QUALITATIVE CBA OF LIFTING THE MORATORIUM ON THE OIL

AND GAS DEVELOPMENT IN THE QUEEN CHARLOTTE BASIN OFF THE

COAST OF BRITISH COLUMBIA
INTRODUCTION
The Federal and British Columbia government are in the process of deciding
whether to lift the moratorium that have prevented any exploratory and development
activity in the offshore territories of BC since 1970s The significant reserves of oil and
gas are believed to be present in this region
The most significant resources have been discovered in the !ueen Charlotte
Basin The costs and revenues resulting from the production activity in this basin will
be used as a proxy for the whole BC offshore area in this study
The first actions towards the lifting were underta"en in 19#0s when the
government established a $oint federal%provincial assessment panel& which made a
report& based on the meetings and public hearings in the province The moratoria
decided to be continued& partly because of the catastrophic oil spill off the 'las"an coast
in 19#9
The second attempt was made in (001& when the scientific panel& commissioned
by the government of BC pursued the further studies on this topic and stated that there
is no incentives to continue the moratorium
)ince then there have been various studies conducted& considering the opposite
views of the government and people of the province& which are mainly against lifting
the moratorium *roughly +,- are against.
1
This CB' analysis will ta"e a /ualitative approach& ie as many of the impacts
will be moneti0ed as possible& the other& which constitutes the sufficient part of the costs
to the society& will be estimated using the results& obtained in the other studies or by
ma"ing the /ualitative estimate of the relative importance of the costs and benefits
(

1
1 2riddle et al& 1eport of the 2ublic 1eview 2anel on the 3overnment of Canada 4oratorium on 5ffshore 5il
and 3as 'ctivities in the !ueen Charlotte 1egion British Columbia *6atural 1esources Canada& (007.& 9
(
' Boardman Cost%Benefit 'nalysis *7th 8dition. *The 2earson )eries in 8conomics& (010.& 79
THE ANALYSIS OF THE COSTS AND BENEFITS OF THE PROJECT
There are usually several basic steps in a CB' analysis& which will be followed in
this paper The CB' analysis of lifting the moratorium can be bro"en into the following
steps:
1 )pecifying the alternatives;
( <ecide standing;
9 =dentify& catalogue the impact categories and select measurement indicators;
7 2redict /uantitatively and moneti0e *where possible. the impacts;
, Compute the 6et 2resent >alue
This outlined structure will assist in ma"ing the relevant decision to lift the
moratorium or to leave the situation into the status /uo& based on the information that is
possible to obtain
1. The alternative to the policy is to maintain the status /uo& ie not to conduct
any exploratory activity offshore the British Columbia coastline There is a variety of
opinions on this issue& which can be bro"en into two categories: ?lifters@ and ?"eepers@
The opinion of the BC government belongs to the former category
9
'lso the former
category obviously consists of oil and gas interest holders
The main actor in the latter category& which li"es to maintain the moratorium is
the First 6ationAs fishery department and other First 6ationAs public organi0ations
Their main concerns are connected with the problems that pertain to the fishing
industry& which is one of the main sources of the income of the aboriginal people that
the BC coast is densely populated with 5ther groups that support the moratorium are
BC whale researchers and several village councils on the BC shore
7
(. =t is reasonable to show the benefits and costs of the pro$ect from both: the
provincial and national perspectives& because the impacts of the policy& if implemented&
9
1 2riddle et al& 1(
7
=bid&1,
(
will be distributed in some proportion between the people of province and Canada
Bowever& due to a lac" of information necessary to divide the revenues and
expenditures of the production& *which constitute the biggest share of the social benefits
and costs. between these two groups& only the national perspective will be considered
9. =dentifying the impacts of the policy is the main part of any CB' study&
because the result depends on the throughout evaluation of all impacts that come up
from the policy implementation
The possible impacts for convenience can be divided into three groups:
a. oil and gas industry impacts
b. impacts on society
c. environmental impacts
d. non%use impacts
a. The first category that should be included is the economic impacts on the oil
and gas industry itself These include revenues and costs that are connected with the
exploration and production of oil and gas The study on potential benefits of offshore
development of !ueen Charlotte Basin was already conducted in (00# by )chofield et
al
,
and continued by C Doc"e in (009
+
=n these studies the potential revenues and
costs of oil and gas exploration and development were counted There were different
scenarios considered& depending on the prices of oil and gas& the type of gas extracted
and the type of production
=n this study& to be conservative& a short pipeline scenario with dry gas will be
considered The price assumed to be #0EFbarrel for oil and #EF44BTG for gas This
will yield 900 bln C'< in revenues in (009 C'< and 110 bln C'< in costs& assuming
a (,%year pro$ect
7
5r 9(7 bln and 119 bln if calculated in (019 C'<
,
)chofield& Hohn& Cade Doc"e& 3urmit ) )andhu& and 4ar" )hrimpton 2otential Benefits of 5ffshore 5il and 3as
<evelopment in !ueen Charlotte Basin& British Columbia *(00#.
