Wednesday, June 2, 2010

oil spill--blessing in disguise?

While coverage of the oil spill makes me cry, the disaster might prove beneficial after all. In its nascent stage, the spill cast energy reform as a "political impossibility," primarily because compromises expanding offshore drilling attracted otherwise-opponents to the measure. Post-spill, those compromises would be pulled, and opposition would increase.

But that assessment was nearly a month ago. Six weeks later and still no solution, the spill has become truly frightening. So frightening that, despite my heated criticism of Obama's stagnant efforts to push an energy bill in the past, looks like we are both singing different tunes. Now the President is actually willing to do something, and now I believe it.

The New York Times reports:
President Obama will call Wednesday for rolling back billions of dollars in tax breaks to oil companies, and will vow to push for climate change legislation “in the coming months,” setting the stage for another potentially divisive battle in Congress. full article



Larry said...

The oil spill is the perfect reason we should have less regulation. Regulation is hand in hand with political corporations. When they get regulated, in order to survive, they have to get active... with that comes caps on liability and tax subsidies... regulatory capture is a little narrow but basically thats the name of the game... if not for all the regulation that obviously didn't work to prevent disaster the company would be on the hook for every penny... the incentive would have been there for them to be more careful... they would self regulate or else their insurance companies would regulate but instead the government did... screwed up... and because its the government regulation, we as tax payers, will bare most of the consequences instead of the corporations... there is no incentive for corporations to be more careful... the government takes on all the risk and just doesn't care as much as the shareholders would... economically government regulation is a terrible way to prevent bad things... private causes of action are way better, especially against companies that are solvent... If we just hold them accountable instead of controlling them... their people will do the math and take the precautions or pay for the damages...

I predict the same type of thing will happen with any new programs like climate change will be the same... there will be little or even negative forward motion because the regulated industries will capture the government agenda... its sad but thats how things work... just be careful that your repairs don't make things worse... I pose that without the regulation and caps... this spill would never have happened... companies with an open checkbook like BP would have had contingency plans 3 deep to prevent or stop this...but when the government regulates they don't because they are following orders... just saying ;)

I know you hate everything I stand for but in the end we mostly want the same result... a cleaner better environment without going back to the stone age...

Jacob said...

Larry I agree with some of your post. Notably the capture of regulatory decision making by corporations. It's definitely a problem.

But I'm unwilling to pass off regulations and governmental decision making as inherently flawed. I think that no matter what we do, there will be accidents, potentially large ones like this.

The most attractive energy option for us right now is nuclear energy, which is as attractive as it is because of its zero carbon emissions and relatively low waste to energy produced ratio. But it creates certain risks, just like anything else.

Regulation should steer the country's energy policy, because corporations will always be divorced from the externalities, like carbon emissions, that their profit generating activities produce. It should also criminalize or create civil penalties for behavior that, while profitable, exposes society to damages. Should we allow BP or similar companies to create risks that are potentially more costly than their portfolio of assets? What about risks that no money damages can repair?

I'm starting to wonder whether BP will actually be able to pay for this. Let me say up front that I don't have a current understanding of BP's balance sheet, but we're looking at a very large, long-term disruption (disruption is the softest word I could use) of an enormous and expanding portion of the US and global economy. I'm beginning to wonder whether BP will have the necessary assets to cover the costs of this disaster.

And lets not forget post-disaster efforts by guilty parties to lower their exposure to the damages they have created. BP will soon be mobilizing one of the largest efforts we will ever see to fight every effort to expose them to liability for the spill. They have to, because their fiduciary duty is to their shareholders. This will include fights in courtrooms and by lobbyists.

just like I'm not willing to get rid of criminal law because everyone would be incentivised with purely privatized causes of actions to treat each other justly, I'm unwilling to deregulate business practices entirely. I believe that ex post awards of damages are not the most efficient means of shifting risk onto the shoulders of corporations that create them. Corporations don't always act rationally (just like people) and some risky behavior creates damages that are so hard to prove and speculative that it would be inappropriate for courts to award them, yet they are very real.

Are we going to award Cab drivers in Louisiana with lost profits from the drop in tourism due to people's perception that New Orleans is less desirable to visit? I don't think so, but those cab drivers may very well see real damage at BP's hands.

