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DEPARTMENT OF PUBLIC POLICY

POL 663: Ocean Policy and Law


Lecture 6: Offshore Resource Development State and Federal Rights, Oil and Gas Development Introduction
In this section we begin to move our exploration of ocean policy and law beyond the coastline and into the offshore areas of the ocean. Until now our focus has been primarily on the coastline; we have looked at legal frameworks impacting public and private rights in the coastal zone, and much of that review has focused on values associated with property rights to the shoreline (the physical space) as well as rights of access to the shoreline, both public and private. A visual representation of this initial focus is presented here:

We now begin to explore a different set of values, one of ownership rights to the resources contained within the ocean itself. In this first exploration our focus will be on competing government (public) rights to resources, in this case state versus federal rights in ocean resources. Our examination will cover two aspects of these rights: (1) property rights to the physical space of the ocean; and (2) ownership rights to the

Page 2 of 11 resources contained within that physical space. A representation of our new focus (in comparison to our previous focus) is visually presented here:

What we should come to understand is that policy is dynamic and ever evolving, meaning that a change in preferences often follows new information. This is particularly true when new information leads to opportunities that motivate new policy directions. A clear example is represented in the history of state and federal rights in ocean waters. As technological advances have increased our capacity to reach and extract resources within the ocean, actors (both public and private) have come forward to claim rights to those resources. From the public perspective, coastal states and the federal government have been at odds with one another on how best to share these new opportunities. As noted in the text, the discovery of oil deposits just offshore of coastal states (particularly California) opened up new opportunities for revenue generation. As such, both the federal government and coastal states had new reasons to claim ownership rights over the ocean. Both public entities wanted to develop new policy directions that included a claim of entitlement over marine resources. The question, as we have come to see, is what impact do legal frameworks have on the competing federal and state claims to the same ocean resources, and adding a historical/political context to this question, how did these claims ultimately resolve to bring us to our current understanding of state and federal rights essentially shared governance of coastal resources. As we explore the historical tidelands controversy, and then discuss current issues in the development of ocean resources, consider the role legal frameworks play in this discussion, and then overlay on this consideration the ways in which policy directions can be taken to sidestep the law in certain instances. Collectively the historical part of this section will help us better understand policy options today with regards to offshore resources.

The Tidelands Controversy: From History to Policy Lessons

Page 3 of 11 The Tidelands Controversy is a prime example of the interactions between policy and law as information changes. Once it became clear that the oceans contained valuable resources and, importantly, that those resources could be extracted (i.e., the value from the resources could be captured), governments began to develop policies supporting the capturing of that value. What is interesting to note at this time is the legal basis for assigning the rights to the resources between governments (state and federal) was not wholly settled; thus, the lack of legal clarity provided a rules void that allowed both coastal states and the federal government to claim ownership rights.1 For our purposes we can identify the policy implications of unsettled law on a subject; when the law is unsettled the rights between the parties is unknown. While a lack of clarity on respective rights can create policy opportunities (windows where policy can be developed to take advantage of the ambiguity), the lack of clarity can also make it difficult to discern clear policy directions. Understanding this point is an important part of understanding the relationship between law and policy; while legal frameworks (like constitutional protections) can seem to limit policy options in many circumstances, those same frameworks can also provide important guidance on policy directions, essentially helping one discern the validity of different options. In order to place the controversy into a clear policy perspective, the following factual summary of major points (as a timeline) is offered here: Early in our history, states inherited title to the coastal regions (submerged lands) as part of their designation as colonies.2

Consider the policy environment in which the learning associated with offshore resource development was occurring. Terrestrial oil production was fast replacing older energy sources (like coal), and thus the demand for oil was high. Private investment discovered oil deposits in just offshore of coastal states. With a lack of legal frameworks to manage oil extraction along the coastline, private investment began to seek the rights to extract the resource, but from whom? In most cases coastal states took the lead in claiming ownership rights, providing leases to extract the oil and also demand taxes on the production. As production expanded, revenues from leases and taxes increased to the point the federal government determined the value was significant enough to become involved. The question of property rights ownership in the submerged lands was unsettled between state and federal government, leaving competing claims of public ownership to be resolved in a court of law.
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These early grants came from the sovereign (King/Queen) of England and represented a common law doctrine that the sovereign owned all submerged lands within the kingdom. Since the territories (ultimately states) were the equivalent of the sovereign, the legal concept is that the states (at least those existing before the federal government came into existence) were the rightful owners. (Of course this creates a distinction between coastal states that existed prior to the federal government coming into existence, and coastal states that were created after the federal government existed.)

