santa Barbara and, more recently, in Louisiana? Or would we be better off building more and bigger ships for Middle Eastern, offshore Nigerian, Libyan, or Venezuelan oil and risking even more terrifying Torrey Canyon episodes and more frequent pollution of the oceans? If we chose this course, we would be creating the need for larger ports (such as that proposed for Machiasport, Maine, and opposed by conservationists), more dredging of vital, life-supporting estuaries, more onshore receiving facilities. As Mr. Baldwin has pointed out, Congress has, in fact, already unwittingly encouraged the building of more 200,OOO-to-500,000-ton supertankers by recently limiting shipping liability to fourteen million dollars for an oil-spill disaster, although legitimate claims after the relatively small Torrey Canyon wreck were over sixteen million dollars.

Moreover, should our oil policy offer inducements to import foreign oil, such as Libyan oil, that is low in sulphur content? (Alaskan oil also has a low sulphur content.) Should the oil-shale reserves in the wild and beautiful plateau country of Colorado, Wyoming, and Utah be opened up? Oil-shale reserves represent a supply three times as large as the known crude petroleum reserves in the entire world and are low in sulphur as well.

Basically, a rational oil policy would be one that regards oil (like earth itself) as a limited commodity whose use and distribution should be managed only with regard to other possible energy sources. It would be a policy that looks ahead to a time when more petroleum either cannot be made available, or should not, simply out of regard for the environment and man’s future.


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