The big oil spill in the Gulf of Mexico has gotten reporters talking about how many billions of dollars BP will have to pay. I wonder, however, if they should be held responsible. Under standard Common Law, they should not be liable unless they were negligent. It seems unlikely that BP wanted to blow up its own platform and presumably they were working carefully as they drilled a mile underwater. People have speculated that more and fancier equipment would have mitigated the tragedy, but that says more about human arrogance than engineering and geophysical reality. A 1989 Federal law imposed strict liability on offshore operations, but capped damages at $75 million (source).
Obviously this is a bad situation, but until the cause of the accident is known, can we say that BP is more at fault than are those of us who consume the oil?
Apparently the “personal responsibility” is only for poor individuals and not multibilliondollar corporations.
Aside from that, though, accidents do happen, but was BP’s response adequate? Unlike Valdez, there seemed to be a few days before this reached shore. Given that society has a significant interest in protecting the shore for fishing, recreation, and all the other things that nature does for us, it seems that SOMEBODY should be responsible for preventing this sort of disaster, whether BP or a government agency (or, shudder, the corporation formerly known as “Blackwater”). But I just heard a lot of finger-pointing and not much constructive action to avert a largely preventable disaster.
Discussing how the actual, physical disaster could have been prevented seems more prudent than discussing who will pay symbolic monetary damages 10 years from now.
I totally looked forward to reading this post when I saw the headline fly by in my aggregator cause I knew how you’d parse it, and I couldn’t wait to savor the delicious sleight of hand.
No matter what we’re all going to pay for it Philip. No matter how much BP’s shareholders pay in damages, it’s going to increase the price of oil because we’re going to (rightly) demand that they do more to be sure this doesn’t happen again. Or we’re going to shut down offshore drilling altogether, and then the supply will drop and the price will shoot up.
If they didn’t pay, there would be no incentive for them to do ANYTHING to prevent oil spills in the future. So it’s in all our interest that they pay, and it should be a lot, so they invest appropriately to be sure they don’t have to pay that price again.
I would go further and say that we ought to kill BP. There should cease to be a BP after this event. The stockholder’s lose all their capital, it all goes into the treasury of the United States as a reserve against damage from this oil spill and future oil spills.
That would put the fear of god into them.
“It seems unlikely that BP wanted to blow up its own platform”
This would not be a negligence issue.
“and presumably they were working carefully as they drilled a mile underwater”
It looks like they spent a fair amount of effort getting exceptions for this particular platform.
http://scienceblogs.com/dispatches/2010/05/fed_agency_downplayed_risk_of.php
If they have no responsibility for the consequences of accidents, they would have less motivation to be as careful as they could be.
“Obviously this is a bad situation, but can we say that BP is more at fault than are those of us who consume the oil?”
It depends somewhat on whether the experts (eg, BP) represented the risks accurately. If you happen to get an incompetent surgeon, is that necessarily your fault?
I’m not sure I get your point in the last sentence. If a Coca-Cola truck crashes on the way to deliver to my local store, are you suggesting it’s partially my fault because I consume the product? Yes, I want Coke, but my desire for it doesn’t mitigate anyone’s responsibilities should they decide to try to provide it.
(This is a comment only about the last sentence of your post)
I agree with your take on this. Everyone complains when gas prices climb over $3.00/gallon each summer, but no one wants oil wells or refineries near enough to them that they may see any consequences should things go wrong.
There is almost the assumption that BP wants to damage the environment. The oil that is washing ashore is BP’s (very expensive) product – they’d much rather have it headed to their refinery than the Louisiana coast.
“…they should not be liable unless they were negligent. It seems unlikely that BP wanted to blow up its own platform…”
But this misunderstands the point of “negligence.” It’s a doctrine improvised into being in the late 19/early 20C to occupy the trackless void of metaphysical space between “strict liability” and “intent.” If you hit a pedestrian with your car, the mere fact that you hit him does not make you liable. But he doesn’t have to prove that you “wanted” to hit him, either: he has to prove only that you fell below the appropriate standard of care. So to say “not negligent” because “did not want” is entirely to miss the point.
I think you’ve got a worthwhile point about our near-insatiable appetite for oil. But I think that in the heads-I-win, tails-you-lose world of corporate liability, it is entirely possible that the top brass had the wrong incentives, trusting they could take their share off the table before the real trouble began.
Ultimately, we all will pay for the spill through higher prices. BP specifically will only be hurt to the extent that any employees are laid off or its owners suffer capital losses. It would be unfortunate if BP employees lost their jobs through no fault of their own. On a strict libertarian view, that’s a necessary consequence of free markets. Progressives would argue that any laid-off employees should be cushioned because, as you implied, we all benefit from oil damage to the environment.
