Jason Barton

Professional Information and Energy News

BP Oil Spill Demonstrates Need for (Limited) Government Intervention

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Is it possible for the gov’t to establish who–whether BP, Halliburton, Transocean, Anadarko, or others– is responsible for what portion of the damages in an efficient manner?

As has been written many times before on this site, this is the job of government: internalize the costs of these external damages so that the firms and other parties responsible are paying the bills.

The report said the explosion that triggered the worst offshore oil spill in U.S. history resulted from management failures by BP and its contractors as well as “failures of government to provide effective regulatory oversight of offshore drilling.” It said the root causes of the disaster were “systemic” and “might well recur” without significant changes to industry practices and government policies.”

The regulation described here is usually highly inefficient, inhibiting firms from the innovation that makes them both safe and profitable. When firms are held responsible for the costs of their actions, rather than strangled by regulation, they can perform the risk analysis necessary to see whether or not the technology and infrastructure they have available will make a potential drilling location, yes, both safe and profitable.

Already, the report has its detractors. Rex Tillerson, chief executive of Exxon Mobil Corp., told reporters Thursday he did “not agree that this is an industrywide problem,” adding that the report’s conclusions shouldn’t be extended to the entire sector. Exxon was one of a number of oil companies that claimed last summer that the Gulf of Mexico blowout was a one-time event caused by unusual and risky decisions by BP.

Holding responsible those specific firms that were involved with the tragedy* also means avoiding placing blame on those firms that are more careful with their choices of where and how to drill, mine, etc.

Under this kind of scenario, the costs associated with the 2010 Gulf spill would be, for the most part, passed along to the customers of these firms, but this is a much more efficient means of paying them than having them paid by taxpayers who use the products and services provided by BP from the Deepwater Horizon rig.

This brings us back to the original question: To what extent it is possible that government establish responsibility?

The goal is to ensure that those benefitting from the the consequences, both intended and unintended, of the drilling, are also held responsible for the direct as well as indirect costs. Taxpayers benefit in different proportions that the government is not able to establish.

The companies, once faced with the fines and other clean up costs, will pass those costs along to their users, meaning We The People (private consumers, not taxpayers) are able to decide how much these benefits are really worth.

  • JANUARY 7, 2011

BP Gets Lift From Oil-Spill Report

By GUY CHAZAN

The U.S. presidential commission’s report on last year’s Gulf of Mexico oil spill reduces the likelihood that BP PLC will be found guilty of gross negligence, legal experts and industry analysts said Thursday, potentially lowering the ultimate cost of the disaster to the U.K.-based oil giant.

A 48-page chapter from the report, released Thursday, shone a harsh spotlight on BP’s actions in the run-up to the blast at its gulf well, but also piled criticism on two of the company’s contractors, Transocean Ltd. and Halliburton Corp.

Read the entire article here.

Written by Jason

January 11th, 2011 at 9:24 pm