“The decisions to give up leases reflect both environmental and economic realities of operating in a remote and unforgiving environment like the Arctic,” Michael LeVine, senior counsel for Oceana, told ThinkProgress. Statoil, which also had leases in the region, had previously relinquished all its leases, and Shell has relinquished all but one block, where it has already done exploratory drilling, he said.
A spokesman for ConocoPhillips confirmed that the leases no longer represented a good investment for the company. “Given the current environment, our prospects in the Chukchi Sea are not competitive within our portfolio. This will effectively eliminate any near term plans for Chukchi exploration for the company,” Christina Khul told ThinkProgress in an email.
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"We’re seeing unproven reserves taken off the table around the world," LeVine said.
But there is also mounting pressure on fossil fuel companies to find other ways of doing business. Scientists have estimated that two-thirds of the world's fossil fuels are going to need to stay in the ground in order for humanity to avoid the most catastrophic effects of global warming, and economics might prove the most effective way to make that happen.
An economist at the World Resources Institute explained that the abandonment of expensive leases in the Chukchi and Beaufort seas is roughly similar to the way a carbon price would affect fossil fuel companies' behavior. Oil and gas companies — and, indeed, most companies — are constantly evaluating the costs and benefits of different investments. As the costs creep closer to outweighing the benefits, the investment becomes no longer viable. The Arctic investment became unviable when the benefits (oil prices) went down in a high cost environment, but there are other ways to change that equation.
"If it’s just barely worth the costs and the risks now, it probably won’t be once you have to pay for the true costs of the greenhouse gas emissions that you are releasing," Noah Kaufman, an economist at WRI's U.S. Climate Initiative, told ThinkProgress.
Those true costs could be a price on carbon.
A carbon price — an economic mechanism that would require greenhouse gas emitters to pay a fee for polluting — is the “smartest, most cost-effective way” to reduce emissions, Kaufman said. Carbon pricing internalizes a previously externalized cost.
The idea has broad backing. WRI is a member of the Coalition on Carbon Pricing, an organization of businesses, international nonprofits, and government representatives that is investigating the possibility of implementing a global carbon price. Both Shell and BP, along with several other energy companies, are also members. Last year, Christine Lagarde, head of the International Monetary Fund — another member of the coalition — explicitly called for a price on carbon.
It would "absolutely change the financial decisions that any oil and gas company makes," Kaufman said.
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Of course, the Arctic is only one part in the greater fight to reduce fossil fuel use. While larger economic forces might be dissuading companies from drilling in the region, there are always other investments where the margin might be just enough to entice companies to keep going. Extraction in the Canadian tar sands, for example, is expensive but still viable. That might change with a carbon price. Meanwhile, anything that increases the cost of fossil fuels — or, as advocates would say, more accurately prices fossil fuels — will make alternative energy sources more attractive, further changing the economics of fossil-fuel dependence.
Read more at The Oil Industry Just Backed Out of a Multi-Billion Dollar Investment
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