Monthly Archives: September 2010

A Moratorium that Penalized the Wrong people.

I was hoping that OECD Insights would like this but they thought it too political

If you know the southern part of the US at all you would not have been too surprised when the moratorium on deepwater drilling was overturned.

In almost every standard indicator — average income, the number of people living below the poverty line, high school graduation rates, you name it – the South brings in the very lower end.  Unless it is murder rate then it comes to the top.  New Orleans is one of the most divided cities in the country with extreme disparities in income and areas of highly concentrated poverty.   Louisiana and Mississippi fight it out for the distinction of being the states where income is lowest.  That doesn’t mean everyone is miserable, they’re not; but many people are very vulnerable.

People in the region are used to the government not fulfilling on promises to help.  Many of New Orleans’ poorest neighborhoods are still more than half empty nearly five years after Hurricane Katrina.  Now the oilrig disaster follows the hurricane disaster.  It’s quite different of course.  The town isn’t flooded and no one has been displaced.  “Only” eleven people were killed compared to maybe 2000 in Katrina.  Some fishermen have lost their livelihoods or have suffered income damage as well as others who rely on the fish that are caught, but hey can hope that the seafloor oil geyser will be stemmed, the oil will disperse and fishing can resume.  No one in the region thinks they will be adequately compensated despite Obama’s extraordinary and extra-legal actions against BP and all the promises.  They have heard promises before.

The oil industry supports more jobs in Louisiana than fishing – about three times as many.  The jobs go from workers on the rigs to their support on shore and a myriad of associated functions employing people from those with few skills to white collar executives.  Except for those who worked on the Deepwater Horizon no one in the oil business actually lost income because of the disaster.  Not until the moratorium.  As has been said repeatedly in the press the loss of oil industry jobs due to the moratorium is considerably greater than the loss caused to fishing.  And fishing will come back, but an act of government could cause oil industry jobs to be lost permanently.  People in the region don’t want a moratorium they want a safe reliable oil industry that provides them jobs.  People in the Niger Delta who suffer from oil spills far more than those in the Gulf Coast don’t want that industry to go away, they want the industry to be safe and that the government provide the region with an equitable share of the income oil produces for Nigeria.

And does a moratorium make any sense?  Not much actually.  The problems that the Deepwater Horizon experienced had little if anything to do with the depth of water.  The water depth certainly makes it more difficult to manage the various attempts at shutting off the flow, but it would be difficult even if the well were in shallower water and it does not increase the time it will take for the relief wells to reach their target.  In a perverse way it is actually a good thing that the rig is in such deep water because it is forty miles from shore and much of the oil isn’t reaching beaches and wetlands.  It does plenty of damage anyway, but less to the coastal areas than if the rig had been as close to shore as say, the Exxon Valdez.

And would a moratorium actually lead to changes in behavior?  I doubt it.  What is needed is a serious overhaul of the Minerals Management Service so that drilling is not done recklessly whether onshore, offshore in deep water or in shallow. President Obama has inherited an oversight agency that did almost no oversight.  MMS is a joke, the legacy of years of de-regulation.  Some have said that the Deepwater Horizon is Obama’s Katrina but there are massive differences.  There was no huge private actor in Katrina.  The real comparison is between FEMA and MMS, government institutions rendered all but useless by specific actions of previous governments.

If the moratorium is re-instated oil companies will simply go elsewhere.  We can’t oblige them to stay and lose money in the Gulf of Mexico when there is the Niger Delta waiting to be drilled.  That would also make us more dependent on foreign oil.  Aren’t we trying to avoid that?  And we would punish thousands of ordinary people who work in the southern part of the US, and likely increase the burden of those in the Niger delta; people who did nothing to merit the punishment.  First the fishermen suffer, then the oil workers.  What sense does this make?

The oil industry can’t self-regulate any more than the financial industry can.   But we didn’t halt trading on Wall Street because of the financial crisis.  We now have new regulations for the financial industry that reduces the risk of reckless behavior and another financial catastrophe.  We need them for the drilling industry too and strong regulatory agencies and for the same reason.  What we don’t need is to cause the most vulnerable among us to continue to carry the burden of reckless de-regulation and weak oversight.

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