Page 4 of 11 After independence from Britain, the subsequent territories to receive statehood (think of western expansion) were given the same rights as the previous colonies to receive statehood under our constitution (known as the equal footing doctrine). This included the same ownership interest in coastal lands as previous states (however that ownership interest may be defined). In the 1930s, oil began to be discovered offshore in many states. This discovery led to fast development by private industry. Since the states claimed ownership, each state was leasing the right to extract oil, and receiving large sums of revenues for the leasing licenses. Around the time of WWII, the U.S. federal government was in need of new sources of income (heavily indebted). One solution to increase income was to claim ownership over the coastal areas in all regions of the U.S. This meant having to claim a superior interest to that of the states. The states fought the claim in both the courts and Congress. Congress attempted to grant total land ownership to the states, but then U.S. President Truman vetoed the bill, claiming the issue was a legal matter currently before the U.S. Supreme Court.3 In 1947, the U.S. Supreme Court decided a case of submerged land ownership between the U.S. government and California (the implications would be similar for most states). The Supreme Court decided in favor of the U.S. government, stating while the states certainly have a property interest in the submerged lands, the U.S. government (essentially through constitutional provisions of commerce and national defense) hold a paramount right (something that goes beyond mere property ownership) in submerged lands. As such, the U.S. government had a right to regulate and control submerged lands seaward of the mean low water mark, and this included the rights to resources in the submerged lands.4

So here we have an example of the political/policy aspects of the debate. When the legal frameworks are not clear, we can see how political interests evolve to help shape the debate. The interest of the federal government is to obtain ownership rights. The interests of the coastal states (represented by congressional representatives) are to maintain ownership rights. When the interests between the parties are not clearly settled as a matter of law, then we can see how branches of our government operate in an attempt to capture rights by settling the law in their favor. For the coastal states, the legislative branch attempts to pass a federal law confirming coastal state ownership. For the federal government, the executive branch (via the President) vetoes the bill and relies on a favorable interpretation from the judicial branch. A fine example here of how the United States system of government operates from the viewpoint of policy. Can you begin to see how important legal frameworks can be in settling conflicting interests?
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Consider this case an example of the Supremacy Clause application by the U.S. Supreme Court Justices. Recall our initial discussion of the Supremacy Clause in relation to the Coastal Zone Management Act (CZMA). Under a hierarchy of laws analysis, the

Page 5 of 11 In 1953, the U.S. Congress passed a federal law known as the Submerged Lands Act of 1953. The purpose of this law was, essentially, to overrule the U.S. Supreme Court opinion and grant to states full ownership and use of submerged lands up to 3 miles from shore (or otherwise their historic boundaries).5 To this date, the Submerged Lands Act remains the main law regulating ownership and resource development, giving the states these rights to ~3 miles from a baseline created at the shore. It is interesting to see today how the offshore drilling issue is becoming vibrant again. Under the CZMA, most coastal states have developed management plans that limit oil development within their jurisdiction (or otherwise protect against climate change and, thus, indirectly limit carbon redistribution from oil production), and this limitation continues into federal jurisdiction under the federal consistency requirements of the CZMA.