Sometimes society must decide that it is not in our best interests to allow corporations to make decisions about whether certain risk is justified. Sometimes we can't afford to let them make those decisions.

Larry said...


Very good response and I do not completely disagree. There are certain things which cannot be dealt with in private suits and need regulation. My point is from an economic perspective and the point is that we need to weigh the costs and benefits. In energy, with the possible exception of nuclear, regulation tends to be extremely ineffective. Same in many other industries. Now when private actions absolutely will not change behavior such as outlawing lead based paint... I'm ok with that because the time gap and proof issues are near impossible and regulations that are simple and across the board can work. Simple clear regulations can be effective in such circumstances. They effect all players equally giving less incentive to lobby and is easier to monitor by the public because the public can understand it. Complex regulatory regimes do not work.

As for the cab driver there are mechanisms to provide damages. For example if they can show a decrease in business relative to the last few years and get economists to build models controlling for economic swings and the like those can get ball parked. Also there will be some to remote to prove and for those we can use punatives and attorney fees and treble damages and similar structures to grab the unknown damages.

Base line is when we can make simple clear cut regulation which is equal across the board then it can be effective. When it becomes an agency then it tends not to be effective... the interests just aren't aligned properly. With private actions there are two sides fighting and it prevents either side from getting too much of an advantage. As for the money... I would propose mandatory insurance in certain activity that is risky or else self insurance governed by a board. This is done in states for employers because of workers comp liability.

You are right private actions are not ALWAYS the answer but most circumstances they work well. This is especially true when you require insurance because either they have the money to cover or the insurance company will regulate. If the government regulates in effect we also insure which is ridiculous because there is no real incentive because its tax payer money... Where regulation is appropriate it should be something a citizen could sit down and read over a few days not thousands of complex language written by lobbyists.

As for Global Warming... first its unproved science that man is having a harmful impact overall since there is natural flux of all of the factors involved and the science isn't clear that we are harming anything... Aside from my "denial" global warming is not in the realm of regulation at the moment because we can't stop cheating by other countries. Other countries are facing starvation or fossil fuels and some families here will face the same... we will outsource our carbon and the environment will take a bigger hit from something like cap and trade than with nothing. It takes less energy to produce here but with regulation it will be cheaper there... the only way the government could help would be to make it easier to pursue alternatives like Nuclear... but regulations even take their toll on wind and nuclear energy...

So I agree with you in part but I think you overestimate the power of regulation to accomplish the ends you want and underestimate the power of private incentive based regulation... :) Risk issues has to be the most fun thing in the world to debate... I am such a nerd HAHA

Vanessa said...

I love you boys for promoting discussion on The Colonic.

Larry, corporations will only react when their "misbehavior" has a direct effect on consumers. For example, absent regulations on dumping toxic run-off in bodies of water, corporations would continue to do so because consumers are not directly effected by it and remain largely unaware. Also, when everyone is dumping their slime into a river, who even knows who is "causing" the damage?

This is in contrast to something like contaminated chili sauce, a result of broken thermometers, where some consumers die, a ton get sick, the illness is traced to a specific brand coming from a specific factory. (Although even in that instance, without records and inspections mandated by law (not like the FDA does much though, let's not get it twisted), it would be harder to even trace back the cause of the illness).

Also, carbon emissions spell trouble, regardless of "global warming." Enter ocean acidification. I have an older post on it (

In essence, "[t]he ocean is praised as a carbon sink, or place that carbon can go instead of the atmosphere. But as we continue to pollute and the ocean continues to absorb carbon, the ocean becomes more acidic. The acidity is starting to dissolve seashells. This has major effects on underwater ecosystems, and people who depend on them."

Energy reform is desperately needed REGARDLESS OF EMISSIONS. If this bill gets bigger play because of emissions, lucky for the planet. See coal mining.

LRP, from the bottom of my heart, I do not believe you can defend coal mining with a straight face--with or without emissions.

Jacob, nuclear energy is still problematic. I worked on a campaign in Slovakia opposing the establishment of a uranium mine, not because of nuclear weapons, but b/c the process of mining uranium devastates the area and contaminates surrounding water. While supporters claim that places like Slovakia benefit from uranium mining (job creation), this does not account for the long-term damage, such as clean-up costs, illnesses related to contamination, permanent destruction of certain ecosystems, etc.

