Energy Insights

BP has been criticized for offering to pay all “legitimate” claims. However, a recent suggestion of the Obama administration has provided an example of the type of claim that is not legitimate, by suggesting that BP compensate oil industry workers laid off because of the federal moratorium on deepwater drilling.

The claims of beach resort owners and fishermen are legitimate, since BP’s actions have clearly caused financial harm to these individuals. It is also true that BP’s action led to the deepwater drilling moratorium, which harmed many oil industry workers in the Gulf. However, the moratorium did not arise because of the spill per se, but because the spill revealed that deepwater drilling may not be as safe as we may have originally thought. In a sense, this is the one good thing that we can say about the spill – that it may have lead to actions that will prevent future spills.

To understand this a little bit more clearly consider a hypothetical situation where an explosion in deepwater resulted in a spill that was immediately capped, with very little damage to the environment. Seeing the near disaster, the administration puts a halt on all new deepwater drilling, leading to changes that prevent future disasters. In this case, it is clear that the near disaster had social benefits that outweigh the social costs.

The moratorium following an actual disaster is no different. The moratorium certainly has its costs; however, it was imposed because we learned something from the disaster that suggests, at least to some people in the administration, that the moratorium has benefits that exceed those costs.