Fine? Boycott? Lawsuit? What's the best way to make the company pay for the oil spill?

By Daniel Gross

Posted Wednesday, May 26, 2010, at 6:28 PM ET

The damage from BP's oil spill is mounting. The lucrative tourism business in Florida is suffering. Housing predictor estimates that homes in the path of the leak will lose "at least 30 percent in value as a result of the environmental catastrophe." The thriving seafood industry in the Gulf has largely been shut down. Huge quantities of oil have been wasted. The spill may cause severe long-term damage to sea life in the Gulf, destroy sensitive coastal marshes, and send oil washing up on Atlantic Ocean beaches. And don't forget all the jobs and profits that could have materialized from opening up new areas to offshore drilling—but that likely won't thanks to the spill.



Meanwhile, BP is displaying a frustrating combination of incompetence and insouciance. What with this spill, the explosion in 2005 at an oil refinery in Texas City that killed 15 people, and another spill in the Trans-Alaska pipeline, which it operates, you get the sense that BP is very unlucky or not particularly good at running its operations safely or not particularly interested in the well-being of America's environment.

Which brings us to the $64 billion question: BP should pay—and pay dearly—for the damage. But how much? And, more importantly, how? What should the United States do to BP that would be satisfying, punish the company appropriately, and, most importantly, provide incentives for BP and other oil firms to act with greater care? I've puzzled over this and have come up with a few ideas—none of them very satisfying.


We could tar and feather the senior executives and board of directors. Thanks to BP, there's an ample supply of both tar and feathers—and tarred feathers—in the Gulf. That would be emotionally satisfying and poetically just but won't have a long-term benefit.

Americans could boycott BP's products. A lot of what BP produces is sold to other industrial companies or into commodity markets. But BP does have retail operations—BP and Arco gas stations and AmPm convenience stores. We could punish BP by buying our unleaded gas, beef jerky, and Twix bars from other stores. But retail is only a tiny sliver of BP's business. And a boycott would punish franchisees, small- and midsize-business people who made an innocent decision to align with BP.

We could force BP and its colleagues to prefund the cost of cleaning up their own mess. After the Valdez disaster, Congress created the Oil Spill Liability Trust Fund, a $1 billion pool of cash funded largely by a 5-cent-per-barrel tax. Like the Federal Deposit Insurance Corp. trust fund, this is an insurance policy against the industry's own incompetency. In theory, this fund could be vastly expanded, and, as the FDIC is, be empowered to watch over offshore drillers, conduct inspections, and develop protocols and procedures for cleaning up messes. But as recent events on Wall Street have shown, deposit insurance alone isn't sufficient to ward off industrywide poor behavior.

We could make like Hugo Chavez and nationalize the company (punishment!), and then use its assets and cash flow to pay for the clean-up (remedy!) At today's price, BP has a market capitalization of about $134 billion. But, charges of Obamian socialism to the contrary, the U.S. isn't Venezuela.
We could sue BP into oblivion. It's true that the Oil Pollution Act of 1990 limits liability for economic damages stemming from oil spills to $75 million. But as Walter Olson points out, that limit just applies to assessments to the trust fund. Other parties are free to sue BP for damages. But legal retribution is slow and ultimately depends on the whims of a business-friendly Supreme Court. The $2.5 billion in damages Exxon was ordered to pay to those hurt by the spill of the Exxon Valdez was overturned by the Supreme Court in 2008.

So what would work? The challenge, as I see it, is to devise punishments, or create new incentives, that give BP, its managers, and its shareholders incentives to make sure this sort of thing never happens again.

One approach might be to flip the incentives around. Instead of holding out the stick of lawsuits and fines as a cost for screw-ups, how about giving financial rewards to companies that consistently avoid despoiling the environment? Usually, these incentives are called profits. But for BP, profits alone evidently aren't enough. We could give companies with perfect environmental and safety records a tax break or cash bonus at the end of each year.

I've written recently about the concept of social license—which is essentially a permit to operate your business in our jurisdiction. It's difficult simply to stop companies from doing business in the United States just because we don't like them. Running afoul of regulations is a great American tradition—I'm sure your favorite restaurant has been nailed with health code violations. But perhaps we can take a page from the Department of Motor Vehicles and give companies like BP a formal social license. Every time it gets hit with a violation—an oil spill, leaky pipeline, a fatal refinery accident—the license holder would be docked a few points. Businesses that accumulate several points would be placed on probation—prohibited from expanding, making acquisitions, or getting in on new drilling opportunities—until they prove they can operate safely.

What else could work? I want to hear from you, Slate readers, about other smart, satisfying punishments. All you lawyers, business ethicists, congressional experts, Louisiana residents, tree-huggers, oil executives who don't want to kill the golden goose, libertarians, and liberals: What can we do to BP that A) produces tangible punishment; B) helps ameliorate the problems the spill has created; C) sends a message to the industry; and D) provides incentives for BP and its fellow oil producers to act with greater caution in the future?