BP’s activities generate the risk and BP makes most of the decisions affecting the magnitude of that risk. It makes sense to hold them strictly liable. BP then incorporates the cost for accepting that risk into the price of their product. Unfortunately, some additional controls are necessary to prevent a corporation from ignoring the risk, stripping profits out of the entity at risk, and then have it declare bankruptcy in the event of a catastrophe.
Given BP’s history I am unwilling to presume that they were working carefully:
“In the CSB’s final investigation report issued two years after the accident, we found organizational and safety deficiencies at all levels of the BP Corporation. It was the most comprehensive and detailed investigation the CSB has ever done. Our investigation team turned up extensive evidence showing a catastrophe waiting to happen. that cost-cutting had affected safety programs and critical maintenance; production pressures resulted in costly mistakes made by workers likely fatigued by working long hours; internal audits and safety studies brought problems to the attention of BP’s board in London, but they were not sufficiently acted upon. Yet the company was proud of its record on personnel safety.”
– U.S. Chemical Safety Board Chairman John Bresland commenting on the investigation of a BP refinery explosion in Texas City, TX.
http://www.csb.gov/newsroom/detail.aspx?nid=311
Neal: You raise a good point, that liability makes people more inclined to be careful. But many of the workers have already paid with their lives and BP and its partners have lost an expensive drilling rig as well as at least the statutory $75 million in damages. http://en.wikipedia.org/wiki/Deepwater_Horizon notes that the drilling rig was owned by Transocean, not BP, and that many of the workers on the rig were Transocean employees. Halliburton was also involved. So if BP’s Board in London was more interested in profit than safety, it might not have played any role in this incident. Saying that the accident could have been prevented with more oversight and/or fancier technology is equivalent to saying that humans are more powerful than the Earth.
Jeffrey: Thanks for the Coca Cola truck analogy. We do accept in our society tens of thousands of deaths annually in motor vehicle accidents, many of which do not involve negligence. If a pedestrian is killed by a Coke truck, we do not automatically assume that Coke is responsible. I think it is possible that investigation will reveal that some negligence was involved in this disaster, but I have not seen any news reports that speculate on the possibility that it was simply bad luck, i.e., that if you stick enough holes enough miles into the Earth, eventually something ugly is bound to happen.
“Obviously this is a bad situation, but until the cause of the accident is known, can we say that BP is more at fault than are those of us who consume the oil?”
“if you stick enough holes enough miles into the Earth, eventually something ugly is bound to happen.”
If this is inevitable, then the price of cleaning up multiple “somethings ugly” should be factored into the cost of producing the oil. The cost to the consumer should thusly go up to reflect full accounting for costs of production. To lay this expense on the general public is essentially a subsidy for the oil industry at the relative expense of cleaner energy sources.
Boring holes into the ocean floor in search of pressurized and potentially toxic resources is a highly risky endeavor. If negligence is found, then there should be a sizable punitive charge on top of the cost of cleanup.
“the drilling rig was owned by Transocean, not BP, and that many of the workers on the rig were Transocean employees. Halliburton was also involved.”
IANAL, but if BP was the general contractor, so to speak, then they should have liability for the project, and can claim recompense from their subs if it turns out to be the subs fault.
I think you’re right to question a witch hunt. However, I think that in general, liability needs to land at the feet of those best positioned to avoid future incidents. As Bob mentioned, we’ll all end up paying for this indirectly, but BP and other drilling companies are the ones who must manage drilling risk.
I find it unfathomable that the US is allowing oil rigs to drill a mile below the surface of the sea without having a reliable shut-off mechanism in case there is an accident. Apparently the technology to do this does exist, and is in use in Norway, Brazil and other countries that also have offshore drilling. Even if not required and enforced by US law, BP should have considered the possibility of an accident and designed the rig accordingly. That they didn’t shows a willingness to take that risk. They took a bet and lost, and now we all suffer the consequences. I would be happy to see BP vanish off the face of the earth as a result of having to pay the cleanup cost & liability – THAT would be capitalism at work. But of course that will never happen.
Fabian: http://en.wikipedia.org/wiki/Deepwater_Horizon_oil_spill says that the rig did have a “blowout preventer” with a deadman switch that should have automatically shut off the oil flow. It is possible that a higher-tech system would have prevented the accident, but I don’t believe that high tech systems can prevent all accidents given the depth of the water, the fact that humans cannot get down there, and the geophysical forces involved. I hope that Norway and Brazil never have an spill like this, but I would not bet on it.
