On April 20, 2010, 11 workers were killed in an explosion on the Deepwater Horizon rig in the process of drilling the Macondo well off the Gulf of Mexico. The blowout ultimately resulted in between 4 and 5 million barrels of oil leaking into the Gulf of Mexico. Early estimates of the damages from the oil spill are in the range of $20 billion with an addition $17 billion in fines.[i]
Prior to the Gulf oil spill the primary form of regulation of offshore oil drilling was a set of highly prescriptive command-and-control regulations requiring significant redundancy in safety systems; an approach I call “belts and suspenders.” The belts-and-suspenders regulations were coupled with a strict liability regime where the operating company (BP in this case) was strictly liable for damages up to $75 with additional damages covered from a government pool of funds generated through taxes on oil.[ii] Arguable this coupling of regulatory systems should have created the right incentives for companies to manage the human dimension of risk so that risks are minimized. The safety technologies are in place and if you are financially on the hook for damages you should have the right incentives to ensure that all these systems are working properly. Nonetheless, a disaster occurred.
There are plenty of culpable parties in the Gulf oil spill, and the government has not escaped the blame-for-all. Understandably, there was concern that the current system of regulations was insufficient. In the aftermath of the crises, the Minerals Management Service (MMS) was restructured as the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) and BOEMRE quickly issued several revisions to offshore drilling regulations. The first new regulation, the Drilling Safety Rule (DSR), added more belts and suspenders to the previous regulatory regime.
The second rule, the Workplace Safety Rule (WSR), represents a more fundamental departure from the status quo. The WSR is based on the “Safety Case” regulations used in Canada, the UK, Norway, and Australia and requires that each drilling operation have a complete Safety and Environmental Management Program (SEMP). Under the SEMP, each drilling operation must develop a detailed risk analysis and safety plan that demonstrates to the regulators that their proposed operation can be carried out safely and that they have the appropriate contingencies in place to handle any accidents. This type of regulation is referred to as Management-based regulation; regulation that “directs regulated organizations to engage in a planning process that aims toward the achievement of public goals, offering firms flexibility in how they achieve public goals.”[iii]
What do we know about SEMS, the Safety Case, or MBR in genearl? The Chemical Safety Board, an independent government agency tasked with investigating all chemical accidents in the United States, convened a public hearing on regulatory approaches to offshore oil drilling. At the hearing, there was a panel of representatives from the UK, Norway and Australia that discussed the use of the Safety Case in those countries. Without exception the representatives believed that the Safety Case had improved safety and reduced the likelihood of a large-scale disaster in their countries. But almost equally without exception these views were based on anecdotes and some limited (and not fully disclosed) analysis of near-miss data. More detailed research, perhaps using international data on near-misses, could help illuminate the impact of the safety case on offshore drilling risk (dissertation anyone?).
Evidence from academic research is no more conclusive. The theory of management-based regulations suggests that management-based regulations are best suited for situations where there is significant heterogeneity among regulated entities, performance cannot be directly measured, and there is complementarity in management effort and risk reduction/environmental improvement.[iv],[v] All of these conditions are likely to hold for offshore oil drilling.
While MBR may be well-suited, theoretically, to situations where performance cannot be directly measured, the inability to measure performance makes empirical analysis of regulatory effectiveness nearly impossible. In typical program evaluations (also called impact evaluations), the outcomes of the “treated” group are compared to the outcomes of a comparable “control” group. But all of these methods require detailed and comprehensive data on outcomes. For offshore drilling the outcome we are interested in is safety, but it is latent, or not directly observable to the regulator/public. Observing the absence of an oil spill does not necessarily mean the drill rig is safe. Put another way, a very safe and less safe operation may both succeed in drilling without a major oil spill. The absence of an event is not particularly informative about the outcome we are most interested in, namely safety.
We do have empirical evidence on government-mandated MBR in state pollution prevention programs and from voluntary or self-regulatory adoption of MBR through the use of environmental management systems. Summary of this extensive empirical literature suggests that MBR can be effective at inducing firms to improve environmental metrics under some circumstances.[vi] To what extent these findings extend to offshore drilling remain unknown.
My skepticism about SEMS as a regulatory salve concern how SEMS will or will not actually changes the day-to-day decision making on a drill rig. If we assume that decision-makers are profit maximizers (and I’m an economist so I will), then at each decision point with potential safety or environmental consequences the decision maker must weigh the expected costs of following the management plan with the expected costs of not following it. The expected costs of following the plan may be time spent waiting for a second opinion, further analysis, or additional materials and equipment. The expected costs of not following it are some expectation of the damages and fines from any accident resulting from the decision. Accidents are rare and large accidents even rarer, so the likelihood that any one short cut leads to an accident is very low. This is particularly true if you believe that if the short-cut you take turns out badly another safety system will catch that mistake before a significant accident occurs. In essence, the probability of an accident from any one decision is small, and the conditional probability of an accident from that decision given other safety systems may be viewed as close to zero. Of course, if everyone making decisions views the problem this way then things can go very wrong.
What the addition of a SEMS does to change that underlying calculation is not obvious. It may help change the culture of some firms to be more focused on safety. Or it may be a document that quickly collects dust on a shelf. Or, even worse, it may add to the sense of security that others are appropriately avoiding risk, so that taking a cost-saving gamble has no real negative consequences. In other words, it could just be another set of suspenders.
[i] “The Oil Well and the Damage Done,” The Economist, June 17, 2010. Available at: http://www.economist.com/node/16381032. Last accessed: October 14, 2011.
[ii] Steve Hargreaves, “Cap on Oil Spill Damages Under Fire.” CNNMoney. Available at: http://money.cnn.com/2010/05/25/news/economy/BP_liability/index.htm. Last accessed: October 14, 2011.
[iii] Coglianese, C. and D. Lazer “Management-Based Regulation: Prescribing Private Management to Achieve Public Goals” Law and Society Review 37(4): 691-730. DOI: 10.1046/j.0023-9216.2003.03703001.x
[iv] ibid
[v] Bennear, Lori S. (2006) “Evaluating Management-Based Regulation: A Valuable Tool in the Regulatory Tool Box?” in Coglianese, Cary and Jennifer Nash, eds. Leveraging the Private Sector: Management-Based Strategies for Improving Environmental Performance (Washington D.C.: Resources for the Future Press).
[vi] Bennear, Lori S. and Cary Coglianese “Flexible Approaches to Environmental Regulation,” to be included in: Kamieniecki, Sheldon and Michael Kraft eds. Oxford Handbook of U.S. Environmental Policy, expected publication 2012.
