CEQ's Report on Outer Continental Shelf Oil and Gas Development: Recommendations for Institutional and Legal Modifications

One of the pillars of Project Independence, President Nixon's program for U.S. self-sufficiency in energy supplies by 1980, is the exploitation of hitherto untapped reserves of oil and gas believed to lie under the Outer Continental Shelf (OCS). So far, OCS drilling has occurred only in the Gulf of Mexico, off the shores of Texas and Louisiana, and off the coast of California. Lease sales now underway for parcels off the Gulf coasts of Mississippi, Alabama, and Florida will bring the total OCS area leased over the last twenty years to approximately 10 million acres. In his energy message to Congress on January 23, 1974, the President announced his intention to direct the Secretary of the Interior to make 10 million additional acres available for leasing in 1975, but deferred final judgment on opening the Atlantic and Alaskan OCS to leasing pending an assessment by the Council on Environmental Quality of the environmental impacts of oil and gas development in these areas as yet untouched by drilling. Since the Atlantic and Alaskan OCS are clearly intended to bear a large portion of the increased leasing program, the President's request of April 18, 1973, for an environmental assessment was a commendable step toward integrating ecological factors into what threatened to be a purely energy-oriented decisionmaking process.

The CEQ study was presented to the President on April 18, 1974, and represents the first systematic attempt to investigate the environmental effects of resource development in these virgin OCS areas. Its basic thrust is to categorize, evaluate, and rank the environmental risks connected with drilling in selected sites and to suggest ways in which these risks can be minimized, without specifically recommending where or when oil and gas development should or should not be allowed to proceed.The study asserts the general principle that development should be allowed at a particular site when and if it is determined that the benefits to be obtained outweigh the environmental risks involved. Where the risks outweigh the benefits, development should not move ahead until the risks can be lowered to an acceptable level.

The report makes recommendations in three broad subject areas. First, further studies of coastal and marine ecology and of the behavior and toxicity of oil spills must be undertaken since available data concerning these pheonomena is inadequate. Second, technological improvements regarding safety and control devices and cleanup hardware must be encouraged to facilitate efforts to prevent or minimize ecological damage from drilling. And third, certain institutional and legal mechanisms must either be created or formed from existing structures in order to manage and control optimally the severity of environmental harm from all aspects of OCS development.

Some parts of the report are of special interest, such as the U.S. Geological Survey's estimates of OCS oil and gas reserves, less than half the amounts quoted in the previous U.S.G.S. figures, which were used by the Interior Department as recently as January of this year. Under the revised estimates, the total oil and gas reserves of the Atlantic and Alaskan OCS constitute approximately a four-year supply of the nation's annual consumption of 6 billion barrels of oil and 23 trillion cubic feet of natural gas. This halving of the expected OCS resource bonanza suggests that reconsideration of some of the basic policy decisions concerning the expanded leasing program might [4 ELR 10071] be warranted, although it is not clear that such a reconsideration would necessarily have beneficial environmental implications. While it might mean that there would be less overall OCS activity in the Atlantic and the Gulf of Alaska, it could also mean that drilling sites will be selected in areas presenting greater than expected environmental hazards, since the smaller reserves would have to be exploited wherever they could be found. But given the Council's finding that drilling in any of the sites studied will inevitably bring varying degrees of environmental disruption and damage in the form of both offshore oil spills and onshore industrial development, the most important section of the report seems to be the portion which details the existing institutional and legal framework governing OCS development and suggests certain innovations and reforms to remedy its deficiencies.

Under the Submerged Lands Act of 1953,¹ the Atlantic coastal states and Alaska own the natural resources in the seabed out to the three mile limit;² beyond that point, the Outer Continental Shelf Lands Act³ and the Convention on the Continental Shelf give the federal government jurisdiction over the exploitation of oil and gas out to a depth of 200 meters, or to whatever depth beyond that at which they can be exploited.⁴

Through the OCS Lands Act, all federal laws, including NEPA and the Federal Water Pollution Control Act, are extended to the OCS.

Although all prospective Atlantic and Alaskan OCS drilling sites are beyond the three mile limit and therefore subject to exclusive federal jurisdiction, the states, through restricted zoning, strict emissions standards, or direct statutory prohibition could undoubtedly attempt to foreclose the ancillary onshore development of pipelines and refining and storage facilities without which OCS development off their shores would be a practical impossibility. Massachusetts, Delaware, and New Jersey have clearly indicated that drilling off their shores would be unwelcome, and the potential for such federal-state conflict is real. Other states, such as South Carolina, would welcome OCS development for the economic benefit to the state.

