Environmental groups and the public worldwide are seriously concerned about the oil spill in the Gulf of Mexico after the explosion of the BP’s Deepwater Horizon oil-drilling rig. The disaster has turned into a catastrophe and is likely to affect the environmental, social and economic condition of the Gulf of Mexico’s shore in years and decades to come. Neither the BP nor the U.S. Government really knows what to do to stop the oil leak. The U.S. Government blames the oil multinational. The BP seems to be unable to deal with the situation. Moreover, other oil companies do not seem to possess any adequate means to deal with similar situations. The BP’s stock price has gown down dramatically. It postponed dividend payments to its shareholders. Thousands of people, e.g. fishermen, have lost the source of income. What are people going to learn from this story? What are the probable scenarios of further developments and what are the likely consequences for the oil industry?

The most tragic or at the same time the most cynical scenario is that many people may quickly forget the disaster and no substantive measures to avoid similar accidents in the future may be taken. In this case, the history will just be repeating. Two similar catastrophes did not really lead to any serious reconsideration of the regulations concerning oil extraction and transportation. One is Exxon Valdez oil spill that occurred in Alaska in 1989. Exxon Valdez, an oil tanker, spilled ca. 250 thousand barrels of crude oil. Prof. Zygmunt Plater, law professor at Boston University and the former head of the Exxon Valdez investigation committee, is frustrated to see that the recommendations that this committee had elaborated had been almost completely ignored. In 1990 the Congress adopted the Oil Pollution Act (1990) that prescribes a gradual shift to a double hull design of vessels providing an additional layer between the oil tanks and the ocean. Yet, the oil industry has been successful in convincing the Congress to extend the deadline for upgrading the vessels. In Alaska, the current deadline is 2015, which is going to be twenty-six years after the Exxon Valdez catastrophe.

The second catastrophe occurred in the Golf of Mexico thirty-one years ago. The accident was almost identical to the Deepwater Horizon explosion. In June 1979 the oil-drilling rig Ixtoc I went on fire and sank in the Bay of Campeche of the Gulf of Mexico. The oils started flowing into the ocean. The oil spill quickly reaches Mexico and then Texas two months later. 3.3 million barrels of oil had been spilled. It took the operator of the Ixtoc I, the Mexican state oil company Pemex, 9.5 months to stop the oil blowout. Yet, no significant measures to increase the safety of oil extraction had been taken. Moreover, the catastrophe had been forgotten soon after. In Texas oil is one of the major sources of state revenues. The oil industry and the state government form a dangerous symbiosis. The Ixtoc I belonged to Sedco, the firm owned by Bill Clemens, the governor of Texas at that time. Pemex rented Ixtoc I from Sedco. Furthermore, the public is not directly involved in the decision-making concerning the oil industry. The majority of people in Texas seem to profit from offshore oil drilling and tend to see oil accidents the way Rick Perry, today’s governor of Texas, does: These things happen sometimes. It seems that a pessimistic scenario cannot be ruled out.

The more optimistic scenario is based on the conviction that it is unlikely that the public and particularly the environmental groups will soon forget such a disaster. Since April 20 2010, the day of the Deepwater Horizon explosion, up to 3.5 Mio barrels of crude oil could have flown into the ocean. The exact numbers are still unavailable. All attempts to close the leak or at least slow down the oil flow had failed. It may take the BP and the U.S. Government another several months to find a technical solution. The BP is currently drilling two additional oil wells to reduce the pressure on the leaking well. But the wells will not be completed before August and will not solve the problem completely. They are likely to reduce the leak. Moreover, other oil companies are not well prepared for similar accidents. “When these things happen, we are not well equipped to deal with them”, admitted Rex Tillerson, the head of ExxonMobil, in the U.S. Congress. This is a chance for the public to get involved and change the situation. If the public does not ignore the Deepwater Horizon accident, it is likely that a new governance regime will emerge to deal with environmental risks of oil extraction and transportation. It is also a chance for renewable energy providers to strengthen their position in the market.

Environmental history suggests that such scenario is not unlikely. The catastrophes like the Deepwater Horizon disaster have previously served as impulses for both public and private actors (e.g. governments, industries or NGOs) to set standards or make rules to avoid accidents and catastrophes in future. The Sandoz accident in 1986 accelerated the emergence of the international regime for the protection of the Rhine River. Millions of tons of contaminated water were dumped into the Rhine killing fish and wildlife. The regime has been relatively successful. The Rhine that the environmentalists had declared dead has become cleaner. European countries were able to reduce significantly the amounts of hazardous substances dumped into the Rhine. Many fish species that had gone extinct returned to the Rhine. The explosion in Bhopal (1984) in one of the U.S. owned chemical plants in India killing hundreds of people provided an impulse for the U.S. chemical industry to develop the Responsible Care program aimed at increasing the standards of occupational safely in chemical plants.

The question is what form the oil extraction and transportation regime is likely to take, e.g. public or private, mandatory or voluntary. Currently, it seems probable that the Obama’s administration will initiate a stricter legal framework for the oil industry. It is, however, also clear that the oil industry is a powerful player in the U.S. economy and a strong lobbyist. In the liberal market economy, it will be difficult for the U.S. Government to impose any restrictions on the oil industry thereby reducing its competitive advantage compared to other countries. If the U.S. Government is unable or unwilling to create a new regulatory framework, it is likely that either oil companies will develop safety standards for themselves (self-regulation) or powerful civil actors, e.g. environmental groups, will press the oil industry to engage in voluntary standard-setting through multi-stakeholder initiatives (e.g. certification programs). Oil companies might seek certification in order to avoid negative publicity and strengthen their reputation.

Another question is whether the new regulatory framework for the oil industry is likely to become a “high-road” or a “low-road” regime. “Low-road” regimes are aimed at improving the reputation of industries without any substantive change in poor practices. Their goal is to preserve a status quo in environmental performance and provide a better publicity at the same time. In contrast, “high-road” regimes usually aim at rewarding “good” companies by distinguishing them from “bad” companies and often require substantive change in corporate practices. Clearly, “high-road” regulatory solutions, e.g. FSC forest certification, are often more rigorous and costly and involve many different parties in decision-making (multi-stakeholder approach). It is unclear at this point which direction the new regime will be like to take.

It is yet too early to argue what kind of regime might evolve after the Deepwater Horizon crisis and whether it evolves at all. However, it is obvious that the struggle for a new regulatory framework will be hard, since the oil industry is a powerful player and since oil remains the major source of energy for ever growing human needs and desires. Two days ago, Martin Feldman, district judge in Louisiana, blocked the freeze on the offshore oil drilling the U.S. Government imposed after the Deepwater Horizon explosion. 32 oil companies challenged the freeze in court arguing that it threatens regional economic wellbeing and employment. The judge wrote in his ruling that the freeze cannot be justified in the face of huge economic harm for the local economy and “the critical present-day aspect of the availability of domestic energy” in the U.S. The While House promised to appeal the ruling. The struggle for a new regime has begun.

Theoretically, the case of the Deepwater Horizon oil leak is likely to shed light on the questions under what conditions and how environmental regimes emerge, what shape (and under what conditions) it takes and when it becomes a high- or low-road regime.

Sources used:

Die Tageszeitung



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