It seems that in the case of deepwater oil drilling, you don’t know how bad a situation can be until it actually happens. All the technology and regulation in the world can’t predict the worst of situations in this new era of incredibly dynamic and complex deepwater extraction methods. The worst happened for the Deepwater Horizon in April 2010. Although the Horizon had drilled for other projects at much greater depths (35,000 ft +, a record high) , the 5,000 ft well in the Gulf of Mexico proved to be tricky from the get-go due its highly pressurized 3-mile deep reservoir. From what I have read on reports during the initial blow-out, it wasnt a lack of regulation or absence of technology that led to the loss of lives and sinking of the rig. It was the poor execution in real-time of the regulation protocols that led to the tragedy. Is there a point where too much technology becomes too overwhelming in an abnormal situation? For example, just one of the safety mechanisms on board of the Horizon has 30 control buttons. Apparently many dozens of such systems were employed on the Deepwater Horizon to give warning at even the slightest gas leak detection. Post interviews of the survivors were reported in a New York Time’s piece, “Deepwater Horizon’s Final Hours” which gave insight into how employees had been well versed in simpler blowouts and problems, but had little to no training for the worse-case scenarios. It was compared to be being ready for a Category 1 hurricane but not the Category 4 or 5. In reality, this new frontier of deepwater drilling had never witnessed the magnitude of well failure that occured that day. Im not sure that more techonology/more regulation or that better technology/better regulation will ever be able to prevent the outlier risks of such drilling practices. Surely, we will learn from the failures of this operation and the field handbooks for rig employees need to be completely overhauled based on these failures. As a society we need to understand that these risks inherent in deepwater drilling are real and will happen again regardless or how much we try to manage them and the underlying natural world that is unpredictable of often cannot be dominated with our tools.
I agree with Jeremiah that this kind of disaster and we can only see the real consequences after it happens. I also agree with Prof. Bennear on the skepticism about management-based regulations from an economic perspective. While I agree that decision-makers are profit maximizers and will weigh the costs of following (or not) the management plan, I also think that having such regulations can help them make better decisions. As with other laws and rules in completely different contexts, these kinds of laws might lead to behavioral change that can be later translated into increased benefits and/or reduced costs.
The fact that these large accidents are very rare makes them also extremely costly, not only for the company or the government, but for the society as a whole. If we were to weigh the costs that these rare events have on the society, we would probably think of using management-based regulations or other mechanisms that can lead to behavioral change. And these types of regulations could also be applied to other sectors that, because of a lack of environmental management and safety, have constant costs to the society.
I completely agree in that this may be more “belts and suspenders”; however, maybe it doesn’t have to be this way.
Anecdotal evidence can’t be generalized, and the empirical and academic evidence that’s supposed to back up the success of MRBs seems to be inconclusive. This might be a product of the impact evaluations that MRBs have been subject to. If we want to actually observe and measure the impact these types of regulations might have on an industry and its day to day decision-making, we can’t just focus on the observation and measurement of an uncertain outcome. As Prof. Bennear said, measuring the appearance or not of the outcome will not tell us anything, as there is always a possibility that it might not happen, even by chance.
Impact evaluation can contribute more to this. This type of evaluation, if focused on more than outcomes, can actually help us assess the changes the industry has made in its day to day activities. We can use impact evaluation to measure changes in inputs (i.e.: more safety staff or money spent in this, better equipment, etc.), processes (safety plans and contingency measures) and decision-making caused by a new regulation (maybe with a pre/post approach). If we can actually observe the changes in these inputs and processes, we could measure how each of these changes might contribute to reduce the risk of the outcome (i.e.: probability of oil spill) instead of the outcome actually happening. On the other hand, there will always be a problem with external validity if the research was done for other industries; but we could research this same one and start adjusting the program according to the findings.
Since we are also dealing with pollution that may cause severe, maybe irreparable harm to the environment, and is also non-uniform, a command-and-control approach might work (I would worry more about the environmental harm that actual cost-effectiveness, in this case). This might even be combined with assigning property rights to the states and/or federal government, or citizens (i.e.: fishermen) and have these companies pay them in the event of a spill.
I think that you hit on a key point to the blow out that happened on the Deepwater Horizon rig, there was no singular short cut taken that caused the accident, rather a collection of what may have seemed minor short cuts that accrued through the digging process of the well to the day of the accident. What this highlights is that with strict regulations on offshore drilling, no company is really going to record down throughout the drilling and extraction process that all other processes should be extremely cautious because at stage X the cement pourers decided to take a shortcut.
This means that down the line no one really knows comprehensively how structurally sound or regulation-tight the well and the rig are, except maybe the higher ups that gave the okay for the slip ups but they will deny it to the core. Obviously regulation is necessary, particularly in this industry, but with such high consequences for not following regulations to the letter the realistic picture of the safety of the rig is unknown.
Being aware of where ‘shortcuts’ can and cannot be taken requires a lot of foresight, because with each shortcut that comes before the cost of a future shortcut is increased. The risk increases and is added to the cost of any fines, especially if the fines increase exponentially with the number of infractions (I’m not sure if this is the case for offshore oil). It seems to me that before drilling has even begun the heads of the drilling team, the platform, etc would need to sit down and calculate which risks and shortcuts to take throughout the entire process before anything is done.
While I think Alice is correct, the problem with having all parties involved sit down and calculate the risks is with the risk calculation itself. Again, it’s fairly unlikely that there will be an accident, and with the addition of belts to those fashionable suspenders, the risk of a major incident is reduced even further. In that case, calculating the risks of every shortcut will probably not be as high as one assumed, since the joint probability of paying a fine or clean up is extremely small.
Really, it’s a policy nightmare. If the penalties are too low, the cost/benefit analysis of each shortcut available undervalues the true costs of an accident; if anyone attempts to raise the penalties too high, the oil industry swings its considerable weight around to try and stop it. And, of course, with no real transparency on how well the SEMP is working, the idea of a useful calculation is almost laughable.
Regulatory rules for contingencies are important in many accidents, but when it comes to offshore oil drilling, things become tricky. I can’t agree more with Jeremiah that overwhelming technologies and redundant regulations have adverse impacts when the server incident occurs like Gulf of Mexico. Operation people have little or no experience on such accident, so whatever the technology and regulations are will not change the situation, what’s more, the complexity of the contingencies system might further worsen the emergent situation, like causing more death in the drilling site.
In statistics, the probability of such incident is described as “small probability event”, we don’t even take it into consideration sometimes. Our striving can decrease the probability, but with an extremely high cost, that is to say it’s not cost-effective. Due to the lack of real world cases of such events, I think we should focus more on how to cope with the aftermath of the disaster. The earlier lecture told us that when we deal with open access and public goods, the property right is always the most confusing part; it will make the estimation of compensation more complicated. Hence, distribution of property might work to minimize a series of cost that could be generated by misunderstanding of property rights.
I think that new regulations are clearly in order. The SEMP may not be the ultimate solution but it is a step in the right direction. The truth though, is that nothing will ever “ensure the safety of offshore oil drilling.” An article I read last week quoted blue crab fisherman stating that “managing nature” was itself an oxymoron. They argued that we cannot manage nature; it is the well-being of nature that ultimately manages us.
With each new management technique, apart from stringent guidelines and strict laws, we must invoke the precautionary principle. “Proceed slowly in the face of uncertainty, constantly testing and monitoring the effects of our activities.”(1) When the potential for one of the greatest environmental disasters ever known is present, precaution is pivotal not only to the lives of human beings but entire ecosystems now and for years to come. We should directly cite the precautionary principle in challenging the true risk evaluation of these oil endeavors. We shouldn’t need to see more evidence of more catastrophes to prove that offshore drilling has possible unimaginably harmful effects. We should instead, include social science along with the science of the oil rigs in operation today to gain insight into more efficient and safe decision making when lives are at stake.
(1) Van Dyke, J. M. (n.d.). The evolution and international acceptance of the precautionary principle. In Bringing New Law Into Ocean Waters (pp. 357-379).
