Monday, April 20, 2015

BP Oil Spill at 5: Reflecting on Costs and Benefits of Offshore Drilling

Today is the five-year anniversary of the BP oil spill, also known as the Deepwater Horizon oil spill. On April 20, 2010, BP's Deep Horizon oil rig exploded, thereby releasing more than 100 million gallons of oil into the Gulf of Mexico over an 87-day period, and caused the death of 11 individuals. Although the Department of Interior has already enacted certain regulations, it is going to enact new regulations in regards to blowout preventers, which are an oil rig's last line of defense in preventing such oil spills, in light of the five-year anniversary. Interestingly enough, Obama is looking to expand offshore drilling in the Atlantic. I'm not only surprised at the Obama administration's support for such expansion, but also that 56 percent of the country supports expanding offshore drilling. While it's unintentional, I think we're seeing the government trying to strike a balance between the economy and the environment.

No one likes to see animals covered in oil or entire ecosystems affected by Big Oil. Even with the infrequency of oil spills (Bureau of Ocean Energy Management) or the fact that most oil that enters the ocean is due to natural seepage [and not oil spills], people don't like the fact that oil spills have such a negative environmental impact. I don't either because oil spills create negative externalities, which means that without some sort of intervention, oil companies bear hardly any of the cost while passing them along to third parties. One also has to consider the damage it does to coastal tourism revenue, businesses that depend on a healthy ecosystem in coastal areas, increased carbon emissions, regulatory costs, or how more offshore drilling could increase maritime disputes.

Just because their are costs to offshore drilling doesn't mean we should automatically dismiss offshore drilling. By applying that nirvana fallacy, we would have to reject any existing sources of energy because there are costs. It would be nice to switch over to renewable energy, but neither wind nor solar powder have the capacity, scale, or sufficiently low price to provide energy that oil or coal can.

As studies from organizations such as the Palmetto Policy Forum, the Fraser Institute, or Northern Economics show, economic benefits exceed costs, which is something we cannot ignore as we try to provide for the world's demand for energy consumption. Other studies, such as those from the Wilson Center or Resources for the Future, exercise more caution by saying "drill, but regulate more heavily."

Why am I not explicitly saying whether or not more drilling is a good idea on the whole? For one, it's still too soon to tell the full extent of the damage done by the BP oil spill. It took over a decade to figure out how much damage was done by the Exxon Valdez oil spill of 1989. The second reason, and even more important reason, is that there is no clear-cut, simple answer to the question. The answer is more case-by-case because one has to factor in the depth drilled, the ecosystem surrounding the oil rigs, the extent of regulation by the given governing body, the amount of oil spilled or seeped, and the amount of actual extractable oil.

Since privatizing oceans is difficult due to international maritime law, I don't see a feasible scenario in which government does not play a role in regulating oil companies to make sure we can avoid another BP oil spill. I also don't see a feasible scenario that doesn't involve oil being a major player in the world's energy portfolio. Whatever the outcome may be, I hope that it ends up being good both for the economy and the environment.

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