To counter this problem, CEQ recommends that joint federal-state participation be employed in the process of developing coastal zone plans for the affected states under the Coastal Zone Management Act;⁵ that federal-state coordination be encouraged in the NEPA process concerning OCS development; and that the Administration's land use bill be enacted and implemented using a pattern of federal-state cooperation.⁶ These suggestions are meritorious, but they ask for the establishment of systems for integrated policy formulation and decisionmaking between autonomous federal and state agencies, and rest on the assumption that the federal government is ready to bargain with reluctant states on an essentially equal footing rather than maintain its present dominant role in OCS development. Neither the delicate construction of new modes of bureaucratic interaction nor the transfer to the sates of a significant share of planning and decisionmaking power will be easily achieved in the expected rush for OCS development.

The report also depicts the fragmentation of federal authority regarding OCS activites among numerous agencies and departments, such as Interior, Commerce, Defense, Transportation, AEC, and EPA, and concludes that this regime leads to problems in coordinating regulatory inputs even in situations where agency objectives are compatible. Where agency interests are in conflict, the lack of formal procedures for coordination, CEQ contends, causes the agencies to compete and promote their own objectives rather than attempt to serve the broader public interest.

To solve these problems, CEQ recommends establishment of the proposed Department of Energy and Natural Resources (DENR), which would encompass almost all federal policy, planning, and regulatory functions relating to the OCS. Although centralization holds the promise of increased effectiveness of federal regulation, it presents several possible problems. First, by centralizing the now scattered federal OCS functions, DENR would present a single target for concentrated industry efforts at influencing the decisionmaking process and would stand in danger of becoming a captive agency, controlled by the industry it was intended to regulate. Second, the coordinated decisionmaking which DENR could conceivably achieve would probably suffer from the lack of a wide variety of viewpoints which may emerge in the final compromise when authority is divided among several agencies, each with its own constituency. Third, internalizing in DENR what is now an interagency decisionmaking [4 ELR 10072] process would rob that process of a significant portion of its public visibility, and thus make more difficult the task of scrutinizing OCS decisions to assure that all applicable statutes and regulations have been complied with.

Regarding improved federal planning mechanisms for OCS development, the report concludes that the NEPA impact statement process offers the most practical short-term solution. The Council recommends that programmatic impact statements be prepared on a regional basis in addition to individual statements on all environmentally significant OCS activities. The statements, as envisioned by CEQ, should include analysis of possible alternative uses of specific OCS nearshore, and onshore areas, and should also discuss onshore impacts. By emphasizing the need for programmatic statements and spelling out expanded requirements as to EIS content, the Council has dealt with the two main drawbacks of the NEPA process as a decisionmaking tool for OCS development. These deficiencies are first, that as commonly used on an individual basis for separate projects, the EIS process is ill-equipped to aid in the formulation of large-scale planning, and second, that as designed under NEPA, an EIS is concerned only with the environmental effects of a project and not with its economic, aesthetic, institutional, and social effects.

A major problem which CEQ recognizes in using the NEPA process for this expanded purpose, however, is that its effective implementation is prohibited by existing Interior Department restrictions on the public disclosure of industry-gathered data regarding detailed geophysical and geological characteristics of OCS sites, and by the timing of the release of such information as is made public. This information, which is necessary to assess the environmental and safety perspectives of drilling in a particular site, since the government has little or no OCS data-gathering capacity of its own, is in most cases not even gathered by the prospective lessee until after the tracts available for leasing have been designated, and is not analyzed by the agency until after the leases have been sold. The Council concludes that such a blanket prohibition against public disclosure of industry data is not justified, and recommends that the Interior Department review the competitive consequences of disclosure of certain industry data and analyses, weighing those consequences against the need for informed public participation in the NEPA process. Standards should then be developed governing disclosure, as part of a determination by the agency of the kinds of information and analyses necessary for the adequate assessment of environmental factors at the various stages of leasing and development. Specifically, CEQ argues, the Department should obtain the necessary data for determining the nature and magnitude of geologic hazards prior to selecting tracts for leasing.

Although these suggestions if adopted would represent a considerable improvement over the present informational vacuum, nothing less than full disclosure of industry geological and geophysical data is required to facilitate adequate environmental evaluation of prospective OCS leasings. In many cases, however, even full industry disclosure will not provide sufficient data for an informed environmental assessment since there is little or no incentive for industry to gather data of the kind necessary to make these determinations, and to do so at a point early enough in the leasing process to allow the government to make meaningful decisions about environmental risks. Industry's initial wide-grid geophysical surveys in virgin areas are designed to locate potential hydrocarbon deposits and are useless in detecting near surface hazards. As of now, the companies only do their tight-grid seismic surveys (which are environmentally useful) once the government puts specific tracts up for lease, and do not conduct core sampling until the leases have been granted. For this reason, the report is deficient in assuming that industry will retain the primary responsibility for gathering the data to be used in the environmental review process. In order to obtain the necessary data for assessing geologic hazards prior to tract selection as CEQ recommends, the Department must either develop its own data-gathering capacity or require industry to submit certain kinds of data, such as tight-grid surveys and core sampling, early in the leasing program.