federal government has superior rights over state government with respect to specifically enumerated powers of the federal government (powers that are explicitly identified in the U.S. Constitution); commerce and national defense are two examples of these enumerated powers of the federal government found in the text of our U.S. Constitution. Also note that the justices deciding this case are not immune from the political aspects of the legal question under consideration. When legal frameworks are not clearly defined, and/or the law is not settled in a particular area, there is a greater degree of freedom in the interpretation of the law, simply because the justices are in uncharted territory. Thus, the lack of clear guidance (the greater freedom) allows for more personal factors, including political factors, to influence the decision-making process. Some have argued such circumstances allow for judges to engage in de facto lawmaking by carving out an interpretation of the law that has the effect of creating new law (much like legislatures do when they pass a bill). Such judicial activism is often criticized as a departure from the fundamental role of the judicial system and invades upon the separate government function of the legislature, which in our separation of powers system of government, is empowered to make law.
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So what happens when the legislature is unhappy with the policy that results from a judicial interpretation? If they can (meaning if the interpretation is not founded in constitutional limitations) the legislature overturns the judicial decision by passing a law. This is precisely what occurred with the passage of the Submerged Lands Act; Congress (made up of representatives of the states) was unhappy with the policy implications of the U.S. Supreme Court decisions (because it removed state rights to lucrative offshore resources), and thus passed a statute that recognized state ownership rights. Remember, the Act was passed in 1953, which was years after the end of World War II. This was also a time where technology was allowing for resource extraction to occur further seaward of the coastline (into clear federal waters). Finally, the federal government was asserting sovereign rights further out to sea during this time, so there were certain resources that the federal government could claim, allowing the sharing of offshore resources with coastal states to take on a more palatable taste.

Page 6 of 11 Now that we have a sense of history related to the Tidelands Controversy, lets take a closer look at the policy implications. Ive already identified a number of points associated with the historical development of property rights dispute between coastal states and the federal government; linking these points to policy relevant implications, the following can be stated: Point #1: Property Rights Are Critical In Establishing A Foundation for Policy Development. o When property rights have not been assigned clearly under the law, the lack of clarity can result in inefficiencies in government operations. In the present case study example, the lack of defined ownership rights between coastal states and the federal government in coastal marine resources resulted in political instability and the sticky wheels of government branches jockeying for policy prescriptions. o If the above statement is true, then we can see the importance of clearly identified property rights as a precondition to developing sound policy instruments in marine resource utilization. Consider today how our offshore resource planning contemplates competing uses: oil and gas development, tourism and recreation, alternative energy production (wind and tidal for example), commercial resource extraction (fisheries and rare earth metals). These varying uses can raise conflicts based on how each user of the resource prioritizes the different uses. In addition, spillover effects can result in user conflicts, for example conflicting uses between adjacent coastal states that impact the other states priorities. o By defining property rights more clearly, there is the opportunity to create a policy setting that is conducive to negotiation and dispute resolution. When parties understand the extent of their property rights, they are in a superior position to bargain those rights between conflicting user groups; the federal and coastal state governments can do this through the clarification of rights identified in the CZMA (for example), while private users of the resource have a clearer sense of their user rights based on established policy principles (for example through the prioritization of coastal resources identified by different coastal states in their coastal management plans under the CZMA).6

For example, a private user can judge the relative merit of their desire to exploit oil and gas deposits in a coastal offshore area in comparison to other conflicting uses by reviewing the coastal states identified priorities under its approved coastal management plan. That same user can judge the ranking of their proposed use at other coastal states by reviewing the differing management plans. An example of how clearer property rights can lead to more efficient utilization of marine resources (and thus lower user conflicts) is available in the following article:

Page 7 of 11 Point #2: Legal Frameworks About The Ownership and Use of Coastal and Ocean Resources is Relatively New and Evolving o We are not here studying the evolution of property rights (both public and private) and the utilization of those rights from a legal context; if we were, our study would be taking us far afield and likely require a commitment of several years. Still, we can come to some basic understanding that the United States incorporates fundamental principles of property rights as a means of developing its economic model of capitalism that drives a lot of the economic activity within the country. The historical antecedents of property rights likely include legal frameworks to support those rights (consider the Fifth Amendment takings prohibition discussed earlier as one example). o Our historical review of property rights assigned to ocean resources suggests those rights are relatively new and still developing. Indeed, we will see this theme continue as we move further offshore and into an exploration of legal frameworks in the marine environment. Where our initial exploration of coastal rights was anchored in many respects by longstanding property law traditions (because we were mostly on land), our current and future exploration of those rights will take us into lesserdefined legal rights. Knowing this, we should also come to realize that policy frameworks will be less constrained as we have already noted the relationship between legal definitiveness and policy options: the less defined the laws in a field the greater the policy options; the more defined the laws, the less room for policy options generally speaking of course. Understanding the two points identified above helps us place policy questions about ocean resources into context; as we move further offshore, the policy environment will become less constrained by legal frameworks because the legal frameworks become less certain. A visual representation of this is presented here:

http://works.bepress.com/chad_mcguire/27/

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Thus, we should expect there to be a more evolving policy environment as we discuss offshore resources, and the further we move offshore, the more nascent the policy environment encountered. In fact, the extreme of this relationship will be shown in discussing international waters (beyond ~200 miles), which are often referred to as the open seas; in this area of the ocean there are few rules (legal frameworks) from which to constrain policy meaning there are lots of options (some might say lawlessness) from which to develop policy directions. We being our review in this section by taking a closer look at resource development from immediately offshore and into federal waters.

Offshore Resource Development


As the issues of the tidelands controversy were settled, property rights between coastal states and the federal government became certain (or at least more certain). With a foundation of property rights in place, state and federal governments can then look to the development of those resources. Consider the role technology plays in how the term resources is defined in this context. As technology advances, the capacity to reach areas of the ocean becomes realized. As the capacity to reach areas of the ocean increases, the concept of what constitutes a resource can expand. We have seen a corollary of this phenomenon terrestrially in recent years where advancements in the techniques used for extracting oil and gas (commonly referred to as fracking) has increased the land-based production of oil and gas in the United States; known reserves of oil and gas previously thought of as undevelopable (whether because of technology limitations or economic feasibility in relation to alternatives) has now become a viable resource due to technology advancements. The same is true of our ocean environment; a great number of potential resources exist in the oceans; whether we identify these resources is really a matter of feasibility, a term that suggests a technological and economic capacity. As technology and economic factors advance, both coastal states and the federal government are continually evolving their understanding of the resources

Page 9 of 11 available to them in the marine environment. Sometimes the current definition and utilization of resources comes into conflict with other current and potential resource development: this is where I would like to direct our focus. The main text reading helps us understand the current state of legal frameworks related to offshore resource development. The Outer Continental Shelf Lands Act (OCSLA), a federal statute, provides the framework for offshore resource development that is not related to fisheries (controlled under a different federal statute we will discuss later in the course). The main mechanisms of OCSLA are discussed in the primary text and the McGuire assigned reading. What is important to note is the relationship that is created between public and private partnerships for the development of these resources (mainly oil and gas, but also increasingly for minerals as the technology improves and the demand for rare earths increases making the costs of marine extraction more feasible). The main policy framework that exists for the extraction of these resources is one based on a private enterprise seeking access to a public good. If certain conditions are met, the private enterprise is given a lease under OCSLA to access public land (the ocean) and extract the public resource (say oil and gas). In consideration of this right to access and extract the resource, the private enterprise pays a fee to the government for both the access and resource itself. The difference between the fees charged for access and extraction and the price paid for the commodity becomes the profit for the private enterprise (excluding other costs for extraction and bringing the commodity to market). Conceptually we can see there is a substantial commitment from the private enterprise when engaging in this kind of agreement. A lot of preliminary work is done by the enterprise and, often, the payback is really based on assumptions about the wholesale price of the commodity in the future and the ability to extract a significant amount of the resource over the lifetime of the lease, which can be for decades. If any of these assumptions are proven false, then the costs to the enterprise may very well exceed the benefits, and some argue that risk is fully borne by the private enterprise under the current policy scheme of OCSLA. With this in mind, we can add a consideration of competing uses for ocean resources. For example, in the energy field alone improvements in technology have allowed for the ocean to be a source of energy production in ways beyond oil and gas extraction. Wind turbines sited offshore offer opportunities for energy development due to the substantial source of wind in many offshore areas; the technology advancement in wind turbine design offers energy production with an input (wind) that is different from the historical source extraction (oil and gas). More traditionally, there are competing uses between current ocean resource utilization. Commercial fisheries are an important private and public partnership. Recent examples (consider the BP Deep Horizon oil spill in the Gulf of Mexico) of extractive marine resource practices highlight the impact such practices can have on commercial fisheries; the degrading of water quality can impact the life cycle of target fish species. In addition, water quality impacts from oil and gas extraction can also impact tourism (as evidenced in the BP spill) when the tourism is linked to recreational use of coastal waters.