Professor Bennear’s skepticism about SEMS is interesting. On the perspective of statistics, I also wonder whether management based regulations can make efforts because of the small risk. As Jeremiah and Sofia commented, the real consequence and cost of such disaster could only be known when it happened. Before the disaster, decision-makers can hardly imagine how severe the situation would be if the disaster happened, which may make them understate the disaster. Besides, the disaster is rare. Some decision-makers are risk averse. They may prefer sacrifice current cost for future “safety”; however, this “safety” is relative, just like the concept of VSL in our class. I am afraid that more people use statistics to cheat themselves: “Such a small probability, it is impossible to happen to me!” However, no matter how small the probability is, it is totally different than zero. Many times people will find themselves so “unlucky” and start to regret.
The regulations will be difficult to be implemented when the majority holds fluke mind. Decision-makers need to know the huge cost of one disaster and its existence; therefore they may take account into it and value the regulations.
Due to the extremely low chance of accidents, few cases of them, and many variables that lead to a large accident, it is difficult to estimate the cost or benefit of implementing something like SEMP. It is even more difficult to convince oil companies to see the benefits of implementing it. However, as seen in the Gulf of Mexico spill and even recently in the much smaller oil spills in North Chinese waters, these accidents are expensive. Not only expensive in loss of oil and clean-up costs, but also in the environmental damages caused. So, I guess I also agree with Professor Bennear. While we could hope the SEMS will help to change the culture of firms to encourage tighter safety and responsibility, chances are it will be just another regulation that gets ignored. These “minor mistakes” obviously lead to major consequences and need to be taken more seriously. For people to really start taking responsibility and and not take short cuts, I believe they must be held accountable for their mistakes and not count on someone else to catch it. Adding more regulations like SEMP may not be the best answer to avoid accidents in the future.
Safety and Environmental Management Programs were developed in order to better identify all potential operational risks and to develop comprehensive contingency plans for the rare event that an accident does occur. While this type of regulation may be more effective in preventing industry from adopting a compliance mentality than proscriptive approaches, I think it lacks promise.
From what I understand, BOEMRE has asked the offshore drilling industry to voluntarily adopt SEMS. What makes us think that the oil industry, motivated by maximizing its own profit, is going to take the time and money to comply with a voluntary provision? If we really want to ensure the safety of offshore oil drilling, then we should start by establishing mandatory and enforceable regulations because it appears that even the potential magnitude of damage costs associated with a blow-out is not enough to entice the industry to improve their offshore safety and environmental records.
This is just another example of how lenient federal regulations have become when special interest groups are at stake. Not to stray too far off topic, but this issue reminds me of how BP was able to proceed with its Liberty project, despite the Obama Administration’s moratorium on offshore drilling following the explosion on the Deepwater Horizon. An unhealthy relationship has developed between the private oil sector and federal regulators that has gone so far as to allow companies like BP to write their own environmental assessments to the detriment of social welfare. BP’s environmental assessment was placed in the hands of a pro-drilling division of federal Mineral Management Service that claims the Liberty project is safe and environmentally friendly. While the assessment concluded that a major spill could have a major environmental impact, it stresses that the possibility of a large spill is unlikely—so remote that BP failed to address how the project would handle the unique risks posed by extended-range drilling.
I can only ponder how this is possible, and how many disasters we will have to witness until the oil industry will finally start addressing its inherent safety issues, not just in terms of dangers posed to its workers, but to the environment as well.
I’m not sure how many countless hours and billions of dollars we are going to pump into an inherently hazardous, not to mention unsustainable, industry trying to ‘minimize risks’, when, at the end of the day, there is never going to a guaranteed risk-free method of oil extraction, particularly deep sea drilling. Just as the government places a VSL on human life when conducting policy analysis, oil companies are calculating impacts to their bottom line when operating oil rigs. The fact that a few people might lose their life or they might have to pay for clean-up of a spill is never going to 100% stop these companies from taking risks in their day-to-day operations, because the risk seems too low. All oil companies are betting the odds that a disaster of the Deepwater Horizon magnitude isn’t going to happen to them. Sure, we can put regulations in place to reduce the risk, or we can force them to pay for their mistakes, but will we ever truly recoup the loss we incurred after the BP oil spill? And what if it happens again? As we are taking more and more risk drilling deeper and deeper for untapped sources, what could the next spill look like? I agree that government needs to put measures in place to keep oil companies operational ‘within an adequate margin of safety’, but why not invest a little more time and money in alternate energy sources (ie wind and solar) so that we can, in time, replace our energy source with on that is renewable, safer, and lets face it, just prettier to look at?
In the book “Toward Sustainable Communities”, the authors Daniel Mazmanian and Michael Kraft outline the history of environmental regulation, placing policies into three “epochs”. The first of these epochs began in the 1960’s and 70’s with control-and-command prescriptive requirements for polluters and other groups which were causing externalities due to their activities. The second epoch began in the 1990’s and was deregulation, and private regulation. The last epoch has only barely seen life and allows all stakeholders to work together to achieve an adequate regulation policy.
It appears as if the majority of off-shore drilling regulation fell into the category of “epoch 1” and the change of policies to SEMP is just now seeing the industry and its subsequent regulation moving to “epoch 2”. Although the introduction of SEMP and other self-regulation policies might continue to decrease the probability of a catastrophic event such as Deepwater Horizon, it is putting trust in the oil companies that they will not “cut corners” due to the threat of the negative results which would occur.
If the US and all nations want to move to an ideal regulation for off-shore drilling (that is if we should unfortunately decide to continue offshore drilling as we surely will), it will be crafted allowing all stakeholders (fisherman, oil companies, biologist (representing wildlife), governments (federal, state, and local), etc) to preset their respective cases for different forms of regulation. The problem with this method is that it would obviously be incredibly time-consuming, costly, and likely to indefinitely stall. Until we get to a point were such a policy can be crafted, people who live and vacation in locations near offshore rigs and the animals who live around them must trust that the oil companies care about their well-fare. Unless the desire for profits for few can be overcome by the desire to maximize benefits for all, we will continue to have oil spills.
That is unless we decide to ban offshore drilling. And to see that say, I suggest we pray.
Offshore oil drilling is really a hot topic recently, so is the oil leaking and spill. Some measures are definitely needed to be taken to treat damages, and what’s more important is to prevent their occurring. However, the truth is that no regulation can absolutely prevent disasters from happening, no matter how much the cost is. Although SEMP requires drilling operations to develop detailed risk analyses and safety plans, it is difficult to calculate the benefits from this regulation. As I see it, reducing the probability of a significant accident occurring from 0.002% to 0.001 does not make a difference at all. So it is obvious that decision makers are not willing to pay the costs of following the plan. Therefore, it is not that meaningful to calculate the cost-benefit of SEMP. But it does raise the attention of drilling operations to safety. Because there is no method can definitely prevent the happening of accidents, it is the awareness of safety that plays a significant role in controlling the disasters from happening. Maybe the regulation could be conducted in another way, not requesting risk analysis and safety plan but using other more effective ways to clarify the potential damage to the environment. Also, the punishment could be stricter. Therefore, I think the core value of regulation is not comparing the cost and the reduced probability; instead it is an approach to encourage everybody to try their best to prevent disasters from happening.
