The Environment Writer

Economics by nature is the study of tradeoffs. However, when politicians propose a development projection, like the Richton Salt Dome Strategic Petroleum Reserve (SPR) project, somehow they’re all agreeing that there is no tradeoff – everybody wins forever. Supposedly, it will have no adverse impacts. Senators Thad Cochran (R-MS) and Roger Wicker (R-MS) sound like they’re rapping a repetitive hip-hop hook, as long as they keep repeating “jobs, infrastructure, energy security…jobs, infrastructure, energy security”. Unfortunately, just saying it enough doesn’t make it come to pass.

 
The Richton, Mississippi salt dome is the proposed site of a Department of Energy (DOE) SPR expansion. On the surface, the DOE portrays the project as a reasonable idea – the ground surface is minimally damaged and salt domes are typically fairly impervious choices to hollow out and stockpile petroleum reserves. The reserves can be used in emergency situations. They have been used twice since the SPR system was enacted in 1975, during the first Gulf War to overcome the OPEC blockades and during Hurricane Katrina when the Gulf Coast pipelines were disrupted.

As planned, the Richton project would squirrel away 160 million barrels of oil, or 16% of the planned SPR of 1 billion barrels (it stands now at 727 million barrels).

The powers that be, led by the DOE, would like you to think that this is a no-brainer and the best alternative for strategic petroleum reserves. However, when you consider the long-term environmental and economic costs to the state of Mississippi and the United States as a whole, the argument doesn’t stack up.

First let’s explore the “positive” talking points the politicians have.

 1. The 160 million barrel stockpile is a lot of oil- it will really help us to weather any catastrophe.

This actually isn’t that much – it would last the U.S. about 7 days at its current consumption of 20.68 million barrels per day.

2. Hundreds of construction jobs will be created.

For a while- most will be very temporary and continue the cycle of boom-bust economy which has us struggling right now.

3. Additional infrastructure will be created for the State of Mississippi.

The infrastructure the politicians brag about, once installed, will not be used for anything else. They will sit there until the SPR has to be tapped, which for now averages to be once every 19 years. This is wasted infrastructure and a deadweight loss to the economy.

4. The reserve will lower the price of oil.

No it won’t, Senator. Don’t make me explain this one.

What are the negative effects?

 
The Economy

The project is estimated to cost $2.9517 billion dollars in addition to $35-40 million a year in upkeep costs for perpetuity. Add to that the cost of stocking it with oil, which the average DOE estimate comes out to $9.704 billion.

In the end, this will directly cost $12,655,700 in addition to the yearly upkeep costs. This does not include the potential effect of raising oil prices while stockpiling.

The Environment

They propose desalting the mine by pumping water through it for 5 years at 50 million gallons per day. That water has to come from somewhere and go somewhere. The proposal has been to take it from the Pascagoula or Leaf Rivers causing incredible damage to the habitats of several threatened species. The alternative is to pump it from the gulf, at an even greater cost than originally planned. While this will save the rivers, the dissolved brine slurry will have to go back out to the gulf, producing detrimental effects to the salt balance.

Leaks in the pipeline that takes out the brine slurry, which even the DOE admits will happen, will destroy wetlands. Even in the Environmental Impact Statement, the DOE admits that 1557 acres of wetlands will be disturbed, some irreversibly. Wetlands are important, so important in fact that there have been estimates that each acre of wetland provides economic benefit of $9,000 dollars per year through such things as water infiltration, pollution filtering and storm buffering. Add on another $14 million to the yearly upkeep, DOE.

Of course the environmental damage will contribute to all sorts of other indirect costs to the economy such as commercial fishing, sport fishing, effects on small businesses that use the water, ecotourism, etc. There are very modest and short term financial gains from building the project to the construction workers and engineers. There is little to no financial gain from the finished product – in fact it is a deadweight loss of the value of the oil and the cost of upkeep while it is not being used. The financial losses from the environment are permanent.

One of the most tragic parts of the story is the way the DOE has proposed and attempted to implement the project – at best shady and at worst illegal. But, of course, for an illogical and terribly planned project that is really the only way to do it. The environmental impact statement (EIS) required for a project like this is legally obligated to explore reasonable alternatives. Although full of big words and geological studies, the DOE certainly has not given full faith.