As to the question of drilling technology, the report recommends that the Department of Interior determine a standard of environmental protection which is necessary in the public interest and then require the development and use of technologies to achieve it. This suggestion represents a significant advance over the present system in which the current level of technological accomplishment and operators' assurances of safety are used as the starting point for regulation. In setting optimum safety and anti-pollution standards, however, the Department must take care to be sure that attainment is technologically and economically feasible.

But as CEQ notes, the effectiveness of any set of technical standards depends in large part on the environment system. In order to make the current lax system more effective, the Council recommends that inspections be more frequent and rigorous, and that the present insufficient sanctions be supplemented with fixed shutdown periods and administrative fines for certain violations.CEQ also recommends that citizen suit provisions allowing interested persons to sue to remedy violations of federal OCS regulations or permit conditions be established under the OCS Lands Act. A citizen right of action to remedy agency misfeasance or omission promises to be an effective regulatory device and an important mode of insuring federal agency diligence in the exercise of OCS functions. It also could serve as an avenue for non-government, non-industry input in important areas of OCS decisionmaking now effectively closed to the public, such as orders regulating safety and anti-pollution technology. This recommendation deserves executive support and legislative enactment.

[4 ELR 10073]

Conceding that some OCS accidents are inevitable, the report goes on to investigate the questions of liability and compensation for oil spill damage. Interior Department regulations issued under the OCS Lands Act make lessees financially responsible for the "total removal" of pollution resulting from drilling and production operations, and in the absence of cleanup by the lessee, authorize federal officials to do so at the lessee's expense.⁷ The Federal Water Pollution Control Act Amendments of 1972⁸ prohibit certain discharges of oil and authorize the federal government to clean up spills at the operator's expense, although these provisions do not apply either to offshore facilities beyond the three mile limit or to any oil spill damage beyond twelve miles. Neither the regulations nor the FWPCA provides for compensation to private parties harmed by oil spills. While several states⁹ have enacted legislation providing for liability for oil pollution damage to private parties within the three mile limit¹⁰ and one such statute has been upheld by the Supreme Court,¹¹ the report concludes that there is no private party right of recovery under federal law for oil pollution damage from non-vessel or non-oil-vessel sources. Without suggesting whether a non-fault rather than a fault standard should be employed, CEQ calls for new legislation establishing a comprehensive federal liability system for OCS-related oil spill cleanup and damage. Here again the report is deficient. Although such legislation is most certainly required, it should institute a strict liability system under which an OCS drilling or pipeline operator is liable for all damage which can be shown to have been proximately caused by a discharge from his facilities. A revolving fund financed by contributions from operators in proportion to the share of regional production which they produce or pipe should be set up compensate injured parties who are not able to prove proximate cause.

On balance, then, the report is as it claims to be an important first step toward the ecologically sound development of OCS oil and gas resources. Whether the remaining steps toward that goal, many of which the report itself specifically suggests, are taken diligently remains to be seen. The pressure for hasty development under Project Independence is intense, but CEQ's assessment gives added weight to the argument for continued investigation and cautious rather than headlong progress. If the Administration sees the report as a justification for its intended 1975 leasing program without further studies or institutional and legal modifications, then it is misreading the assessment's fundamental message. And if precipitous federal development is undertaken, the result will undoubtedly be obstructive efforts from several coastal states, in addition to a drawn out series of NEPA challenges, which ironically will most probably be patterned on the report's recommendations regarding the NEPA process.

1. 43 U.S.C. § 1301-15 (1953).

2. Florida's offshore jurisdiction has been extended by litigation (United States v. Florida, 363 U.S. 121 (1960)) to 9 miles, however, and the other Atlantic coastal states are currently challenging federal control of the OCS on the basis of their ownership rights as original colonies in the case of United States v. Maine, but the present demarcation between federal and state control will probably be upheld.

3. 43 U.S.C. §§ 1331 et seq.

4. The present indefinite outer boundary to national sovereignty over seabed resources is one of the issues which is expected to be considered by the United Nations Law of the Sea Conference in Caracas later this year.

5. 33 U.S.C. §§ 1101 et seq.

6. While the Administration's commitment to an effective land use bill remains doubtful, the recent action of the House Rules Committee in clearing the National Land Use Policy Act for consideration by the full House makes passage of this statute probable. See Comment, Rules Committee Reversal Clears Way for Passage of National Land Use Policy Act, 4 ELR 10066.

7. 30 C.F.R. § 250.43 (b).

8. 33 U.S.C. §§ 1251-1376.

9. Oil Discharge Prevention and Pollution Control Act of 1970, 39 Me. Rev. Stat. Ann. § 541-57 (Supp. 1973); Massachusetts Clean Waters Act, Mass. Gen. Laws Ann. Ch. 21 § 27 (1973); Fla. Laws 1970, Ch. 70-244; Fla. Stat. § 376.011-376.21 (1961).

10. Only the Massachusetts statute allows recovery for damage within state jurisdiction caused by a spill beyond the three mile limit, however.

11. Askew v. American Waterways Operators, 3 ELR 20362 (U.S. 1973).