+
C Doc"e 'n 8xpanded 8stimate of 5il and 3as 1evenue in the !ueen Charlotte Basin *C Doc"e 8conomic
Consulting& (009.
7
=bid 'uthorAs calculations based on: 'ppendix 8& <& F& B& =
9
=t is obvious that not all from the revenues go to Canadians =t was approximated
in the study by the Fraser =nstitute that the share of profits that goes to Canada is 79-
#
Therefore we should lower these sums to approximately (,# bln and 97 bln C'<
4oreover& these values should be calculated in their present values to be
compared The 9&,- real social discount rate was chosen as suggested by Boardman et
al
9
Thus& the 2> of 1evenues is 19# bln C'< and the 2> of Costs is ,0 bln C'<
b. =mpacts on society is a much broader category& where different authors can
suggest different sets of policy outcomes =t is particularly important for CB' analysis
to correctly evaluate the outcomes& whether they have positive& negative or no particular
effect on the social benefits 4oreover& itAs important to separate the impacts depending
on the standing& ie impacts on people of province may be different from those that
affect nation as a whole
=n this particular pro$ect& there are not many benefits that can be easily counted
other than revenues from the oil and gas production Bowever& if considering the
provincial perspective& people can value positively the increase in the number of highly%
s"illed wor"ers in the province and the appearance of new programs in the local
universities& connected with the offshore industry For example& there have been
numbers of new programs in engineering& oil and gas studies& maritime studies&
implemented with the beginning of offshore oil and gas production in 6ewfoundland
10
This can increase the attractiveness of the province for specialists and students
from other countries& which has positive impact on the province Bowever& all these
impacts canAt be valued using conventional means& if can be valued at all& moreover&
they presumed to be comparatively small& so they will be included as a non%moneti0ed
benefits
The social costs that arise with the implementation of the pro$ect are mainly the
opportunity cost of fishing industry loss due to the exploratory and development wells
start%ups 'ccording to the 1eport of the 2ublic 1eview 2anel*(007.: ?fisheries include
#
1 2riddle et al& (7
9
Boardman ' The )ocial <iscount 1ate for Canada Based on Future 3rowth in Consumption&* Canadian 2ublic
2olicy& (010.