It’s difficult to know how to recover from and correct for all the failures that lead to a catastrophe like Deepwater Horizon. Loss caused by the spill is felt so greatly by so many people that calls for justice are quick to demand reparations of extreme proportions from anyone that may be to blame. Without discounting the possibility of dangerous shortcuts taken and purposeful negligence on account of certain parties, it may be useful to consider other causes (rather than just capitalistic wickedness) that may have led to the failure of Deepwater Horizon. The ability to plan for every element of oil drilling in every situation, while correctly accounting for every different variable, is impossible. Every circumstance will be presented unique challenges that will need to be dealt with as correctly as possible given the available resources. While SEMS, Safety Case, and MBR may attempt (and may succeed) in offsetting mistakes, it’s hard to imagine that they are used in a purely effective and efficient manner one-hundred-percent of the time. As was said in the blog, the beaming portrayal of highly developed safely plans may only be a poorly made assumption. There could be countless other reasons why the nations that use Safety Case have not had a spill. Statistically speaking, it’s incorrect to claim a causal relationship based on observation alone. The worst type of recovery that could result from Deepwater Horizon is one based on inaccuracies and misjudgment.
The processes involved in a disaster such as the explosion on Deepwater Horizon are far too complex to allow for complete regulation. No matter how many regulations are in place, things can go wrong and all the belts and suspenders in the world cannot account for all possibilities. I believe that this is why programs such as WSR and SEMP can be useful. By creating a contingency plan a company can be prepared for such a disaster and hopefully decrease the damage caused. For example, a town with a risk assessment plan will be better prepared for a cryptosporidium outbreak than a town without a plan. If the plan allows for a quicker response, fewer people will drink the contaminated water and lives can be saved. While it may incur unwanted costs, WSR and SEMP programs have the capability to fill in the gaps left by safety regulations.
Dr. Benear detailed very nicely how cognitive biases could quickly lead to individuals making the wrong decisions when weighing costs. Another, hidden aspect of this, however, is also corporate incentive structures. I mean, something has to be driving individuals to always choose the riskier low-cost approach, right? If the individual saw more in it for them, personally (b/c they probably don’t care too much about future costs to the company, no matter how great they are) to play it safe, then we would expect that person to err on the side of safety.
Of course, the regulatory and penalty structure is supposed to be such that the company has the incentive to provide the incentive to their employees to follow proper safety protocol. However, this clearly was not the case in Deepwater Horizon and will not necessarily be the case today, even with the new regulations. So any solution needs to either attack or override the corporate incentive structure.
Options include attacking corporate incentive structures by removing a corporation’s ability to reward employees based on the bottom line; forcing companies to modify their incentive structures to include safety performance in the bonus calculations; or government direct incentives to the rig manager or other appropriate persons based on safety performance. In any case, safety performance would have to be closely monitored by impartial third parties to reduce risk of corruption and abuse.
I would go for the second of these two option. The first is worst- it completely removes the incentive to perform on any level from the employee and would lead to productivity losses when other ways are present. Government payments would also work. But the reason I like the second option is because it preserves performance incentives while balancing them with safety, similar to balancing utility “gained” from pollution and utility “lost” due to pollution abatement- and the government isn’t the one paying the bill.
Of course, none of this would necessarily work thanks to politics.
I think Morgan makes an interesting point about the challenges of creating the kind of corporate incentives that cause a culture shift in a company that engages in this type of high-risk activity. In this instance, I think the cultural laxness stemmed not only from the corporate culture, but also from the agency that was supposedly overseeing and regulating this costly, risky industry. However, MMS was unable to do this job with integrity.
In the post-mortem of the oil spill, one of the major issues that arose again and again was the widespread culture of failure, corruption and incompetence at MMS. Perhaps an even more challenging counterpart to Morgan’s question is how to you reform a government agency and ensure that it is organized, staffed and resourced to do its job effectively? What incentives (or disincentives) do we need to put in place when we are dealing with employees who can easily be tempted by the gifts of a wealthy industry they are supposedly regulating?
Whether the agency requires management-based safety plans, plans based on best available technology or other metrics, if the regulators are not acting honestly, it is impossible to evaluate the effectiveness of a program no matter what kind it is. Under MMS, companies submitted EIS’s that were recycled from previous projects. There was no accountability even where actual data was concerned. So I am less concerned with the measureability of a management-based plan and more interested, at this point, in the regulatory agency’s ability to evaluate and enforce that plan.
When discussing offshore oil drilling safety it is crucial to consider the differences between projects. Each rig is presented with a different environment and a different set of challenges. Moreover, the nature of offshore drilling is evolving as we move intro deeper and more sensitive areas. In order to this, technology is constantly evolving and thus an adaptive management systems like SEMS is necessary. In BOEMRE’s reports they address the four primary driving goals behind the SEMS regulation, and one of them is to provide a flexible approach to systematic safety. SEMS allows each group of operations to manage their own safety while remaining under a general a series of rules implemented by the BOEMRE. The nature of oil and gas drilling makes it innately difficult to create a blanket protocol for all operations. Although this regulation and self-governance of sorts may cause operators to cut corners to cut costs, it is strides ahead of MMS’s old regulations which did not even require information about worst case scenario discharge. This adaptive framework of SEMS provides an excellent starting point to monitor the behavior of operations within certain guidelines to then narrow down the components which may or may not work. SEMS is only a part of a major restructuring which has been undergone by the MMS, now BOEMRE, and represents only a portion of the reforms in the wake of the Deepwater Horizon Oil Spill. SEMS, with a variety of other NTLs such as NTL-06 are moving drilling safety in the correct direction.
Facing the hard truths
Worldwide demand for oil is expected to grow and oil will remain “indispensable to meeting total projected energy demand growth” (NPC 2007). Production from conventional sources has reached its peak (or will do so soon) with 80% of these conventional sources in the hands of national oil companies. The majority of oil left (about two thirds of the original oil remains underground until now) is unconventional (Maugeri 2009). In a nutshell, offshore drilling and the (potentially riskier) exploration of unconventional sources is here to stay and will increase in the future.
Failed risk management or a Black Swan?
Previous oil spills have occurred yet was the Deepwater Horizon incident a “Black Swan”? Black Swan events have three attributes: (1) rarity, i.e. the event is an outlier outside the realm of regular expectations; (2) extreme impact; and (3) retrospective: after its first occurrence the event is rationalized by hindsight, as if it could have been expected (e.g., the relevant data were available but not accounted for). Like the black swan that was presumed not to exist but then discovered after centuries. All of which are valid for the Deepwater Horizon incident.
How do we manage the risk now that the Black Swan has been discovered?
Public Management theory offers real solutions (Wilson 1989): in a procedural organization or setting where performance/outcomes (“how the world changes as a result of that work”) cannot be directly measured, it is essential to measure outputs (“what workers do on a day-to-day basis”) instead. As a result, primarily there ought to be management (regulation) on the basis of the processes rather than the outcomes of safety procedures for offshore drilling (and other unconventional production), hence continuous surveillance of the day-to-day work done. It needs furthermore to be ensured that mechanisms which prevent ‘gaming’ i.e. the manipulation of reported results are in place.
_ _ _
National Petroleum Council (2007): Facing Hard Truths.
Maugeri, Leonard (2009): Squeezing More Oil from the Ground, Scientific American.