Larry said...

Always happy to promote a friend ;)

I worked researching a case of mercury contamination back home by a corporation... they will likely pay dearly not only for the personal injuries but for the property damage from the contamination, and so they should! Its easier when the consumer gets hurt but non-consumer cases will be brought when the damage is ascertainable. That goes back to as long as the damage is so dispersed and distant that no one can bring the suit private actions can work. Plaintiffs attorney's will do the research and fund the suits plus they create a counter balance to the lobby to prevent the industry capturing and controlling government on the issue. In private litigation there is the same amount of money on both sides so both will lobby with equal vigor... its easier to protect the plaintiff when its a toss up because it plays better in the press. It is possible. What kills investigation and responsibility is when industry is able to hide behind compliance with bad regulation when they know people will die... but they followed the rules and so they get protected because they can blame government incompetence instead of face responsibility for the harm they do.

I'm not saying we shouldn't try to address CO2 emission. However, I think a long run view towards cheaper alternatives will be far more productive than regulation because we will export the pollution and other countries will produce more pollution per unit. If you make me choose between families heating their homes and feeding their kids and sea shells dissolving I will pick dead shellfish every time...

Aside from that ice cores have shown substantially higher carbon level in the past... the planet can sequester carbon but there is a lag... the water has to warm, algae has to spread and grow faster, plant life has to become denser... My comment isn't that we shouldn't be careful or that we shouldn't plan its that we should be realistic and admit that we are facing a risk not a certainty that things are harmful. Also, I'm not going to "defend" coal but everything is a trade off. We have to have energy. I am not and society is not going to watch people starve or freeze to stop the horrible effects of coal mining. Coal is cheap and there is a lot of it everywhere. If we don't use it here they will use it in china and India and we do it better here. Should we link it to algal based renewable to sequester the carbon and reduce the impact YES should we try to get to a point where we don't need it? yes but until there is a viable alternative I will always choose using coal. You can't just look at the side effects of the choices we make we have to look at the consequences of the alternatives... we have to face this problem in the long run not in the short run. The planet is not going to collapse in a decade... we have time to address this the right way without destroying families, communities and national economies.

If we tank the economy people will stop caring at all about the environment... clean environment is a consumption good... I hate to say it and I know you just threw up a little and I'm sorry for that... but poor people don't care about their creek... if the choice is food and heat and clothes or no pollution EVERY time people choose to survive. If we move to fast we will destabilize the economy and regress... the result will be more resistance to future improvements and more long run damage.

The U.S. is sitting on something like 70% of the worlds oil shale, substantial amounts of coal and natural gas, we have spectacular nuclear technology and we have a decent amount of oil. You have to pick the energy you like... and use it until we find a better alternative. If we don't use energy, they will, and they will do it worse... thats the story of American history. We are often the villain because we do what has to be done because if we don't someone else will and they will be far worse...

Larry said...

Its better for the doctor to cut off a leg than to refuse to do harm and watch the patient die of gang green as it were. If we only look at the doctor making someone a cripple and ignore the consequences of the next best alternative then we would lock up that doctor for cutting off the leg but that isn't rational thought... we are often left with only bad options and we have to do the best we can with them.

If it were up to me... I'd open up the domestic energy in the U.S. the natural gas, oil and coal...I'd build new atomic energy plants... stop importing energy and sink all of the U.S. royalties into science to develop alternatives...find better ways to deal with nuclear waste, advance solar and algal technology... but no one listens to me ;)

It would have two effects... U.S. products which create less pollution per unit would be cheaper reducing net global pollution. It would strengthen a weakening dollar and U.S. economy, shore up an unbalanced and manipulated U.S. labor market and send trillions into developing a cheaper, safer alternative to fossil fuels...I think algal fuels look most promising... but thats the kind of long term plan we should be working on... a 50-75 year plan not something to make us feel better about ourselves because we passed it... IMO thats all a cap and trade type bill would be... it will hurt average people and make them militantly opposed to future environmental actions...

You might be right and I might be wrong... but I truly believe my arguments are logical and most probably correct... I really do want to see us be more responsible with the planet... I love nature and I don't want to see it destroyed... the primary place we differ is the best way to achieve that end... and we differ a little on how big the risk is on carbon but thats only a small part of the overarching issue...