10
)chofield et al& 9,
7
First 6ations traditional marine resource harvesting for food& feasting and ceremonial
purposes; the commercial fishing industry& including harvesting and processing;
commercial and recreational sport fishing; and salmon and shellfish a/uaculture
industries& including farms and processors@
11
The First 6ations committees are concerned that oil production and the threat of
oil spills may be harmful to the fishing industry and particularly to the fishing as a food
harvesting by the aboriginal people in the province )upporters of the policy claim that
the fishing industry can successfully co%exist with the oil and gas industry with several
examples in the world
Bowever& the threat of lost fishing days due to the offshore oil and gas
development is a possibility& moreover& it is even more possible that the whole industry
may be harmed severely by the ma$or oil spill& li"e the B2 oil spill in (010& which can
be extremely harmful to the ecosystem in the region The impact assessment for Coo"
=nlet& for example& concluded that a moderate si0e oil spill of 1&,00 to 7&+00 barrels
could cause closure of the fisheries for an entire season
1(
5ne of the possible ways to omit the losses by aboriginal people is to drill farther
from the coast =f not possible& it is important to estimate the fishing revenues lost due
to the offshore production and compensate the fishers 'boriginal Committees should
ta"e part in the process of finding the comprehensive tool to evaluate and compensate
fishers for their losses
The First 6ations Council has made a report in (007&
19
mainly appealing to the
study of Bridges*(007.
17
as a template& who used the ?spender@ political lense in his
wor"
1,
For example& the wage expenses were counted as the benefits& therefore the
outcomes were biased.
1+
4oreover& the other studies suggest that the ratio of new $obs
11
1 2riddle et al
1(
5ffshore 5il and 3as 1esearch 3roup&*5531. ' 18>=8C 5F 5FF)B518 5=D '6< 3') <8>8D52486T
=6 B1=T=)B C5DG4B='& (007& +9
19
=bid
17
Bridges& 38 and 'ssociates )ocio%8conomic 8xpenditure =mpacts 1eport *2repared for
1oyal 1oads Gniversity& (007.
1,
' Boardman& 1,
1+
5531& ++
,
to total employment is dismal The Bibernia pro$ect& for example& as a whole has
created I even when including multiplier effects I only 7, $obs per million dollars
17
Thus& the research on the losses to fishery from conducting the offshore oil and
gas development& produced by the aboriginal committees is better indicator of the
potential losses to the fishing industry
'n analogous research has been conducted by the Coastal First 6ations
Committee in (01(& considering the threat of an oil tan"er spill The damage costs of an
5il Tan"er )pill of the si0e of the 8xxon >alde0 spill were estimated The damage to
fishing industry& including commercial& recreational fishing was estimated between 900
and 1,00 millions dollars *in (010 C'<.
1#
=f the lost profits of fishing industry due to oil and gas extraction are
comparatively low and can be compensated from the oil revenues& the loss from a large
oil spill has a huge impact on the outcomes of this analysis Therefore it is possible to
include these numbers into the estimation as a separate category of oil spill
'nother issue& connected with the possible oil spill is the damage to the tourism
industry that can also be counted in this category The estimated damage is 9, million
dollars The estimates above were obtained for a ma$or oil spill of +7&700 cubic
meters
19
c. 8nvironmental impacts is another important category to be considered in the
case of evaluating the costs and benefits of the offshore oil and gas production
The first negative environmental effect that can be counted is connected with the
initial phase of oil and gas exploration& this is the effects of seismic exploration There
was no evidence that seismic activity could be underta"en without harm to marine
resources These information gaps could preclude the ability to predict environmental
impacts and assess the effectiveness of mitigation measures 4any claim that the
seismic activity can cause changes in the ecosystem of the waters near BC coast 5ne
published report was cited as concluding that seismic testing causes 3ray whales to
17
<ale 4arshall )hould BC lift the offshore oil moratoriumJ *CC2'& (009.
