This week we are seeing two starkly different uses of offshore natural resources playing out on a national stage. In the context of emerging climate and energy legislation, its worth taking another look at the risks and costs of both as Congress and the Obama Administration deliberate on policy incentives for offshore wind and oil that are pursued through legislation or Executive Branch action.
In Louisiana, an estimated 5,000 barrels of oil a day are leaking from BP’s Macondo well in the Gulf of Mexico after Transocean Ltd.’s Deepwater Horizon rig exploded a few days ago. Reports are that people in Louisiana can already smell the oil. BP is working to stop the flow of oil and experts suggest BP will need to drill a “relief well” to halt the leak. Such a mitigation process can take upwards of 3 months. BP is reportedly spending $6 million a day in this effort and preparation of two relief wells will cost an estimated $200 million. (Adding in US Government support costs, Evolution Securities suggests that the “net cost to BP of the cleanup operation so far plus the drilling of two relief wells would be around $845 million.” This figure does not necessarily address harm some experts anticipate to Louisiana coastal communities and their ecosystem services, and potential punitive damages that could emerge. The punitive damage figure for ExxonMobil as a result of the Valdez spill in Alaska was approximately $507.5 million after the Supreme Court struck down the original figure of $2.5 billion as excessive.)
Meanwhile, off the coast of Nantucket, the drawn out battle over the reported 420 MW offshore Cape Wind project took a positive step forward when Department of Interior Secretary Ken Salazar announced federal approval. Reports are that the project will cost approximately $900 million to build, a remarkably similar figure to the costs of direct mitigation for BP’s Louisiana debacle noted above. Cape Wind will also reduce annual US greenhouse gas emissions by approximately 734,000 tons and replace 113 million gallons of foreign oil; both figures on an annual basis. According to the Massachusetts Energy Facility Siting Board, Cape Wind will help stabilize and lower consumer electricity costs in the region. A recent report by Charles River Associates indicates that Cape Wind will reduce the wholesale price of power in New England by an annual average of $185 million, resulting in an aggregate savings of $4.6 billion over 25 years.
It is ironic that two key offshore energy projects are in the spotlight at the same time and just as the Senate debate on climate and energy legislation heats up with consensus to pass a bill based on the right balance of incentives for fossil fuels and renewable energy. A quick comparison of the two projects suggests it might be a better investment and policy direction to develop incentives to blow instead of drill off the coasts of the United States. But will there be enough votes in the Senate to pass a climate bill if offshore drilling is scaled back? Stay tuned.