Taleb, Nassim N. (2010): The Black Swan, Second Edition, Penguin.
Wilson, J.Q. (1989): Bureaucracy. What Government Agencies Do and Why They Do It, New York: Free Press (Ch. 9).
I think this Safety and Environmental Management Program (SEMP) is necessary in terms of a guideline to integrate and manage offshore operations for safety and environment even though it’s not a regulation but recommended practice. This program could recommend or suggest advices for workers and companies to implement safety and pollution control for the environment. It could help to enhance the safety and cleanliness of operation for drilling or after sever accidents. Actually in my point of view (international student), I could not understand why the US government does not have a regulation for safety and environment toward offshore oil and gas operation companies so far. Because I think developing natural resources should be managed under supervision of the government and especially drilling oil and gas should be accompanied by cautious guideline for the safety. I just guess that there might be close tie between government and oil companies to lobby their advocates the right for own benefits and profits. It could be possible because the contingency plan to implement any safety regulation should increase costs even though the probability of the accident is extremely small. Nonetheless, I think even though SEMP brings about increase of costs in the short run, it will help to reduce the probability of the accidents and lead “win-win” opportunities for companies to find new ways to save money for the longer term. As Porter hypothesis, the new regulation forces company to compliance environmental regulation, they discover new ways to abate pollution and to save money. I’m sure that this SEMP should improve their safety for accidental risk and competitiveness for a long run.
As a risk-averse not-yet-economist, I think that SEMS is a good idea. Even given that accidents are rare and usually made up of many mistakes not just one, I believe that the more regulation the better. These views come from my opinion that when there is an oil rig disaster, the impact could be quite large and the losses great. I am definitely on board with Christina when she makes the point that we need to get away from these unsustainable, risky methods of obtaining energy sources. However, until that day comes, we need to keep the people who work on those rigs as well as the animals that live beneath them safe. So bring on the belt, the suspenders, and any other method you need to keep your pants up. You can never be too safe. To those who would argue there is a point where you can be too safe and that safety measures can negatively impact profit, I would say that therein lies some of the consequences of being a part of a risk-prone industry.
Disasters like oil spill happen more frequently recently. In 2010, couple of months after the serious Mexico gulf oil spill, serious but relatively smaller oil spill happened in Dalian, China. From July 13th to July 15th 2011, two fresh but smaller oil spills happen in North China’s Bohai Bay, again. They are not isolated incidents but reflecting the unsafe and instable of oil drilling system. Though the occurrence is small, but once it happens the cost is expensive not only money but also environmental lose. I agree that the SEMP might not be efficient enough in changing decision makers’ day-to-day decision on a drill rig, but at least the SEMP together with the DSR can regulate operations’ behavior and put enforcement in introduce higher technology and safety concern. But what I concerned most is even though SEMP was fully implemented and ideally no operation took short-cut, as the attribute of oil spill is accident, oil spill still happens. So what really matters as in my opinion is to put up regulations in forcing drilling operation set up complete and sharp aftermath control system. In that way, at least contingencies’ lose can be controlled.
Ying brings up an interesting point when she talks about the two smaller oil spills in North China’s Bohai Bay. This reinforces the fact that drilling for oil will never be completely safe, no matter what magnitude and type of enforcements are in place. These two smaller spills are also a reminder that the public often overlooks the smaller, less impressionable dangers of oil drilling. The public is outraged for a time after the massive oil spills like Deepwater Horizon, but quickly forgets when we rely so heavily on oil for our day-to-day lives. I also believe that the more safety regulations in place the better. The monetary and social losses suffered from massive and smaller oil spills will never be fully quantifiable, but will surely cost more than the extra costs of more regulations.
It is indeed unfathomable to capture performance metrics in management-based regulation, making empirical analysis of regulatory effectiveness nearly impossible. As stated above, the safety of offshore drilling is latent and not directly observable to the regulator. Thus, observing the absence of an oil catastrophe does not necessarily equate to a safe drill rig. But which management system (and ultimate risk reduction path) do we pursue?
Devoid of such empirical evidence and quantitative performance certainty, I am of the opinion that a suitable approach arises from strong theoretical claims, flexibility (and ultimate cost-effectiveness), and industry compliance potential. The regulation of offshore drilling can be situated on a spectrum between prescriptive requirements and performance-based regulation. Many regimes include elements of both. While each approach has a distinct set of strengths and limitations, in my opinion, there is evidence of a general increase in the use not only of management-based regulation, but performance and goal-based regulation. Each allow greater flexibility for innovation and cost effectiveness when compared with prescriptive “belts and suspenders” commands. Goal-setting approaches, which have been adopted by countries like Norway and the U.K., supplement compulsory requirements in that they require companies to continually demonstrate that they are taking proactive measures to minimize the risk of oil and gas leaks to “as low as reasonably practicable.” In some cases, regulated entities are permitted to adopt other approaches if they can demonstrate that they are at least effective in achieving the performance objective or other obligatory requirements. A hybrid regulatory system of core compulsory guidelines in addition to goal-setting mechanisms might be a promising alternative to traditional modes of management.
I always think that offshore oil drilling is dangerous. Because once the blowout or leaking happens, it could be a disaster to the marine and coastal ecosystem. Between the profit made out of oil drilling and the environmental safety, the oil companies will always choose the former, and the latter is weighted with the less priority. It seems that oil companies will never stop before an oil well that they can drill. So the problem is how to make sure they use safety technologies and the process is closely monitored to minimize the risk. For the management-based regulations, I agree with Professor Bennear’s opinion. SEMS may be effective in directing regulated companies to engage in planning process that aims toward the achievement of environmental safety. However, SEMS couldn’t be taken as a panacea. On the other hand, it could barely make the oil drilling process look ‘safe’ on the surface, because any little mistake or carelessness can lead to a tragedy, especially given the condition that the SEMP may add to the workers’ sense of security. I think based on the SEMS, the government agency or NGO need further monitor the oil drilling process and such activities should be partially paid by the oil company.
In the end, it all comes down to money. Oil drilling firms will look at the cost of complying with the regulation, and spend as little money as possible on safety and environmental protection, as long as their marginal costs equal their marginal benefits. As profit seeking firms who answer to shareholders, it is the drilling company’s job to drill as much oil as cheaply as possible. Extra regulations just take away from the profits. The extremely low chance of a major disaster compounds this practice. And the fact that the government will likely come in to clean up the mess, and take some of the blame, gives oil companies even greater incentives to cut corners.
The truth is, we Americans demand low cost energy. If we really cared about preventing huge oil spills, we would lobby our congressman to significantly raise oil drilling safety regulations, and we would gladly shell out an extra dollar or two for each gas of gasoline at the pump. But the truth is, we would rather pay less for gas and energy, and have a major oil spill every 20 years or so. It’s just the cost of doing business for most Americans.