1#
<r Thomas 3unton ' 1eview of 2otential =mpacts to Coastal First 6ations from an 5il Tan"er )pill 'ssociated
with the 6orthern 3ateway 2ro$ect *report for Coastal First 6ations& (01(.& 9,
19
5531& #+
+
leave an area& even if it is critical feeding habitat 's opposed to this& oil and gas interest
holders state that some environmental concerns can be effectively addressed by
measures to avoid repeated seismic surveys
(0
The impacts of seismic surveys were considered in the study by The 1oyal
)ociety of Canada where it was stated that: ?3iven that fish are li"ely to avoid close
approach to the guns& the expected mortality of fish caused by seismic surveys is very
small@
(1
Thus& it is not possible at the moment to tell if the seismic activity does have any
significant impact on the environment& this issue has to be either omitted from the study
or included without moneti0ing as a possible negative impact
'nother important concept for this industry is the effect of the greenhouse gas
emission The situation is the same& this effect is also hard to /uantify Those& who
oppose the lifting of the moratorium& claim that the end use of the resource would
increase global 3reenhouse gas *3B3. emissions and that extraction of oil and gas
itself creates 3B3 emissions
The supporters of the lifting the moratorium claim that the /uantum of
hydrocarbons that would be added to world reserves as a result of development of the
BC offshore is miniscule and would have no impact on the inevitable shift away from
hydrocarbons to alternative energy sources in the future
((
The greenhouse effect will be
omitted from the study& due to the ambiguous effect on the environment
There is a big number of studies& estimating the negative outcomes from the
ma$or oil spill The impact of ma$or oil spill on the environment is huge and
multilateral The costs& associated with a spill& e/uivalent to 8xxon >alde0 has been
estimated by the First 6ations Committee
(9
Bearing in mind the B2 oil spill& happened
in (010& which was approximately 7 times bigger than 8xxon >aldes& it seems rational
to ta"e the costs of ma$or oil spill into account The costs& associated with the spill of
the magnitude around 70&000 tones of oil e/uivalent& are the following:
(0
1 2riddle& +7
(1
The 1oyal )ociety of Canada 1eport of the 8xpert 2anel on )cience =ssues 1elated to 5il and 3as 'ctivities&
5ffshore British Columbia&(007& 7,
((
1 2riddle
(9
' review of offshore 5K3 development in BC& 97
7
% clean%up costs;
% lost use value *fishing and tourism.;
% lost nonuse value *existence value of the region remaining in the relatively
undamaged state.;
% wildlife damage
The effect of the oil spill of this scale will be included in the oil spill category
already mentioned above =t is important to include the time of the spill occurrence to
properly deflate the value to present terms =n this study the oil spill is assumed to
happen in the end of the (,%year period
d. The lost non%use value was already mentioned in the previous paragraph&
however& it is possible that the loss of non%use value occur even without the oil spill
The non%use value of preserving the region in its natural state is very high for the
aboriginal people& living in the BC =t can be found in the 1eport of the 2ublic 1eview
2anel that the special nature of the coast of the !ueen Charlotte =slands was said to be a
priceless world heritage that deserves protection
(7
Therefore& the Contingent >aluation )urvey should be made prior to the
commencement of the pro$ect For many aboriginal people& the valuation of preserving
the nature of their habitat can be very high and can have significant effect on the overall
results of the study =t will be included& though not moneti0ed
Considering all of the impacts stated above& and social costs and benefits they
generate& it is possible to come up with a preliminary idea about the viability of the
pro$ect 'll the monetary values for impacts were recalculated in (019 C'<
'll the impacts are summari0ed in a Table 11
Table 1 COSTS AND BENEFITS ASSOCIATED WITH THE PROJECT
(7
1 2riddle
#
D=FT TB8 451'T51=G4
6ational 2erspective
B868F=T) in 2> terms
*millions C'<L.
1. 5il K 3as selling
revenues
19#&000
(. =ncrease in high%
s"illed wor"force
9. 1K<& new university
programs
C5)T) in 2> terms
*millions C'<.
1. 5il K 3as industry
expenditure
,0&000
(. Dost fishing
territories
%%%
9. 6egative effects of
seismic exploration
%%%
7. 6on%use value lost
for aboriginal people
%%%
,. 'dditional category: 5il )pill
,1. clean%up costs ,0
,(. lost use value
*fishing and tourism.
