What the U.S. Can Learn From a Huge Oil Discovery In Guyana
The Trump administration proposed last month a reform of the regulations implementing the requirements of the National Environmental Policy Act, for decades a source of massive delay and cost increases for federal projects, yielding actual environmental harm because of an inherent bias in favor of the status quo over new investment promising improved environmental outcomes. It can come as no surprise that criticism from the environmental left has been vociferous; even as the critics claim that the reform will sacrifice “our clean air, clean water, public health, and even our future,” they have failed to acknowledge that the delays and higher costs are real, consuming resources and time and blocking investment in cleaner infrastructure replacing facilities older and dirtier.
Sometimes a useful perspective can be achieved by shifting from a focus on our own disputes toward one presenting analogous problems elsewhere. Consider for example the recent political impasse in Guyana. In brief: The vote-counting for the presidential election in early March has been afflicted with allegations of various forms of fraud. A laborious recount conducted under international supervision showed a victory for the political opposition, but the ruling coalition attempted to use a controversial report of large numbers of ineligible votes by emigrants and deceased voters to delay a transfer of power despite several rounds of court cases. After more than five months of uncertainty, the impasses was resolved last Saturday when the incumbent President David Granger stepped down in the face of heavy international pressure, and the opposition candidate Irfaan Ali was sworn in as the new president of Guyana.
The stakes are high because of a discovery five years ago by Exxon-Mobil of large offshore oil and gas reserves that might be worth more than $100 billion. That newly discovered national wealth might triple per-capita GDP---living standards---within a decade as the resource is developed.
Make that: if the resource is developed. Alas, such resources are not developed and produced spontaneously. It is necessary that large investments be made, and those require favorable legal and regulatory institutions and a public decisionmaking process that is predictable and not afflicted by delays without end. Because of the disputed election and ensuing maneuverings, the opposite condition has developed in Guyana. There has not been a functioning legislature, as Parliament was dissolved in December, so that the Finance Ministry is sharply constrained in terms of its ability to fund programs. For the energy sector, government officials have become more reluctant to issue needed permits, one result of which is ongoing delay in planned production increases, exploration, and other operations. The new government could take immediate steps to facilitate and speed the development process, but as yet has not indicated that such approvals will be a priority.
Unsurprisingly, the delays and uncertainty have afflicted complementary industries as well, with serious adverse employment impacts. Government revenues---needed for energy-related infrastructure investments and for other important functions serving a wealthier population demanding improved public services---have been lost or delayed.
Such effects exacerbate the impacts of international energy prices depressed by adverse economic conditions attendant upon the COVID-19 pandemic. Energy resources are an important form of national wealth, but they are hardly unique to Guyana or any other individual economy. Just as international fossil producers can choose to invest in Guyana as a response to favorable resource and economic conditions, so they can choose to invest elsewhere as shifting conditions come to favor other economies. Accordingly: Whatever the economic environment shaped by international price conditions, local political and regulatory factors can exacerbate an adverse general economic environment, or they can help to compensate for it.
Which brings us back to the U.S. The huge technological advance in hydraulic fracturing and horizontal drilling yielding the massive increase in energy production was not a natural phenomenon. Instead: It was the result of private property rights, a favorable legal and regulatory environment, and a system of environmental and other regulation allowing for needed complementary investment, whatever the delays and frictions characterizing the system.
But there is nothing guaranteed about this, and increasing political opposition to that investment (e.g., pipelines) poses a real threat to the increase in national wealth and individual wellbeing promised by continued development of energy resources. The policy parallels between the U.S. and Guyana energy sectors are surprisingly similar, a truth that U.S. policymakers interested in American economic wellbeing would be wise not to ignore.