The original project specifications necessitated that it be able to hold 160 million barrels of oil. The DOE chose several “reasonable alternatives” to study that held far less than that capacity. The sites were, unsurprisingly, rejected because they only held 60 million barrels and not the required 160 million barrels. Thanks DOE for that insightful study into sites you already knew wouldn’t work in the first place.

Here is my alternative to the project: DO NOT DO IT.

It seems they forgot to explore the “No Action” alternative in the EIS, which is standard procedure in writing an environmental impact statement. Instead, I suggest creating an emergency fund for the state of MS or even all the gulf coast states with the 12.6557 billion dollars and add 40 million a year to it. Plan emergency management from the interest (at 2% that is still over 250 million a year).

Better yet, give everyone in the state 2.9 million dollars- less than the cost of the project and let them plan for the emergencies – they’ll know what to do better with it, it will cost less, and they won’t be paying for irreparable short and long-run mistakes.

As we know, ‘sustainability’ is an ambiguous term without certain definition and agreement. One popular broad definition of sustainability was issued by the Bruntland Commission in 1989:

“meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

Note that the above definition leaves everything to do with the environment and ecology implied. We might argue that there must be environmental and ecosystem services available for ourselves and future generations to meet their needs, but this view is not necessarily shared universally.

For example, some believe that any degradation of natural resources can be replaced by technological advances and substitutions. According to this line of reasoning as our petroleum supplies decrease, we will find other equally viable forms of energy; as our freshwater resources decrease, we will invent new methods of desalination and purification; as our arable land productivity diminishes through overuse, we will genetically alter plants with higher yields and lower water needs to increase production. Below is a graph of idealized weak sustainability substitution in which there is a direct tradeoff between natural capital and human-made technological capital.

Of course the Natural Capital curve and the Human-Made Capital curve might fluctuate, but the point of this hypothetical scenario is that the Total Capital always remains at 100% (or greater if the curves fluctuated upwards). Thus, the human population has a minimum amount of capital and welfare standard as long as the environmental degradation is replaced by human substitutions and innovation.

Those who argue against such substitution possibilities often derogatorily call this idea of sustainable development ‘weak sustainability.’ However, this scenario actually does work reasonably well on micro-economic levels up to the national scale. A prime example is the Government Pension Fund of Norway. The state-owned Norwegian oil company, StatoilHydro, invests surplus profits from petroleum income into a pension portfolio now worth approximately USD 325 billion. The oil, a form of natural capital, could be used to increase supply and directly decrease fuel prices in Norway. Instead, Norway exports a large quantity of it and invests the profits to create human-made capital in the form of a large pension fund. This fund allows for long-lasting income for the population in exchange for a finite resource, actually increasing the total capital available for Norway above the original levels.

Weak sustainability and substitution are cleverly applied in the above Norwegian example, but its applications are extremely limited on a global level. The most obvious problems are the limiting factors of Critical Natural Capital (CNC) as well as the limited information on technological advances, substitutions and the extent of natural capital.

Below are two of the biggest problems with creating a ‘weak sustainability’ curve on a global level:

1. Critical Natural Capital – In ecological economics, one of the basic assumptions is that there is a minimal amount of natural capital that we need as a population to survive. No human-made substitution is feasible for this minimal amount because of the complex ecosystem services that provide life support to us. Included are the basics such as clean air to breathe and fresh water to drink. Once we have used natural resources to a point below the level of critical natural capital, human welfare begins to diminish.

2. Limited Information – The concept of limited information is a basic principal of traditional economics. It basically argues that as humans, we have limited information on substitution possibilities and economic trade-offs. We cannot accurately predict how long a new technology will take to create or how much it will cost, and the farther in the future we try to predict, the less accurate our estimates become. Finally, there are still limits to our scientific knowledge of the natural world, what it can provide for us, what its resiliency to human use is, and how much natural capital actually forms the critical natural capital. The ‘precautionary principle’, which will be explored in later posts, builds on the realization that we have limited knowledge and advises erring on the side of caution toward the environment and the economy because of these limits.