The cost for an oil drilling company to enact minimal safety regulations is pretty small. As they increase safety measures higher, the cost becomes greater. In order to nearly eliminate the potential of having any accidents whatsoever, the costs would be astronomical. We consumers are not willing to pay for energy at that cost. So it comes down to this: What are we as consumers willing to accept? And for the government: How much regulation do we really want to put in place for oil drillers, when they are some of our major campaign contributors, and their companies are in my district? The answer is this: Americans will keep on demanding low cost energy, even when Deepwater Horizons and Exxon Valdez spills happen, because so very few Americans are actually affected by these disasters. The majority of Americans live their lives without giving a second thought to the 11 people who lost their lives in the Gulf, or the millions of sea creatures that were affected, or the thousands of workers whose livelihoods were disrupted by the spills. Therefore, we will keep the status quo for the foreseeable future, and when the next spill happens, we can again cast stones at the regulators, government, and the oil companies. Because in the end, it’s all about the bottom line, theirs and ours.
SEMS is a much more flexible system. If companies are allowed to make their own policies there is still no guarantee they will follow it, but it is much more likely if they put in that investment. Government money should be put into clean up and spilling oil well technology. All the rules and regulations in the world are not going to prevent every incident and our rules don’t apply to drilling in other countries waters. So if we make too many rules we will simply push them into even lower standards drilling locations. To actually make most of these regulations work, it would require a huge amount of government investment of time and money. Even with this companies that are not going to follow procedure will continue to do so. It seems like a much better idea to let them create their own rules and regulations based on predefined goals. This will ensure that they at least have a plan and they will have a great deal of incentive to follow it. Look at the devastating impact it had on BP as far as how people view them. I am sure everyone either knows someone or they themselves refuse to buy gas at BP.
On a side note: I find refusing to buy gas at BP such a stupid concept. First off basically every major oil company has had large scale spills or other major issues. Whether it is the Exxon Valdez oil spill or Shells’ corruption in Nigeria. Secondly, the oil that is mined is sent to various refineries and then sent out to various gas stations. So what BP mines wont necessarily go to a BP gas station, those are simply small business men and women often Mom & Pop owned that bought a franchise to use BP’s name. Yes a tiny commission goes back to BP, but those small scale owners are going to suffer very badly and BP will barely feel it. If you want to really Boycott BP then stop buying oil, stop punishing small business owners that are already struggling in this down economy.
Throughout the comments there has been sporadic mention of property rights. Although in many situations I am all for using those, I think the implementation of all surrounding water area and various marine resources would be a massive undertaking and the valuation process that followed would be nearly impossible. Various Territorial User Rights Fisheries (TURF) type management structures have been successfully used in many locations, but with so many various factors and fisheries present with little way to distinguish property lines this would be near impossible. I also agree with Nathalie that big oil and government are very much in bed together. This only adds to the fact that more command and control regulation will likely be tailored to the needs of big oil, why waste time and money on something that will either be designed by the oil companies anyway or not followed by them.
While the Deepwater blowout was an awful tragedy exacerbated by a lack of preparedness, it is important to note that wells are not the only place for oil disasters to occur. Many of us were very young when the Exxon Valdez oil spill occured (1989). A tanker carrying hundreds of thousands of barrels of crude oil struck a reef in the Prince William Sound in Alaska, causing devistating effects on wildlife and the Alaskan fishing industry. More recently (2000), the Treasure oil spill affected South Africa in a similar manner. The LA Times reported that “The 17-year-old ship sank after developing a hole in its hull, which had either rusted or cracked from age or stress.” While the spill itself is horrifying and tragic, I found this point to be particularly poignant. Safety on wells is of the utmost importance, but regulations also need to be applied to the tankers that are responsible for the transport of oil. Double hulls were required after the Exxon Valdez spill, but if these vessels are not routinely inspected, the requirements don’t mean anything. While no one can predict every situation, it is important to take as many preventative measures as possible, so that future disasters can be prevented or minimized. It’s time to start learning from our mistakes.
And as a side note to Leland – I am one of “those people” who stopped using BP gas stations after the oil spill. I realize that it doesn’t make any noticible difference to BP, but it makes me feel like I can stick it to them. More importantly, I got a very satisfied feeling this fall when my Ford Taurus and I went six weeks in between fill-ups, as a result of carpooling and using public transportation on a regular basis. It’s the little things in life.
http://articles.latimes.com/2000/jun/26/news/mn-44997
I agree with Leland’s first comment on SEMS ability to create a flexible system for fostering tailored methods of safety regulations for each site. The burden of safety will be put on the corporation, and although stricter regulation should be encouraged here, the government does not have the time nor resources to facilitate this right now. The modern era will not stand for another oil spill – neither environmentally, nor economically – and any corporation willing to partake must accept the risk.
On another note, I feel the concept brought up in program management was also very applicable to this blog post – the idea of research funded by an oil drilling corporation such as BP by Nicholas School professor for environmental restoration after a spill. I feel that economically, this adds to an investment of their funds towards risk management, and towards restoring that which has been destroyed in both the recent and distant past.
I understand that most of this sounds too ideal, and that human tendency is to cut corners, and to no want to fulfill promises.
I feel that firms are almost always too focused on profits to be aware of the many risks involved in producing their goods. With this kind of mindset, I also feel that when forced, firms tend to right safety implementation plans that may not be so safe in practice because they just jot something down to apiece the regulators. I think that if SEMs or SEMPs are going to be used, there has to be some way to assure that offshore oil rigs are indeed operating to the standards that firms report and that these management teams in fact ready for any emergency that may arise. When it comes to safety and risk evaluation, I believe there has to be some kind of check and balance used so that all parties are held reliable when one or the other is not fulfilling their part.
I do not think that oil rigs will ever be a safe place to work and I can see why SEMs could be referred to as just another pair of suspenders, but I do think that adding another layer of protection is a worthwhile investment. Whether or not there is empirical evidence to support the effectiveness of SEMs in day to day operations, requiring them of oil rig operations forces them to consider safety of their operation in a meaningful way. While many oil companies probably have safety protocols in place, requiring outside review will only improve these procedures. If an accident does occur many options will have previously been considered and perhaps it will lead to better decision making by those in charge. Or maybe it won’t. While day to day operations may not change, there may be some good that comes from it.
Requiring each drilling operation to have a Safety and Environmental Management Program sounds like common sense. However as natural resource supplies begin to deplete, extraction of these resources will become increasingly more costly and also more risky. New technologies will seek to extract oil from deeper and more difficult places to reach. These technologies will be largely untested and will lead to accidents. I believe that companies understand that accidents will happen and are an unfortunate part of doing business. We, as a people tacitly approve of this mindset by continuing to demand oil in light of incidents like Deepwater Horizon. We understand the cost and are willing to pay it. No amount of regulation or contingency planning will eliminate spills as it is impossible to plan for technology (that will be required to extract oil in the future) that previously has only been theoretical in nature. I fear that SEMP planning while nice in theory will lead to only small marginal increases in safety. Like Christina said we need to move away from oil and towards renewables.
On October 1, 2011, what was BOREME divided into two separate departments. They are the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE). The purpose of BOEM is to manage the development of offshore resources. BSEE is in charge of the safety of offshore oil and gas operations. The need for consistent safety regulations to be in place is very important, especially in an industry of high risk and enormous consequences. However, given recent events, the division of BOREME seems to point to some discrepancy in the idea that we need better regulations in place to prevent disasters such as the Deepwater Horizon Spill.
