Thursday, June 10, 2010

BP and Environmentalism

From Erosophia: Environmentalism is Responsible for the Gulf Oil Spill, by Jason Stotts

My Commentary:

June 10, 2010 at 5:24 PM
Another major contributing factor is the government’s paltry $75 million liability limit on behalf of deep water oil drillers. This was to manipulate insurance rates lower after oil companies complained that high rates made most drilling unfeasible.

This had the predictable result. Incentives to pursue innovative tecnologies to make drilling safer were stifled, as was the need to be prepared for worst case scenarios (as BP obviously was not). The insurance industry is the economic bulwark against excessive risk. Insurance companies’ make judgements based on economic, technological, and environmental realies, and price their rates accordingly. If oil companies find insurance rates too high, then they can abandon deep water drilling, or they could find better and safer ways to operate to satisfy the insurers and reduce rates.

Sen. Robert Menendez (D-N.J.) has sponsored a bill to raise that limit to $10 billion, believing that the $75 million cap encouraged ecological gambling, because it was so low. Yes, so why then should oil companies be shielded at all? Artificially capping liability is the very kind of market manipulation that causes problems, by short-circuiting the normal risk management incentives inherent in a free market.

Yes, BP must clean up the mess, and compensate the victims, even if it bankrupts them. If BP engaged in fraud to get the permits, prosecute the company. And, NO BAILOUTS. It is BP’s well, after all.

But, just as with the financial crises, the government rigs the system to encourage excessive risk and reduce personal responsibility, and wonders why disasters happen.

And in similar fashion, we’re seeing the usual demands for more regulation, with blame being placed on a non-existent “free market”. This is perverse. BP is the proximate cause, but government regulation is the ultimate cause. We need less regulation, and more economic laissez-faire.


Catalina has left these two comments:

June 13, 2010 at 3:55 AM

OK, suppose that it _were_ legal to drill close to the shoreline. What do you think BP and Mobile Exxon would do when the oil runs out, like it has in Texas?

It would only have postponed the inevitable.


June 13, 2010 at 5:22 AM
Oh, I forgot to say, I suppose the environmentalists are responsible for THIS, too ?


The article Catalina references is entitled Nigeria's agony dwarfs the Gulf oil spill. The US and Europe ignore it, by John Vidal. The subtitle reads:

"The Deepwater Horizon disaster caused headlines around the world, yet the people who live in the Niger delta have had to live with environmental catastrophes for decades"

Mr. Vidal reports on the mess supposedly created by the oil companies in Nigeria. It's really a saga of government running amuck, and business taking the blame. Jason Stotts answers her, as do I. Here is my response to Catalina:

June 13, 2010 at 11:18 AM
Catalina;

What BP or Exxon or any other energy producer would do “when the oil runs out” depends in large part on the level of governmental restrictions – environmental being perhaps the biggest.

But, let’s say for the sake of your argument that deep water drilling is where they wanted to go. In that case, the best protection against a BP-type disaster is to keep government out of the market’s hair, and let its dynamics play out (See my comment above). In the BP disaster, the government’s hands are all over this spill.

I am not excusing BP completely. Cap or no cap, there is a moral responsibility to be respectful of other people’s property, and be prepared to compensate others for damages caused. At the same time, as even Sen. Robert Menendez (D-N.J.), whom I rarely agree with, acknowledges, the government’s artificial liability cap is a prime culprit. There was nothing inevitable about the BP blowout.

But, as Jason Stotts argues, environmentalism is the cause of causes for the BP spill. In the name of protecting “environmentally sensitive areas” where it is technologically and environmentally much safer to drill, such as ANWAR and other coastal areas, we now have the worst environmental mess in US history. Environmentalism’s hands are at least as oily as anyone’s, because of its obsession with “pristine” nature and its disregard for man’s need to exploit nature to survive and thrive.

Remove all environmental restrictions (except where consistent with the protection of private property rights), abolish market interventions such as liability caps, and leave energy producers free to go where they may go. Then we’ll find the answer to the question: “What do you think BP and Mobile Exxon would do when the oil runs out”? – if it runs out.

PS – The Nigerian government, according to that article, is a “partner” with the oil companies, and “Oil spills and the dumping of oil into waterways … have become common due to the lack of laws and enforcement measures within the existing political regime.” In other words, that government is avoiding its proper function to protect private property rights. Instead, it’s running the show and collecting protection money, while private industry gets the blame for “blocking progressive legislation”. That article is a very good argument for the separation of economics and state – i.e., laissez-faire capitalism.

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