With critical natural capital included in the process, weak sustainability implemented on a global level is far more likely to turn out like the below graph:

In this graph, natural capital and human made capital also are in direct trade-off with each other until about 50 years on a hypothetical timeline has passed. Around that point, the total capital goes up slightly as the human made capital keeps increasing, but when the natural capital reaches the line of CNC where human capital can no longer be supported, total capital rapidly declines until it reaches zero. This graph may show an extreme case, but it appropriately displays the connection between critical natural capital and its effect on total capital if degraded.

Although there are some applications for weak sustainability theories, it  does not apply to a global scale of economic interaction -  especially when combined with the ecological economics concepts of limited critical natural capital and the inability to have continual and equal tradeoffs between natural and human-made capital. Although there will always be limited knowledge, we must begin to explore a more precautionary approach of ‘strong sustainability.’

Defining ‘sustainability’ is one of the toughest yet most important challenges of the modern environmental movement. The concept of critical natural capital (CNC) forms an important basis for its definition of sustainability by giving a baseline above which sustainable practices can be determined. CNC can be described as a point of degradation in an ecosystem past which it can no longer support its biodiversity or species populations. The concept originates from the idea that there is a certain minimal amount of natural capital necessary for ecosystems to continue to function and provide services for its inhabitants. Below that point, even human-made capital, such as technological substitutions, cannot replace the loss of welfare-sustaining ecosystem services. Natural capital is comprised of the environmental resources and services that can be used for life and factors of production. In our case, we are particularly concerned with an ecosystem’s ability to support an adequate standard of living for humans which includes drinking water, food, shelter, a moderate climate and resources for production.

The concept of critical natural capital lies in the strong sustainability argument that natural capital (natural resources and ecosystem services) and human-made capital (technology and intellect) are not fully substitutable. (Jansson, et al. 1994, p. 5) Although there may be some degree of substitutability, the possibilities are limited and tend to become more and more costly with increasing degradation of natural capital.

An example of the limits of substitution is arsenic pollution in local drinking water as a result of metal smelting. The clean drinking water would be considered natural capital to the local population. As the pollution levels increase, so does the total cost of treating the water to make it safe, called the total abatement cost. Filtering the water would be considered a technological substitute of human-made capital for natural capital, as would importing clean water. When, at the point that the pollution reduces the natural capital (water quality) below the point of CNC because of the high cost or unavailability of substitutions, the population must relocate or face health consequences of this pollution. The dire consequences of pollution scenarios like this are apparent on a global level where the only possible outcome is a reduction in human welfare.

Critical natural capital is a reflection of the limits of technological and natural substitutability, and it can be defined as the point at which there are no potential substitutes for the prevailing natural capital, which in human terms is the point at when people have no other choice but to move or suffer in the above arsenic scenario.

Although there are uncertainties in predicting ecosystem reactions to pollution and degradation, environmental science and ecology give insight into the levels of natural capital that are critical to sustaining life and economy for different ecosystems and populations. Knowledge of this CNC can help us to create definite levels of sustainability that lie far above this dangerous level of degradation.

To apply a practical example, take croplands which have historically supported a reasonably stable agrarian economy society. If they begin to lose fertility and become desert or saline through overuse, farmers can apply fertilizers, crop rotation or erosion control (technological substitutions) to produce the same yields as before degradation. Because of ecosystem resiliency, there may be a stable level above the CNC that allows for these substitutions without further natural capital degradation. This level can be considered a sustainable economy. If however, degradation continues further than the technological substitutes can make up for, an unsustainable economy is created. As the unsustainable economy progresses, eventually there is too little viable farmland left for technology or other human-made capital to create a reasonable substitution, and the point of critical natural capital has been passed. If the society does not migrate it will face hunger and starvation.

In order to create a sustainable economy we must combine our best understanding of efficient economic practice with sound scientific knowledge of ecological systems and ecosystem services to determine the critical amounts of natural capital that allow us to live, produce and consume at high standards of living. Sustainability can best be defined as a stable level of substitution between human and natural capital where the ecosystem integrity remains above the level of critical natural capital. As we seek to gain greater understanding of sustainable development and environmentally sound economics, ecological and environmental sciences must synergize with economic theories to determine important indicators, like critical levels of natural capital, to achieve concrete measures of true sustainable development.