Instead of one department managing regulations, there are now two, BSEE and BOEM. On each department’s website, under the description of regulations, it is stated that ‘The Bureau enforces compliance with these regulations and periodically updates rules to reflect advancements in technology and new information’ (http://www.bsee.gov/Regulations-and-Guidance/Current-Regulations.aspx, and http://www.boem.gov/Regulations/Current-Regulations.aspx, accessed Oct. 24, 2011). I interpret that to mean that there will be potentially two bureaus conveying regulation information to drilling companies and enforcing these regulations. It seems a bit counter-intuitive because having two departments conveying the same thing can only lead to a time consuming, inefficient process. I would suggest that this is an example of belts and suspenders in the very framework of safety regulations: making people feel very comfortable if there are two departments enforcing regulations.
Conducting a program evaluation of something that has yet to happen (an accident) is indeed a tricky task. Further, isolating the effect of Safety and Environmental Management Programs (SEMPs) and gauging levels of success on avoiding accidents is even more difficult.
In addition to looking at performance indicators and figures, perhaps conducting surveys of employees within companies that have and don’t have SEMPs in place could be an complementary study of understanding the effect of SEMPs. The survey could potentially test whether or not perception and actual daily activities/decisions have changed in response to an SEMP put in place. (?) Addressing corporate culture and their shifts could be a valuable tool for reducing risk within the extractive industries.
On a different note – I agree with many people in the discussion thread, and think we need to consider the precautionary principle in regards to risky projects that can inflict high social costs. Employing regulations like SEMPs are borne out of this precaution, however, I also agree with Lori that it may give people a false sense of security and worse, even lead to more safety shortcuts.
Bottom line, extractive industries, especially deep-oil drilling will always carry health, safety and environmental risks. We should carefully implement the safeguards in place, but also spend more resources to transform the energy market towards more sustainable, safe sources.
Like many environmental issues, underwater drilling posses may questions with highly uncertain answers. We have to approach these issues with our best risk based and technology based solutions. Because we know there is not hope of converting everyone to use alternate fuel sources in the very near future, we must take some risk of environmental degradation due to drilling. Minimizing that risk needs to be based on both risk management as well as use of best technology.
Implementing a safety and Environmental Management Program (SEMP) seems to be of the times, and though not risk proof, may be the best available technique for risk reduction. In addition, it may be time to improve mechanics of oil drilling as well. The management plan should include requirements for rigs, not only maintenance but also design. What I understand more and more is the importance of implementing what is available now, instead of hoping to wait for something better in the future. As both technology and the state of the environment change constantly, the contents of a SEMP may have to change very frequently, too. Both the redesign of rigs, and the maintenance and safety plan for their operation should be under regular examination.
I think that the customized, site-specific approach to safety regulation promoted by SEMPs/MBRs is a crucial departure from the MMS/BOEMRE’s previous command-and-control approach that accounts for the heterogeneity of different off-shore drilling operations and the specific environmental conditions in which they operate. However, as mentioned in the post and in many of the comments above, there are large problems associated with placing hope in the ability of newly promulgated, operation-specific regulations to actually result in real risk mitigation. The first lies in the inability to judge the effectiveness of these policies, as evidence for the efficacy of preexisting SEMP/MBR policies is inconclusive at best. Moreover, if a drill rig hasn’t exploded how can you ensure that it is operating at the safest level possible? The second lies in the fact that catastrophic accidents, which result from complex feedback loops between human error and the failure of technological safeguards, occur non-linearly and carry an extremely low-probability of occurrence. In other words, no amount of regulation–command-and-control, SEMP or otherwise–will EVER lead to the complete mitigation of risk, as there will always be a slight chance that human error, in some cases resulting from regulatory oversight, will happen to combine with technological failure to cause a major disaster.
Given the inevitability of a major disaster, how can risk mitigation be truly maximized beyond the shift to site-specific, managerially-implemented regulations and safety plans? One thing that caught my attention in the aftermath of the Deepwater Horizon disaster was that the penalties levied against the parties responsible for the accident seemed to be drastically less severe than they needed to be in order to truly emphasize the importance of safety and risk mitigation throughout the labor hierarchy. As Lori mentioned in the post, under the 1990 Oil Pollution Act an oil company is only liable for $75 million of private damages, though the total cost of damages and clean-up will approach $40 billion that will be paid by fines and tax-levied clean-up funds paid by the entire industry. This might seem like a large penalty, but it is dwarfed in comparison by a typical oil company’s financial clout. For instance, although they posted a $9.5 billion loss for the first nine months of 2010, much of it resulting from oil-spill related costs, BP posted a $15.9 billion profit over the same time frame in 2011 (http://www.bp.com/extendedgenericarticle.do?categoryId=2012968&contentId=7071741). Indeed, BP’s market capitalization is listed at $135 billion, while its purchasing power parity, along with other major oil companies, rivals that of the world’s leading national and urban economies (http://www.oxfamblogs.org/fp2p/?p=7164). $40 billion paid by such a large company over the course of a few years (after litigation delays, etc.) only amounts to a slap on the wrist that can be recouped over the course of a couple of years.
Why would these companies truly stress safety and risk mitigation from the top down when catastrophes are hard to come by and don’t spell certain financial ruin? It was reported that some of the procedural oversights that eventually contributed to the well blowout were instigated by the fact that the rig was six weeks behind schedule, which had cost BP around $500,000 a day and resulted in efforts to expedite production to make up for lost time and money (http://www.nola.com/news/gulf-oil-spill/index.ssf/2010/05/oil_spill_hearings_bp_was_unde.html). If the financial penalties for such an enormous oil spill were levied to push the guilty party towards the brink of bankruptcy, then perhaps the $25 million the project had lost would have been far outweighed by the potential losses that could be incurred from proceeding in an unsafe manner. Of course, penalties of such a degree that would truly maximize risk mitigation will never be leveled, as the social benefits of abundant, low-priced, domestically-produced oil are deemed to far outweigh the social and environmental costs of a massive oil spill.
Drilling for oil is inherently a dangerous practice. As such, I think that any additional measures that are taken to make oil companies think twice about their practices and emergency response plans are a good thing. MBR and a having a SEMP certainly fall into this category, and because they are more adaptive, may help more than any sort of specific industry wide regulations.
However, like many of the commenters have discussed, there are so many challenges related to oil drilling that I wonder how big of an impact MBR/SEMP or really any regulation can have. First, most of the companies drilling in the gulf are massive corporations with significant financial resources. Given their substantial wealth, they have the ability to clean up/pay fines in the unlikely event of a spill. Sure BP took a major hit, but they are still around. Why, then, would any of these large companies pay for better safety precautions if the chance of a catastrophic spill is extremely unlikely, and even in the event of one, the company has enough wealth to pay the resulting costs?
Additionally, and I think more importantly, even having a SEMP in place won’t necessarily prevent or help plan for a catastrophic spill. It is my understanding that oil companies have always had to have contingency plans in place for spill response, but as we saw with the BP/Deep Horizon spill, their plans for how to cap the well continuously failed. This was particularly a problem because companies have been moving into deeper and deeper water to drill, and this carried with it risks that no one was equipped to handle. Unfortunately, it doesn’t seem to me like a SEMP would be strong enough to correct for the uncertainties associated with risks. This could also be a significant problem if the US moves to capitalize on oil exploration in the melting Arctic, another area where specific risks and best clean-up practices are not well understood.
