The consequences are sometimes subtle or only become clear over time. In other instances like the outcome we write about here, the consequences are immediately obvious. On January 29, Royal Dutch Shell PLC, citing a January 22 U.S. Court of Appeals for the Ninth Circuit decision as a last straw, announced it would indefinitely put on hold plans to drill for oil beneath Alaska’s Chukchi Sea.
Shell has reportedly invested over $6 billion in its quest to become the first company to extract some of the possibly 27 billion barrels of oil from that offshore location. The leases it obtained from the federal government cost $2.6 billion alone. Over the last eight years, Shell has had to endure delay after delay as a cadre of activist groups—let’s call them collectively Environmentalists for Foreign Energy Dependence—filed lawsuit after lawsuit to slow final approval. A Legal Pulse post from July 2012 details several of these actions, which attacked, among other things, EPA’s emissions permits, Shell’s oil spill plan, and the Bureau of Ocean Energy Management’s (BOEM) environmental impact assessment supporting the lease sale.
The outcome of the appeal of this last lawsuit to the Ninth Circuit is what led Shell to cancel Chukchi Sea drilling for this year. Over a dissent by Judge Rawlinson, the majority in Native Village of Point Hope v. Jewell held that BOEM’s estimation that one billion barrels of oil could be economically retrieved under the leases was arbitrary and capricious. The court second-guessed BOEM’s calculations and assumptions, and gave considerable weight to disagreements with the agency’s suggested benchmark figure lodged by other federal agencies and during the public comment period.
As the dissent argued very persuasively, the majority improperly substituted its own judgment for that of the experts at BOEM. Judge Rawlinson wrote “our review is at its most deferential when we consider a predictive estimate such as BOEM’s estimate of the amount of oil recovery.” He added that courts are “uniquely unqualified to second-guess” such determinations and judges “do not sit as a panel of super scientists to dissect the agency’s analysis.” In other words, generalist judges’ predictions should not supplant the reasoned judgment of the experts whom Congress empowered to make such estimates.
In his dissent from a June 1, 2012 en banc Ninth Circuit ruling in an environmental case, Karuk Tribe of Ca. v. U.S. Forest Service, Judge Milan Smith invoked Gulliver’s Travels writing, “decisions such as this one, and some other environmental cases recently handed down by our court undermine the rule of law, and make poor Gulliver’s situation seem fortunate.” The rest of his fiery dissent shows that at least one other judge on that appeals court understands that judicial activism, just like special-interest activism, has consequences too.
It’s possible that on remand, BOEM can satisfy the appeals court’s objections and that eventually, Shell can go forward to get some return on its $6 billion investment. It’s equally possible, however, that Shell will take its business elsewhere or that the federal government will invoke the court ruling as an excuse to cancel the leases. The end result of the latter: the federal budget deficit will grow $2.6 billion after the government refunds the money Shell shelled out for the leases.
The only real winners here are OPEC and foreign nations that benefit from America’s dependence on foreign energy.