1#0
,9. lost nonuse value 7000
,,. wildlife damage (0
L =n (019 C'<
*)ource: studies by )chenfield et al*(00#.& C Doc"e *(009.& Doc"e& H Cood *(01(.& T 3unton *(01(.& authorAs
calculations.
Gsing the monetary values obtained& the 6et )ocial Benefits of the pro$ect for the
period of (, years are (0# bln C'< without a significant oil spill& and 1#, bln C'<
with an oil spill& happened at the year (, in nominal terms and ## bln C'< and 7# bln
C'< in 2resent >alue terms respectively The impacts in non%monetary form can be
estimated using such techni/ues as Contingent 8valuation 4ethod or Bedonic 2rice
4ethod
9
2reliminary conclusion can be made that the social benefits gained for the
Canadians from the selling of oil and gas& produced in BC offshore region are
considerably larger than any social costs& estimated by this time Bowever& the losses in
the non%use values of aboriginal people in the region can be very large& so the estimates
of this category are re/uired to ma"e a final decision
CONCLUSION
The huge benefits that can potentially occur in the case of lifting the moratorium
are possible in case of the favorable conditions on the world oil and gas mar"et =f the
respective prices of oil and gas on the mar"et fall significantly& the revenues gained can
decline sharply =t ma"es the revenueFcost ratio of the offshore production ambiguous
and highly dependable on the prices
'nother significant concern is the First 6ations issue For comparison& such issue
didnAt exist on the east coast of Canada& in 6ewfoundland& which contains the
comparable amount of resources The value that the aboriginal people place on the
undistorted BC region is very high& and combined with unfavorable mar"et conditions&
can possibly outweight the benefits from the pro$ect
Bearing in mind the issues related to the moratorium lifting& the further wor"
should be done in terms of the impacts of the pro$ect on the BC society& to be able to
ma"e a decision
REFERENCES
1 1 2riddle et al& ?1eport of the 2ublic 1eview 2anel on the 3overnment of
Canada 4oratorium on 5ffshore 5il and 3as 'ctivities in the !ueen Charlotte 1egion
British Columbia@& 6atural 1esources Canada& (007
10
( ' Boardman ?Cost%Benefit 'nalysis *7th 8dition.@& The 2earson )eries in
8conomics& (010
9 )chofield& Hohn& Cade Doc"e& 3urmit ) )andhu& and 4ar" )hrimpton
?2otential Benefits of 5ffshore 5il and 3as <evelopment in !ueen Charlotte Basin&
British Columbia@&(00#
7 C Doc"e ?'n 8xpanded 8stimate of 5il and 3as 1evenue in the !ueen
Charlotte Basin@& C Doc"e 8conomic Consulting& (009
, 5ffshore 5il and 3as 1esearch 3roup ?' 18>=8C 5F 5FF)B518 5=D
'6< 3') <8>8D52486T =6 B1=T=)B C5DG4B='@& (007
+ Bridges& 38 and 'ssociates ?)ocio%8conomic 8xpenditure =mpacts 1eport@&
2repared for 1oyal 1oads Gniversity& (007
7 4arshall < ?)hould BC lift the offshore oil moratoriumJ@& CC2'& (009
# <r 3unton T ?' 1eview of 2otential =mpacts to Coastal First 6ations from
an 5il Tan"er )pill 'ssociated with the 6orthern 3ateway 2ro$ect@& 1eport for Coastal
First 6ations& (01(
9 ?The 1oyal )ociety of Canada 1eport of the 8xpert 2anel on )cience =ssues
1elated to 5il and 3as 'ctivities 5ffshore British Columbia&@ (007
10 BC 5ffshore 5il and 3as& 5fficial site
11 Boardman& 'nthony 8& 4ar" ' 4oore& and 'idan 1 >ining ?The )ocial
<iscount 1ate for Canada Based on Future 3rowth in Consumption@ Canadian 2ublic
2olicy& (010
11