Real-Time Economic Analysis and Policy Development during the BP Deepwater Horizon Oil Spill

Article excerpt

The 2010 BP Deepwater Horizon oil spill posed near-term economic risks to the Gulf of Mexico region and raised questions about appropriate policies to mitigate catastrophic oil-spill risks. This Essay reviews the Obama Administration's assessment of the economic vulnerabilities to the spill, the Administration's May 12, 2010, legislative proposal focused on minimizing the adverse economic impacts to workers and small businesses in the Gulf of Mexico, and the effort to secure an agreement with BP to ensure that those harmed by the spill will receive full compensation. Then, the Essay discusses several of the policy reforms advanced by the Administration to reduce the risks of future catastrophic oil spills, including the value of an industry consortium to provide deepwater well-containment resources and the need to remove the arbitrary limit on liability for economic damages from offshore drilling. The Essay closes with a few policy lessons learned from the spill.

I. INTRODUCTION ................................................................ 1795

II. ASSESSING THE OIL SPILL'S ECONOMIC IMPACTS ............. 1797

III. MITIGATING THE OIL SPILL'S ECONOMIC IMPACTS ........... 1801

A. Establishing an Independent Claims Facility and Escrow Account ............................................. 1805

IV. REDUCING THE RISK OF FUTURE OIL SPILLS .................... 1808

A. Containing Future Deepwater Wild Wells ............ 1809

B. Promoting Safer Drilling Through an Improved Liability Regime ................................................... 1812

V. LESSONS LEARNED .......................................................... 1815

I. INTRODUCTION

Late in the evening of April 20, 2010, the Transocean Deepwater Horizon, a mobile drilling rig operating for BP in the Gulf of Mexico's Macondo Prospect, lost control of an exploratory well and suffered a catastrophic blowout. The U.S. Coast Guard immediately dispatched vessels for search and rescue and fire fighting. By early the next morning, as the fire raged on the drilling rig and eleven rig workers remained missing, a senior executive at BP reached out to the White House to inform senior staff of this major accident. On April 22, the drilling rig collapsed and sank nearly a mile to the sea floor resulting in an oil spill that lasted for nearly three months. Soon after an event celebrating Earth Day with environmental leaders on the White House South Lawn, President Obama met with senior administration officials in the Oval Office to discuss the oil spill and the government's response. The President tasked his team to mobilize all necessary government assets to search for the lost rig workers, to contain the spill, and to mitigate the economic and environmental harm from the spill. To complement the operational response, the Administration began to develop measures to mitigate the economic risks posed by the oil spill and to assess policy measures that could reduce the risks of future oil spills.

Over the course of the spring and summer of 2010, the government managed an unprecedented response to the largest oil spill in U.S. history. The U.S. Coast Guard coordinated the multiagency response and directed BP, the responsible party, in mobilizing more than 800 specialized skimmers, 120 aircraft, 8,000 vessels, nearly 50,000 responders, and two drilling rigs to drill relief wells.1 The response included the deployment of nearly four million feet of boom, numerous controlled burns, effective use of dispersants, and the recovery of nearly one million barrels of oil. An ad hoc team of scientists and experts from U.S. government agencies, Department of Energy national laboratories, BP, and the oil and gas industry designed, evaluated, and executed various well-control options. Some of these included a cofferdam, a dome placed above a large leak intended to collect the escaping hydrocarbons; a top kill, where heavy drilling mud is pumped into the top of the well through the choke and kill lines of the blowout preventer; a junk shot, where various material (including golf balls and rubber pieces) are pumped into the bottom of the blowout preventer; and a top hat, a collection device installed atop the severed riser above the blowout preventer. …