A waste of time - whoever is in charge this work is dangerous and should be stopped tomorrow.
Fuel rationing could be introduced till such time as electric and efficient cars are produced in sufficicient numbers and LPG conversions carried .out.

Why should owners of SUV's have the right to impose this damage?

S

Some type of legislation needs to be passed that would force these companies to clean up their messes on their own dime and quickly. I'm not against drilling at all but their needs to be tough oversight and a plan in action for just such a catastrophe as the one that has unfoulded in the Gulf of Mexico. It's not acceptable to allow for the making of contigency plans after the fact.

Its quite unnecessary to drill at all. At these depths anything can happen and will from time to time,
Just another example of the stupidity and idiocy of the US .
Thi would be the best punishment.
People who have carried out extensive research and have huge experience agree LNG can power the US along with increasing use of renewables.
Due, in all probability, to global warming induced by man made means the atlantic is at all time record temperatures -so more hurricanes and storms are exted this season. Its time for the US to invest in green jobs to cut down GHG, oil exploration etc.
S.

Where does LPG gas come from? umm..... maybe you have to drill for natural gas too????

Where does natural gas come from????????????????? My guess is from beneath the ground.

Probably the only realistic solution is nuclear power for electricity and then hybrds, stc.

There are huge reserves of LPG on continental US land. Problems will occur but land based drilling is far more secure.
S.

Things could get even worse with this new development.

22-mile oil plume under Gulf nears rich waters


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AP – This image made from video released by British Petroleum (BP PLC) early Friday morning, May 28, 2010 …

By MATTHEW BROWN and JASON DEAREN, Associated Press Writers – 1 hr 56 mins ago

NEW ORLEANS – A thick, 22-mile plume of oil discovered by researchers off the BP spill site was nearing an underwater canyon, where it could poison the foodchain for sealife in the waters off Florida.

The discovery by researchers on the University of South Florida College of Marine Science's Weatherbird II vessel is the second significant undersea plume reported since the Deepwater Horizon exploded on April 20. The plume is more than 6 miles wide and its presence was reported Thursday.
The cloud was nearing a large underwater canyon whose currents fuel the foodchain in Gulf waters off Florida and could potentially wash the tiny plants and animals that feed larger organisms in a stew of toxic chemicals, another researcher said Friday.

Larry McKinney, executive director of the Harte Research Institute for Gulf of Mexico Studies at Texas A&M University-Corpus Christi, said the DeSoto Canyon off the Florida Panhandle sends nutrient-rich water from the deep sea up to shallower waters.

McKinney said that in a best-case scenario, oil riding the current out of the canyon would rise close enough to the surface to be broken down by sunlight. But if the plume remains relatively intact, it could sweep down the west coast of Florida as a toxic soup as far as the Keys, through what he called some of the most productive parts of the Gulf.

The plume was detected just beneath the surface down to about 3,300 feet, said David Hollander, associate professor of chemical oceanography at USF.

Hollander said the team detected the thickest amount of hydrocarbons, likely from the oil spewing from the blown out well, at about 1,300 feet in the same spot on two separate days this week.

The discovery was important, he said, because it confirmed that the substance found in the water was not naturally occurring and that the plume was at its highest concentration in deeper waters. The researchers will use further testing to determine whether the hydrocarbons they found are the result of dispersants or the emulsification of oil as it traveled away from the well.

The first such plume detected by scientists stretched from the well southwest toward the open sea, but this new undersea oil cloud is headed miles inland into shallower waters where many fish and other species reproduce.

The researchers say they are worried these undersea plumes may be the result of the unprecedented use of chemical dispersants to break up the oil a mile undersea at the site of the leak.

Hollander said the oil they detected has dissolved into the water, and is no longer visible, leading to fears from researchers that the toxicity from the oil and dispersants could pose a big danger to fish larvae and creatures that filter the waters for food.

"There are two elements to it," Hollander said. "The plume reaching waters on the continental shelf could have a toxic effect on fish larvae, and we also may see a long term response as it cascades up the food web."

Dispersants contain surfactants, which are similar to dishwashing soap.
A Louisiana State University researcher who has studied their effects on marine life said that by breaking oil into small particles, surfactants make it easier for fish and other animals to soak up the oil's toxic chemicals. That can impair the animals' immune systems and cause reproductive problems.
"The oil's not at the surface, so it doesn't look so bad, but you have a situation where it's more available to fish," said Kevin Kleinow, a professor in LSU's school of veterinary medicine.

" Well, folks, here’s the latest update. I guess this is good news. B.P. officials say the “top kill” plan is working. The bad news — B.P. officials are a bunch of lying weasels."