You’re asking for a “reliable shut-off mechanism”. The number of wells drilled this deep isn’t large enough to determine reliability. http://en.wikipedia.org/wiki/Deepwater_Horizon says that this rig, in the fall of 2009 “drilled the deepest oil well in history”. NASA thought that the Space Shuttle would be reliable, but despite near-infinite funding and hard work by thousands of the world’s smartest people, it turned out not to be. The deep ocean is as challenging an environment as space.
It is a given that everything they do in Europe and Canada is superior to practices in this country.
I wonder what liability judgments were assessed agaist the owners and operators of the Piper Alpha platform that exploded in 1968, costing 167 lives?
How did Canada handle the Platform Ocean Ranger disaster, which sank in 1982 taking all 84 crewmen with it?
Certainly the Brits and Canadians didn’t stop drilling offshore because of these disasters, nor did they allow their lawyers to cripple their petroleum industry and destroy thousands of high tech blue color jobs.
Interesting read:
http://www.gregpalast.com/slick-operator-the-bp-ive-known-too-well/
Right at the bottom:
“This just in: Becnel tells me that one of the platform workers has informed him that the BP well was apparently deeper than the 18,000 feet depth reported. BP failed to communicate that additional depth to Halliburton crews who therefore poured in too small a cement cap for the additional pressure caused by the extra depth. So it blew.”
If there was an obvious human error leading to the blowout then responsibility for accident should be accepted. BP owns rights to the well but Transocean owned the rig and was doing the actual drilling as a contractor. Halliburton installed the cap using the same technology as they used on the well which blew out off the coast of Australia last year. Cameron built the BOP for this particular well.
Per a friend of mine who lives on these rigs as a petroleum engineer and is in constant contact with the drillers the following predictions were made:
1) The containment unit will fail
2) The well was being pressure tested at time of explosion. The annular seal of the BOP was functioning but human error bypassed a failsafe and the seal was released by a Transocean employee or a seal failed which is unlikely. The rigs have streaming data back to Texas and the data will show the cause much as a black box on aircraft would.
3) The well will be found to be wide open not “partially restricted by the BOP” as the press is reporting. The only reason a greater flow is not occurring is because the oil field has not been prepped to maximize oil flow.
4) There is no conspiracy to cause this. Security is too tight and the community is too small and close knit.
5) Lawyers will make out better than wildlife or the dead rig workers families.
I was discussing the spill with some friends last night and said that mostly I was surprised that something like this hadn’t happened earlier. One guy replied “Of course it happens all the time. Nigeria has a spill equivalent to the Exxon Valdez every year, but nobody cares.”
http://en.wikipedia.org/wiki/List_of_oil_spills is rather sobering.
Let’s not forget the other industries that this will harm. The chain reaction starts with local fishermen who supply restaurants and markets, along with travelers who vacation on the beaches of Florida. Shouldn’t BP pay for this as well?
I think Philip’s point is that unless we plan to outlaw oil drilling in general, you need to limit liability to a point that it doesn’t remove all motivation for people to operate oil companies. That’s what the strict liability law does, similar to the vaccine court. If you want to put oil companies out of business, like Dow Corning was put out of business over silicone breast implants, then you can raise the liability levels to really high amounts. But sooner or late you’ll have enough accidents that you’ll have no more oil companies. At that point, what? Windmills? Nationalized oil companies that are exempt from liability because they are arms of the state?
Interesting that only one of Nigeria’s annual oil spills made it onto the Wikipedia list. Does it happen so routinely that it’s not worth reporting?
Mark: I wasn’t thinking that far ahead and I’m not a BP shareholder trying to defend the value of my stake! I was thinking of fairness and engineering/human reality.
Regarding fairness, BP, Transocean, and Halliburton were operating, as far as I know, in a situation where they had unlimited liability for negligence and strict liability for $75 million. Yet the news accounts seem to make a tacit assumption that they had unlimited strict liability.
Regarding engineering/human reality, I was questioning the assumption that some combination of additional government regulation, superior corporate culture, and improved gizmos could have prevented accidents like this.
Mark,
It’s mostly unreported. A large number of the spills aren’t from negligence but from acts of guerilla warfare / terrorism. Gangs will bomb or break into pipelines to steal oil, and will often make quite a mess when they do it.
http://www.nytimes.com/2010/05/02/opinion/02margonelli.html
http://ngm.nationalgeographic.com/2007/02/nigerian-oil/oneill-text
Some info on international / Nigerian oil production.
