Jul 202010

In the rush of all involved parties to cover their own behinds after a disaster, we often lose the ability to discern who is truly at fault as all sides fling mud at each other and everyone can seem guilty. This has happened in the wake of the Deepwater Horizon disaster.

That said, when I began investigating this topic, I expected a much more complicated answer than what I found. In fact, the path of blame can be traced quite easily for the events that led to the Deepwater Horizon disaster.

The story of the Deepwater Horizon fiasco begins in 1990. In the wake of the Exxon-Valdez oil spill, the government passed a comprehensive bill titled the Oil Pollution Act that sought to improve regulation of the oil industry to prevent such another disaster.

Inside the bill was a clause that established a liability cap of $75 million for any costs to private victims of any oil spill caused by deepwater oil drilling. Why does this matter?

Imagine you are an oil company. Where would you want to drill for oil? Where it was cheapest and there was the least chance of a disaster that would hurt your profits, right? In a free market, oil companies would drill on land.

Since our government has made most of our on-land oil reserves off limit to drilling in places such as ANWR and in national park and forestlands, oil drillers can’t drill in ideal locations. The next best place to drill, assuming land is forbidden, is shallow water.

But drilling in shallow water is largely forbidden by the federal government, too, due to voters’ concerns about living near oil wells and the fact that oil wells can hurt the aesthetic value of beachfront property.

By 1990, oil production in the U.S. was in sharp decline. Having peaked in the 1970s, oil production was rapidly falling, fostering concerns that America was becoming too reliant on Middle Eastern oil –– a concern that gained more ground after the Persian Gulf war.

But there was little that could be done. Oil companies couldn’t drill in the more productive places on land; they also couldn’t drill in the relative safety of shallow water, and it was too dangerous to drill in deep water.

Oil companies were interested in deep water drilling, as it was the last source of oil that the government hadn’t made off-limits. But there was a problem: no one would insure the dangerous wells oil companies wanted to drill off shore.

Oil companies purchase insurance on their wells in the unlikely chance that something goes wrong, as the liability from one accident can be enough to destroy even big oil firms. No insurer, however, was willing to insure deep-water oil wells.

If an accident should happen, the insurers figured, it would be nearly impossible to contain in any reasonable way. If an oil well blows out on land, the damage can be contained quickly and effectively. But under a mile of water, all bets are off.

So, even though oil companies wanted to drill far off shore, they didn’t before 1990. Since they could not purchase insurance for their wells, the risk was too great. The risk, which they couldn’t insure, was greater than the reward. And so, even the most heartless of oil companies couldn’t afford to drill off shore.

But all that changed with the Oil Pollution Act of 1990. Now oil companies had a different kind of insurance: protection from the government, which wanted to boost oil production without lifting bans on drilling in the relatively safety of land and shallow water.

Regardless of what sort of havoc drillers caused by operating these dangerous deep water rigs, their liability was capped at $75 million –– which as we’ve seen, was a pathetically low number.

Suddenly it was open season on deep waters. With the risk removed, deep water drilling proliferated, and with dozens of deep water drilling wells operating, it was only a matter of time until one of them spectacularly failed.

The government banned relatively safe oil drilling on and near shore, subsidized dangerous deep water drilling, and then acted stunned when something inevitably went wrong.

President Obama announced that he was looking to discover, “Whose ass to kick,” over the oil spill. I have a suggestion: Start with your fellow lawmakers.

Ian Bezek is a senior economics major who will write columns periodically throughout the summer. Letters and feedback can be sent to letters@collegian.com.

 Posted by at 4:11 pm

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