Monday, May 24, 2010

Governmentalizing the Gulf Spill Response

There is a growing chorus among observers of the Gulf Oil spill that the Federal Government should be more directly involved in managing the Gulf oil spill. I have to admit to some feelings along these lines myself.

However, I wonder about the ramifications of doing this. First off, is the federal government in any better position to try to remedy the problem, either in terms of shutting off the well or in cleaning up the spill? I'm not sure.

Second, I always have to remind myself that this disaster is in absolutely no way connected to any natural event nor any malfunctioning of any construction or equipment under the direct supervision of the federal government. In this case, the disaster is caused by property that is exclusively owned and managed by private entities. Would federalizing the response, and thus pushing aside the responsible private entities, minimize the liability of these private entities for their role in the whole mess? I'm not a specialist on maritime law, but it doesn't take a specialist to imagine that once liable parties get muscled aside, the responsibility and financial obligations would seem also to be shifted, too. And I wonder if that is advisable. If BP, Transocean, and Halliburton can be muscled aside without creating any significant liability to the taxpayer and with making sure these private entities keep the mitigation and cleanup dollars coming from their bank accounts, then I'm listenting. But I imagine it's just not that simple to push the private entities to the side and keep the money from their own bank accounts flowing.

The Times-Picayune has expressed my concerns quite succinctly:

But Coast Guard Commandant Adm. Thad Allen, the national incident commander, reiterated on the Sunday morning talk a message he's been sharing almost since the disaster struck April 20: Industry, and not the federal government, has all the resources to deal with the leak 5,000 feet below the sea and as it comes toward land.

The fear is that if Obama federalizes the response and supplants BP, not only will it be more difficult to get the company to pay for the response efforts, but the federal government may not have the capacity to get the job done.
In the case of Hurricane Katrina, you can argue that the devastation and destruction of the City of New Orleans was caused either by the Hurricane itself, or by the negligence of the Army Corps of Engineers in maintaining the levee system. In either case, the federal governement would have been the principle responsible party. The same is not true of the Gulf oil spill. And so I'm just as frustrated by the apparent inability or unwillingness of the private entities responsible for the spill to fix it, and want to see more drastic action taken, I'm just not convinced pushing the federal government to take over and take charge of the situation is warranted.

I just hope that everyone knows that if and when any government becomes involved in this way, the up-front money to fund its efforts will be coming directly from taxpayer pocket books, and it will be lengthy litigation that will force the likes of BP, et. al., to pony up reimbursements for such taxpayer expenditures. And if Barack Obama or Bobby Jindal were honest, they would make sure the costs of this to the people of the United States and the State of Louisiana are clear. In a time when the Jindal administration argues that fiscal belt tightening has meant the gutting of our state public university and college educational system, the Jindal administration better be forthcoming with where it plans to finance its "going rogue" takeover. Jindal grandstands about daring the feds to arrest him for "going rogue," but I want to know where Jindal would be getting the money to fund his "send in the cavalry to save Louisiana" populist grandstanding.


eric said...

Great points, Huck,and I agree with you somewhat. I think BP should be in charge of the clean-up and responsible for the financial fallout, and what's more I think that is the cheapest most efficient and most effective way to get the problem solved (which isn't to say it will be exceedingly cheap, efficient, or effective... but certainly moreso than turning the entire effort over to government). Because they take so much money from the oil companies in the form of taxes (which detracts from their resources to respond to this problem) the federal, state, and local governments should help out when they can, and as directed by BP, and should be compensated by BP for these costs (that this could be done without protracted litigation is not outside the boundaries of reason, but if lawyers are what it takes then bring on the lawyers).

As to the question of who is responsible for the defective equipment, I think it's pretty clear that BP has to take responsibility (and they seem to be doing so). Perhaps the quality control failure that caused the blowout can eventually be traced back to Trancocan or Halliburton, but even if that was known to be the case, since BP was operating the lease they would still be responsible for cleanup, and have the option to go after those other parties for financial damages after the fact.

I'd also point out that if you really want the spill cleaned up, leaving responsibility and liability in the hands of private industry is likely to produce that outcome faster and cheaper than making the government responsible for it. If we all agree that BP is responsible for the cost, then it becomes clear that every day this passes without them stopping the leak and progressing on the cleanup hurts them financially. Government ultimately bears little responsibility for failing to produce results, in fact just getting government agencies to look at problems from a 'results' orientation as opposed to a 'process and procedures' orientation takes a Herculean effort. In the oil business, people are used to dealing with the bottom line.

Which brings up another point: Oil companies are routinely criticized for making large profits. At times like this, we should be glad that a $15 Billion problem is being handled by a company that has the financial resources to deal with it. Had we squeezed BP out of every penny of profit over the last decade, they would not be in a position where paying for the clean-up and damages are a viable option. Ultimately, if paying for the cleanup were to put them out of business, such are the consequences and risk involved with operating deep water wells... but I think we can all agree that if they can operate such wells while making enough profit to stay in business after cleaning up a massive spill of this size, that is preferable to them going broke and out of business before managing to complete the clean-up.

Huck said...

Eric - All good points. No real disagreements from me. Just a couple of follow-up comments. First, it does merit consideration that what it in BP's interest in dealing with the spill and with the US public's interest may not neatly coincide. There are some who speculate that BP's interests are in attempting to end the spill without damaging the well so that it can continue to tap into this well at a future date. These critics argue, not without some merit, I think, that the well could have been plugged long ago. This would have ended the leak, but also effectively sealed off the well for good. And that "radical" solution so early on was not what BP wanted to do. So it doesn't necessarily hold that the most efficient solution to the problem (depending on how you define the problem) is best carried out by private industry.

Second, you mention the fact that BP has huge profits and can thus absorb the costs of the spill as if that is something surprising. We liberals don't begrudge businesses their rights to profit (and to profit handsomely), but we do think that businesses do have some obligation to pay an equitable amount of taxes relative to the privileges and benefits they receive from the government.