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These examples bring us back to our earlier exploration of competing uses of marine resources leading to conflicts between user groups. The example in the McGuire (2012) reading on coastal planning, federal consistency, and climate change is a key way of thinking about the larger policy environment when existing policy directions come into conflict with new information. The focus for this example is climate change; if we see the phenomenon of climate change as a new set of information relating to ocean resources, then we can look at the competing interests at-stake when we view offshore resource development in context. In the McGuire reading the focus of the discussion is on coastal state adaptation plans towards sea level rise, and the corresponding policy roads undertaken at the federal level for offshore oil and gas development. Simply put, the current federal policy of offshore oil and gas development is, at least theoretically, inconsistent with coastal state policy goals of mitigating the impacts of sea level rise brought on by climate change.7 Thus, any proposed policy direction by the federal government to increase offshore oil and gas development must be in direct conflict with coastal state goals on limiting sea level rise (and its associated impacts along coastlines).8 So when the federal government furthers a policy objective of increasing certain ocean resources (oil and gas in this case), that policy decision directly conflicts with a policy preference of coastal states (limit sea level rise and its impacts). If we look at the legal frameworks available to help understand this conflict in context, we see those frameworks provide little help in resolving this conflict. Indeed, the Outer Continental Shelf Lands Act (OCSLA) allows, and even encourages, offshore oil and gas development. At the same time, the Coastal Zone Management Act (CZMA) suggests approved coastal state plans are to be given priority with regard to planning in federal
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The chain of logic for this argument is relatively linear: Sea level rise is occurring, in large part, through a warming climate. A warming climate is occurring, in large part, through carbon forcing. Carbon forcing occurs, in large part, through human movement of carbon from a stored state (in the ground) to the atmosphere where increased concentrations lead to a greenhouse effect causing temperatures to rise. Offshore oil and gas drilling is an example of the human movement of carbon from a stored state to the atmosphere. Thus, sea level rise is occurring, in part, through offshore oil and gas development.

Although focused on a different federal statute, the Clean Air Act, the U.S. Supreme Court case, MA v. EPA (2007) was brought under a similar rationale; coastal states argued their coastlines were being impacted by the federal governments failure to determine whether or not carbon was a pollutant under the Clean Air Act and thus subject to regulation. The details of the argument are different, but the purpose for the argument (in showing harm) is the same.

Page 11 of 11 waters that may impact approved state goals. As the McGuire reading suggests, approved state plans that include the protection of coastal resources, when viewed under climate change and sea level rise, may indeed require the federal government to rethink its offshore leasing policies, at least for oil and gas. Moreover, the emergence of alternative resources in ocean waters (for example the consistent winds that prevail for wind power development) may provide a different way of thinking about what constitutes a resource in the ocean, and how those resources might be ranked amongst one another based on certain criteria. What we know for certain is that OCSLA and the CZMA are both federal laws; in a hierarchy of laws analysis they are equal and meant to be read in harmony with one another. Of course we can look to the federal consistency requirement under the CZMA as a way of determining a priority between the laws. Further, we can look to other federal laws that might help further guide a policy direction when marine resources come into conflict, for example the National Environmental Policy Act (NEPA) during the permitting phase under OCSLA. Remember, our goal in this course is two-fold. First, we seek to understand the legal frameworks that help to define ocean law and policy. Second, we want to understand the larger policy questions that emanate in this field, and to place those policy questions into context, we use our newfound understanding of the legal frameworks to help define policy issues and, possibly, prescriptions. Here we can see how the intersection of property rights and technology is creating a bit of uncertainty with regard to policy development. Remember, as we move further offshore the law becomes less defined and thus the policy options increase. As such we need to be particularly careful in how we view issues such as offshore resource development; new information (via technology changes or high impact events) can alter policy directions quickly. Seeing this relationship is an important way of understanding the dynamic nature of policy development as we move further out to sea. END OF SECTION.