It may sound cynical, but unfortunately I don’t think that there are really any good options for creating incentives to make drilling safer (if safer drilling is really even possible). Oil companies are too wealthy and have too much political sway, and Americans only care about having cheap gas and energy prices. Even if this wasn’t the case, it seems as though there are too many inherent risks with drilling to ever prevent all significant spills. Perhaps instead the solution lies in making sure we know how to respond to and clean up a spill in the best way possible to mitigate the effects while moving towards more sustainable, safer options for energy.
I agree with Kelsey’s assessment on how even having a SEMP in place will not necessarily prevent oil spill from occuring. Even though it seems as though we do need more regulations and safety precautions for oil drilling, it may bring too much sense of security, as Prof. Bennear touched upon with the addition of SEMS. Too much security can lead to oil companies cutting corners because they think they are already too secure. I unfortunately cannot think of anything to alleviate the tough situation between proscribing additional safety precautions that could go unused and protecting our planet from additional oil spills. It may seem unrealistic, but I believe the only way out of this ordeal is through alternative fuel.
Your discussion about SEMP invokes images of the tragedy of the Challenger and the frozen o-rings. As I understand it, the situation was a perfect example of what will happen if we rest on our laurels and assume that one small error is much more likely to be caught or compensated for by another aspect of the safety system than cause real trouble. When you are dealing with human lives, and in this case with such a potent weapon as oil (where 5 quarts- or one oil change- can pollute one million gallons of water), the weighing of risks vs. benefits should not be up to those who stand the most to gain from slacking off. As you pointed out in your posting, “a very safe and less safe operation may both succeed in drilling without a major oil spill.”
I do not believe it is enough to permit the petroleum industry the flexibility to build their own program for Safety and Environmental Management. There must be a measurable system in place for protection, and a standard for measurement for the percentage risk reduced that is set at a level which does not take cost into consideration. This is the system that has been set in place for the EPA under the Clean Air Act to regulate such hazardous pollutants as lead, NOx, and VOx, and has proven to be extremely effective over the years. The crux of the matter at hand is, simply, that industry is not going to value a percentage chance of one large, costly incident occurring at the same value as the government would (assuming government is uninfluenced by the oil lobby) or better, an unbiased third party. There should be federal requirements that set guidelines for risk reduction within the SEMP, so that each SEMP is forced to meet more specific criteria and ideally, quantitative goals (like percentage risk reduction), than a risk analysis and clean-up/emergency plan. A third party would be absolutely necessary in setting these numeric risk reduction standards to counter the immense influence that the petroleum industry has as a special interest in federal government affairs.
The Exxon-Valdez and the Deep Horizon spill have both occurred within the last 30 years, and left devastating marks on the planet. Two earth-shaking spills in the last 30 years doesn’t seem infrequent enough to me not to warrant a more aggressive change in the way we go about the business of collecting and refining oil. The track record of this particular industry with regard to money dedicated to lobbying decision-makers should also be taken into account. Of all industries, I believe the petroleum industry can afford to invest more in better safety procedures, and this is an especially timely point in our history to do so, as the international conflict over oil grows, and alternative energy harvesting techniques like fracking are blossoming with disturbingly little oversight. If the US plays it right, we could stand to gain a lot by instating tougher safety measures and encouraging safe exploration of new and less controversial energy sources.
I think there’s a serious problem in looking at the oil industry’s safety regulations to determine how companies balance risks and costs, because safety is difficult to quantify not only because it’s latent, but also because many costs and benefits come in the form of moral obligations, honor, and fear of public outcry. Yet to provide evidence of this, think it’s important to look at BP’s own record of safety violations. BP paid $373 million in fines in the five years prior to the Deepwater Horizon blowout. This included fines for 760 “egregious, willful” safety violations, according to the Occupational Safety and Health Administration, and represented 97% of all such violations in the industry.
The fact that the other companies in the industry continued to follow most safety regulations despite the fact that BP seemed to discover a way to violate so many regulations and still profit suggests that the other industries may have been following these regulations out of an actual concern for safety. If this is the case, then the regulations may not have had as strong an effect as there should have been. If the fines for violations had been even higher, those companies which chose to comply would have continued to comply and been relatively unaffected, while it would have become cheaper for BP to comply with at least a large chunk of those 760 violations, and the Deepwater Horizon disaster may have been avoided.
While saying this, I’m thinking about the models we’ve used to calculate taxes in an abstract sense – knowing that some firms will choose to do what they need to do to avoid the tax (abate carbon emissions, for example) while others will choose to pay the tax. I imagine oil companies are doing the same in determining whether to pay the fine for safety violations–but I think this is fundamentally different. Missing from the tax models we’ve looked at is this risk of catastrophic consequences from a single instance of paying the fee rather than fixing the problem. I also question what the chances are that every oil company chooses to comply with almost every regulation while BP chooses to break so many–it’s a strange marginal benefits curve, and reinforces my suspicions that there are more than economic concerns at play here.
These ulterior motives – a real concern for safety – must be examined in order to determine the benefits curve of the oil company that does not possess this concern (like BP) and to determine the prices that must be set in order to minimize risk. While profit should be maximized, I believe the government should be working to minimize risk while it’s then the oil industries job to figure out how to maximize profit under regulations.
It seems to me that the entire point of the SEMP regulation is to avoid the pitfalls of day-to-day decision making that you mention. Adoption of a SEMP would work to change the culture of piecemeal benefit-cost decision-making during the course of operations, in favor of prior analysis done at the global level, in which the cost of the entire SEMP are weighed against the overall risks. The internally developed program has a better chance of gaining institutional commitment. With such commitment, day-to-day decision makers are empowered to bear the costs required in adhering to the plan, even when their lack of information or context prevents their understanding of the benefits.
But, much depends on the company’s internal embrace of the SEMP as a tool to lower their risk profile. Those firms determined to merely go through the motions to meet regulatory requirements will not gain the same benefits. As such, in a practical sense, the regulation would be merely suggestive not prescriptive. Perhaps there are actual teeth to the regulation not apparent here, but if success is dependent on institutional choice, it is not a regulation at all.
In oil industry, safety becomes a very important problem and as a dilemma for oil company whether to expand the profits to largest or protect their workers from dangerous. It is hard to realize the bad situation until some tragedies like the event in Mexico happened. Before it happened, the decision maker just hoped to get maximum profits help anything that not help make money will go second, even the safety of worker. It reminds me the same condition in Chinese coal mine industry. Workers there get the lowest salary but do the most dangerous work. So many have died during the mining, and not even reported. The employer would not have the conscience until they get serous punishment.
However, according to so many news, for people who are really in charge of these big companies have much more powers and it does not really hit their cost even such a serous disaster happened. SEMP in some extent will ensure offshore oil drilling safety, but such regulation is not guarantee to protect workers. If the profits will be largely sacrificed, employer will of course not take the risk to just make sure all the workers are safe. Although it is a right step to regulate the whole oil industry, it is really hard to convince the oil company follow the regulation voluntarily.
The best regulation from my point according to this report is that could really decrease companies’ profits dramatically. If any of the company in the program violate the regulation the others should punish it and the media have to take action to report it and even the government should fine the company. When the bosses realize their cost is extremely high, they will not take any risk for that.
This reminds me that the environment issue is also the problem and may use such regulation as well. Right now so many companies have not realized that the importance of the environment. They never view this issue in long term but emphasize the current profit. If such regulation was taken it may somehow help the situation.