Two Black Golds: Petroleum Extraction and Environmental Protection in the Caspian Sea

Abstract

The Caspian is an inland sea bordered by Azerbaijan, Kazakhstan, Turkmenistan, the Russian Federation and the Islamic Republic of lran. After the fall of the Soviet Union, the Caspian's potential oil reserves caught international attention. and the new states surrounding the sea found themselves courted by multi-national oil companies and western diplo­mats. Estimates of the Caspian's oil wealth have varied, but the highest speculate that the region holds reserves close to that of the Persian Gulf, almost all of it located offshore.

Environmentalists fear the Caspian's ecosystem will be sacri­ficed in favor of politics and energy wealth. This paper will explore the constraints of environmental protection in the Caspian and suggest possible methods to achieve some mea­sure of balance between oil production and the environment. Command-and-control techniques, in the guise of technology specifications, are a valid tool in setting environmental policy. An important aspect of these specifications however, is to provide incentives for firms to develop better technologies. This can be done by setting pollution thresholds and allowing firms to devise their own methods for controlling pollution. Market-based incentives could also work in the Caspian, however the forces driving policy in the region today make agreement among the Caspian states difficult. Pollution taxes are also complicated due to the complicated nature of finding an appropriate tax that provides incentives for companies not to pollute. A permit trading system, whereby companies traded permits instead of the Caspian states, would be more feasible. To ensure success, local environmental groups must be a part of the process.