BP’s 3rd quarter profit in 2009 was around $4billion. $75million in statutory damages is puny and no disincentive at all. Just like the financial industry, the oil industry pushed for looser and looser restrictions and now that something blew up, they don’t want to take responsibility; or tell us the outcome was inevitable and natural.
Philg: I agree that if you stick enough holes enough miles into the Earth, eventually something ugly is bound to happen. However, here negligence is based on the fact that before sticking enough holes enough miles through through the Earth, the company, the overseeing organizations that clear and bless the process, and the governments responsible and impacted did not enough stop gap measures in place to immediately deal with the issue of the oil spill. They were negligent in not anticipating such a disaster, one that is a conceivable when drilling off shore to those depths resulting in the current position where they appear to be struggling with a long term/short term (unreliable) decision on how to plug the flow. How could companies be permitted to drill holes if they can’t plug up their mess!
Purnima: Good point and probably the ensuing litigation will show that there wasn’t enough equipment standing by to contain the inevitable spill. I think the case that you make is better than the argument that “they could have drilled in such a way that no spill was possible”. So at the end of the ensuing litigation this may be the thing that establishes BP as negligent and therefore that they have to pay for all of the damage.
What saddens me is that so much of the oil that this well would have produced would have been wasted. We have brand new houses with very poor insulation compared to the state of the art. The same houses aren’t smart enough to turn the HVAC off when everyone has left. [And up here in New England we do heat quite a bit with oil.] We have cars and SUVs that burn 2-3X as much gas as necessary, partly due to their primitive engines and controls and partly because so few have been shipped with built-in navigation systems or traffic jam avoidance systems. We got to the ends or the innards of the Earth to get this stuff and then we waste it.
On the issue of what the BP execs knew about the blow out preventers, a little different perspective.
A corporation is a legal fiction entity. In doing business, the goal of that entity is to generate profits and try to stay afloat. Every decision is made in an effort to maximize profits, and is theoretically an educated guess. However, the reality is that some of the guesses are going to be wrong.
An entity does not have a mind or a conscience similar to that of a human. Even though humans run corporations, corporations are separate and apart from humans, somewhere between a human and an inanimate object.
Whereas a human will occasionally make a judgment call against his or her personal interest in pursuit of other goals, rarely will an entity do so because it is not really its money. It is the money or interests of others, the shareholders at risk, not the decision makers. It makes for a different dynamic.
As a result, fines, penalties, and lawsuits have to be figured into the economic mix as necessary evils. An entity will try to minimize them, or delay them if possible, but they know that they are always just around the corner. It’s the nature of dealing with an entity when you’re engaged, and then walking away from it and trying to live a human life. A human being does not generally approach life in this fashion.
Corporations are not human. They can’t be. It’s an inherent conflict of interest.
Phil,
Is there a solution that doesn’t entail massive government intervention? It’s been studied extensively that the price Americans pay at the pump does not come close to reflecting the true cost of oil, what with tax breaks for oil companies, and the fact that environmental costs related to issues like this, and health costs of poor air quality, are not factored in to the direct cost of oil.
Europe levies huge taxes on consumer petroleum, to the point that the per-gallon cost is three times or more what we pay in the US, and they do use less per capita. Then again, they also have much different population distribution patterns than we do.
http://www.icta.org/doc/Real%20Price%20of%20Gasoline.pdf
One effort at determining what we are really paying per gallon, after taking oil company subsidies and environmental costs into account. This was published in 1998, when gasoline was running about $1.25/gal. According to this (probably biased) study, the true cost was somewhere $5 and $15 a gallon.
Is there a way, short of a very blunt move such as a tax at the gas pump, to have consumer energy costs truly reflect their externality-corrected cost?
http://www.pbs.org/wgbh/pages/frontline/the-spill/
“I wonder, however, if they should be held responsible. Under standard Common Law, they should not be liable unless they were negligent.”
Frontline: The pressure to cut costs came from the very top of BP. After the buy-out of Amoco, Tony Hayward’s predecessor, Lord John Browne, ordered a 25 percent cost cut across the company. The message was relayed down through the ranks.
“It seems unlikely that BP wanted to blow up its own platform and presumably they were working carefully as they drilled a mile underwater.”
Frontline: BP bypassed a key test called a cement bond log. BP saved more than $100,000.
“Obviously this is a bad situation, but until the cause of the accident is known, can we say that BP is more at fault than are those of us who consume the oil?”
Frontline: BP cut the number of centralizers used to secure and plug the well. This saved over $1 million. BP also chose to remove heavy drilling mud that was helping to keep gas underground, instead replacing it with lighter sea water, saving millions more.