Oil Spills – Oil Companies – BP

BP has been issued a bill for the oil spill in the Gulf back in 2010:

NEW ORLEANS — BP said Thursday that it will pay $4.5 billion in a settlement with the U.S. government over the disastrous 2010 oil spill in the Gulf of Mexico and plead guilty to criminal charges related to the deaths of 11 workers and lying to Congress.

The day of reckoning comes more than two years after the nation’s worst offshore oil spill. The figure includes nearly $1.3 billion in criminal fines — the biggest criminal penalty in U.S. history — along with payments to certain government entities.

The settlement, which is subject to approval by a federal judge, includes payments of nearly $2.4 billion to the National Fish and Wildlife Foundation, $350 million to the National Academy of Sciences and about $500 million to the Securities and Exchange Commission. The SEC accused BP of misleading investors by lowballing the amount of crude spewing from the ruptured well.

Now, I’m all for BP having to pay for the cleanup to all agencies that were harmed by the spill.  I think that allowing companies to poison rivers that does nothing to harm the company is a moral hazard that creates problems for everyone.*

And I don’t mind that government sets the amounts of those fines.  What I DO object to is the nature in which these fines are arrived at; politics, deal making and more than likely cronyism.

If we want to protect ourselves from oil spills we have to acknowledge two things:

  1. We can not prevent a spill from ever happening again.  The only thing that we can hope for is to increase the mean time between failure and decrease the meant time to repair.
  2. What we really object to is the damage done by the spill, not that there was a spill per se.  Therefore, if we can quantify the dollar cost to restore the damage, we should be alright with the transfer of that cost.

If we’re able to do this, and codify it so that the rules are clear and understandable, the oil companies will understand this and include it in their business models.  In fact, I suspect that the fines will be significantly high that those companies will have to take out insurance policies to protect them in the event of a spill.  And this is a good thing.

See, if the oil company requires insurance they’ll have to get it from another company that sells insurance.  These insurance companies, being rational, will not issue said policy UNLESS the oil company can demonstrate adequate safety processes.   In short, the insurance will drive increased safety and prevention.  And it will do it in a mostly free market way.  Today prevention agencies are government run and filled with execs from oil companies that are named based on politics.  These agencies aren’t adequate in writing and enforcing the rules.  But if insurance companies are in charge of that, we can be MORE sure that the whole thing is more modern and appropriate.

So, hell yeah BP should pay.  But the fine should have been known and predictable up front.  If it was, I claim that the next oil spill will occur further in the future than it otherwise would and be restored much quicker and wit less overall damage to the environment.

* I do NOT object to the poisoning of rivers that DOES harm the polluter.  In this case “rivers” is the name I’m giving to the general environment.

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