Earthday 40.0 Deepwater Edition

In 1969, just after touring the environmental devastation from the oil spill off the coast of Santa Barbara, Senator Gaylord Nelson proposed that every year a day be set aside to celebrate environmental awareness and education, and April 22^nd was chosen as that day.[i] Flash forward to April 22^nd, 2010, the 40^th Earth Day celebration, and the deepest oil well in history is sinking into the Gulf of Mexico, initiating what may end up being the largest oil spill disaster in history. 

The well was capped on July 15th, and on August 4^th scientists reported that approximately 75% of the oil was in a process of degradation. Public talks turned to the liability of British Petroleum (BP). The financial sector had initially estimated the costs of the Deepwater Horizon spill at less than the Exxon Valdez spill in Prince William Sound ($3 billion). This premature estimate was soon recalculated at $8.2 billion and by early August was as high as $41.9 billion dollars.[ii]

Negotiations and analyses surrounding the cost of the spill and liability for these costs, occurring primarily between BP and the federal government, may prove more controversial than the actual spill, especially if they release BP from any further liability, approving single payouts and assigning liability caps before the environmental cost of the disaster can be assessed. Kenneth Feinberg was put in charge of dolling out the $20 billion that had been set aside for paying out damage claims, and though Feinberg has assured the public that more money can be made available if necessary, some believe dollar amounts are being decided prematurely, and science made to serve corporate interests.[iii]

One of the primary factors in determining the cost of clean up after an oil spill is the amount of oil spilled. [iv]  How accurately can cost be assessed if the amount of spilled oil remains unknown? Besides the size of the oil spill, costs of oil combating operations at sea, shore clean up costs, environmental damage costs, and costs of damage to sea-dependent means of livelihood are all estimates that must be made.[v] And somehow the transparency and reliability of this data must be maintained amidst private contracts that stipulate restrictions on data use, dolled out to handpicked scientists by the corporation whose liability is at stake.[vi]

The Deepwater Horizon disaster brings to the forefront the difficulty of assessing damages and risks in environmental disasters, as well as assessing the cost-benefit ratio of industries capable of instigating such disasters. While initial costs and damages of the oil spill might be administrated by Kenneth Feinberg and disbursed to private claimants, other environmental costs will be decided only after years of research and data collection, and chances are these results will be questionable at best. The importance of these data and the conclusions drawn resides not only in personal damage claims but also in the fact that the final numbers assigned to the cost of the disaster will change the overall perceived environmental cost of oil production and consumption.

In an effort to increase the scientific rigor of economic assessment methodology, cost-benefit analysis (CBA) was developed in economics as a basic reduction of human welfare to dollars. The method assumes that a dollar has the same potential in the hands of any individual, and that a dollar equals welfare because it has the potential of increasing welfare. It has since the middle of the twentieth century become an increasingly important aspect of government program legitimization. But CBA has come under criticism as long-term environmental consequences make clear that cost of an action rises relative to the perceived timetable of an action’s consequences. CBA’s of energy production often fail to account for the environmental impact of the rare but real disasters that accompany their use, and often neglect the fact that much of the real cost (and/or benefit) will be incurred by future generations.[vii] Furthermore, statistical research has shown that CBA’s conducted by project promoters often misrepresents actual costs, while other research questions the underlying value assumptions of CBA.[viii] These underlying value assumptions are revealed in times of crises such as the Deepwater Horizon disaster.

A CBA’s value assumptions must be based on transparent collection and dissemination of information to the public, otherwise they are likely to represent not the values of the general public, but those of specific private interests. In terms of environmental disasters, the values of the natural environment vary in quality and magnitude among the public, and so the relative cost varies. At its best, CBA will attempt to represent the greatest consensus regarding these values. At its worst, CBA argues for specific interests utilizing specifically tailored value assumptions.[ix]

Consider the cost of oil. As public perception of the oil spill expands to include the many environmental and socio-economic consequences, the perceived cost of oil rises relative to an unchanged benefit, such that oil becomes a less desirable energy resource compared to other more environmentally sound and less risky energy strategies. This shift in cost/benefit will accurately represent a shift in public values so long as data collection and interpretation remains transparent.

Net Energy Analysis, also known as Energy Returned Over Energy Invested is an alternative to conventional CBA. It attempts to account for the energy surplus that remains after accounting for all the energy required to generate a unit of the energy in question.[x] While the US government and BP discuss the disaster in terms of dollars, energy production is increasingly discussed within a framework that positions the economic system as a subset to the Earth’s ecosystem. This conceptualization, if embraced by the public, means that energy production associated with environmental disasters will have a greater perceived impact in dollars and cents but also in energy expended to contain and recover from the disaster. The more the environmental cost of energy is factored into CBA’s, and the more cost is understood in terms of energy and not just dollars, the less argument there is for the continued use of non-renewable high-risk energy sources.

While Net Energy Analysis may do a better job of assessing environmental impact of energy production, it does little to assess the impact of such disasters on humanity and its fragile relationship with the natural environment. As some of the oldest fisheries in the US are destroyed, the culture and traditions that have developed alongside these natural areas may also be destroyed. The result of this cultural devastation is a loss of tradition and place-based knowledge that otherwise could have been a cornerstone for a sustainable community. This loss cannot be measured with analysis tools, cannot be valued in dollars, and leaves communities more vulnerable to future crises. Cost-Benefit and Net Energy Analysis must be utilized by professionals and presented to the public as tools, as reductive interpretations of a complex system that is more than economic and more than environmental. Accordingly, these tools must not defeat any resilience built into a community’s existing value system, and must not be impaired by special interests or propaganda.

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[i] “The living tradition of Earth Day” http://www.nelsonearthday.net/earth-day/living-tradition.htm Accessed 8/7/10

[ii] BP Oil Spill: Brief History of The Incredible Rising Cost Estimate Matt Phillips WSJ Blogs MarketBeat June 18, 2010, 12:03 PM ET.

[iii] Mr. Fairness THE WEEKEND INTERVIEW AUGUST 7, 2010 The Wall Street Journal KIMBERLEY A. STRASSEL

[iv] #168, 1999 International Oil Spill Conference ESTIMATING CLEANUP COSTS FOR OIL SPILLS

Dagmar Schmidt Etkin Oil Spill Intelligence Report Cutter Information Corp. Arlington, Massachusetts, U.S.

[v] SEVENTH FRAMEWORK PROGRAMME Maritime and logistics co-ordination platform SKEMA Coordination Action “Sustainable Knowledge Platform for the European Maritime and Logistics

Industry”

[vi] “BP's scientific integrity is questioned” By Margot Roosevelt, Los Angeles Times July 31, 2010|7:39 p.m.

[vii] Journal of Policy Analysis and Management, Vol. 9, No. 2, 201-218 (1990) “Who has standing in Cost-Benefit Analysis?” William N. Trumbull

[viii] APA Journal ◆ Summer 2002 ◆ Vol. 68, No. 3. “Underestimating Public Costs in Public Works Projects Error or Lie? Bent Flyvbjerg, Mette Skamris Holm, and Søren Buhl. and Journal of Policy Analysis and Management, Vol. 9, No. 2, 201-218 (1990) “Who has standing in Cost-Benefit Analysis?” William N. Trumbull

[ix] ibid.

[x] What is the Minimum EROI that a Sustainable Society Must Have? Charles A. S. Hall , Stephen Balogh and David J. R. Murphy Energies 2009, 2, 25-47; doi:10.3390/en20100025