I burned one of my freebies on this one, I should at least get a blog post out of it:
BP will provide $1 billion for early oil spill restoration efforts in the Gulf of Mexico in a voluntary agreement with the federal government and five states, company and government officials announced on Thursday.
The agreement, the largest of its kind in an oil pollution case, does not absolve BP of legal liability for the explosion and spill that occurred April 20, 2010, or from the costs of any additional economic and environmental damages. The company faces fines and penalties of as much as $21 billion as a result of the disaster, the worst offshore drilling accident in United States history. The company could face additional penalties under a Justice Department criminal and civil investigation.
The advance payment, to be divided among the states and the two lead federal agencies overseeing restoration efforts, will be used to rebuild coastal marshes, replenish damaged beaches, conserve ocean habitat and restore barrier islands.
The $1 billion does not represent the governments’ estimate of the ultimate environmental cost of the explosion and spill, which poured nearly five million barrels of oil into the gulf over 87 days last year. Federal and state officials are conducting a review known as a natural resource damage assessment to measure the injury to the gulf habitat and devise a plan for restoring it, a process that generally takes years. Any restoration efforts financed by the $1 billion will count toward the company’s final liability, officials said.
Title: Effects of information about invasive species on risk perception and seafood demand by gender and race
Authors:Timothy C. Haab, John C. Whitehead, George R. Parsons and Jammie Price
Abstract: In this paper we consider the effects of negative and positive risk information on perceived seafood risks and seafood consumption by gender and race. The data is from a Mid-Atlantic survey of coastal seafood consumers. We elicit risk perceptions in three risk scenarios with a dichotomous choice with a follow-up question format. We elicit continuous revealed and stated preference seafood consumption in nine risk and price scenarios. Analysis in four gender and race categories indicates that demographic groups respond to the positive and negative information in different ways. Communication of risk information as risk mitigation policy is a challenge.
Gulf Coast states are gearing up to follow shrimpers and hotel owners in seeking payouts from BP PLC for lost revenue and other damages stemming from the Gulf of Mexico oil spill.
The demands could far exceed the $305 million BP has already given the states of Louisiana, Mississippi, Alabama and Florida to help pay cleanup costs, promote tourism and begin building sand berms off the coast of Louisiana, state officials say. Lawyers advising the states said they would eventually seek multi-billion dollar payouts, but it was still too early to give a tally.
BP declined to comment on the states' legal strategies. The British oil company agreed nearly two weeks ago to honor claims for damages and lost business revenue from individuals and businesses through a $20 billion, independent compensation fund administered by Kenneth Feinberg, the Washington, D.C.,-based lawyer and arbitration expert.
The fund is also meant to cover payments for states and localities to defray cleanup costs, but not necessarily claims for the larger economic damages that Florida and the other states plan to present directly to BP, the state's representatives said.
My initial impression was that the $20 billion would cover economic damages over and above cleanup costs. If the $20 billion is for cleanup costs and the states are going after more over and above that (no surprise, I guess), the final bill could be mind-blowing.
... Mississippi Attorney General Jim Hood has sought advice from state
university researchers, economists and lawyers to assess the
environmental and economic damage the spill has caused to the state.
I bet it is a real feeding frenzy at the Gulf coast land grant schools.
I think not. Negotiations amongst business firms and/or governments will only end up in the courts, so this seems like good public policy (US to demand BP fund):
The Obama administration, facing growing public anger over the Gulf of Mexico oil spill, plans to ask BP PLC to establish an independently administered fund for reimbursing victims—in effect, taking some of the compensation decisions out of the company's hands. ...
White House officials on Sunday said they wanted BP to put "substantial" funds into an escrow account to cover claims by Gulf Coast businesses and residents affected by the spill. ...
The call was echoed by congressional leaders and state officials. In a June 10 letter to BP released on Sunday, Senate Majority Leader Harry Reid (D., Nev.) and other Democrats asked BP to establish a $20 billion account, administered by an independent trustee, that would be used to pay the damages and clean-up costs associated with the spill. ...
Such a fund would provide a measure of security, proponents argue, for people concerned BP might file for bankruptcy protection or otherwise stop paying claims at some point in the future. It also has the potential to give the government or its designees control of distributing a significant pool of relief money. ...
While not opposed to the idea of the fund, BP objects to the implication that if it isn't required to set money aside, it might try to avoid paying it in full, according to a person familiar with the company's position. BP insists it has the financial muscle to settle the final bill for the clean-up, as well as pay its dividend.
BP's hurt feelings aside, how about an ex-ante fund increasing in magnitude for each offshore well across the industry? If the total amount needed is $20 billion and there are about 4000 wells in the Gulf of Mexico, then each well would require a $5 million contribution. The fee for new deepwater wells could be set at $75 million.
Lawmakers hope to erase a cap on damages
that the state could collect from BP before an oil slick arrives at the
A state House committee
approved a bill Thursday that wipes out a limit on damages the state
could collect from an oil spill. Currently the state's cap mirrors a
federal limit of $75 million. That cap was set for North Carolina in
1989 after the Exxon Valdez oil spill in Alaska.
would apply to all spills of oil or hazardous materials in the state's
waters, but the backers specifically aimed it at the oil gushing in the
Gulf of Mexico, said Rep. Pricey Harrison, a Greensboro Democrat and one
of the primary sponsors.
The bill has hurdles to clear before the
full House and Senate vote on the proposal. Along the way, opponents
will argue that unlimited liability on oil companies would force
businesses to leave or avoid the state. The bill could not only affect
the potential for offshore drilling but also any business that has a gas
or oil storage tank or a company that hauls fuel or oil, said Bill
Weatherspoon, executive director of the N.C. Petroleum Council, an arm
of a national industry group.
Unlimited liability would create an
impossible choice for businesses across the state, he said.
do you do? Do you stay in business and gamble every day, or do you find
an insurance policy that will cost you through the teeth to cover you
for some unlimited number?" he said. "The legislature needs to take it
slow and easy on something like this and make sure they understand the
law of unintended consequences."
David Leonhardt considers the benefits and costs of oil spill prevention and climate change (Spillonomics):
... The people running BP did a dreadful job of estimating the true chances of events that seemed unlikely — and may even have been unlikely — but that would bring enormous costs.
... For all the criticism BP executives may deserve, they are far from the only people to struggle with such low-probability, high-cost events. Nearly everyone does. “These are precisely the kinds of events that are hard for us as humans to get our hands around and react to rationally,” Robert N. Stavins, an environmental economist at Harvard, says. We make two basic — and opposite — types of mistakes. When an event is difficult to imagine, we tend to underestimate its likelihood. This is the proverbial black swan. Most of the people running Deepwater Horizon probably never had a rig explode on them. So they assumed it would not happen, at least not to them.
... When the stakes are high enough, it falls to government to help its citizens avoid these entirely human errors. The market, left to its own devices, often cannot do so. Yet in the case of Deepwater Horizon, government policy actually went the other way. It encouraged BP to underestimate the odds of a catastrophe.
In a little-noticed provision in a 1990 law passed after the Exxon Valdez spill, Congress capped a spiller’s liability over and above cleanup costs at $75 million for a rig spill. Even if the economic damages — to tourism, fishing and the like — stretch into the billions, the responsible party is on the hook for only $75 million. (In this instance, BP has agreed to waive the cap for claims it deems legitimate.) Michael Greenstone, an M.I.T. economist who runs the Hamilton Project in Washington, says the law fundamentally distorts a company’s decision making. Without
the cap, executives would have to weigh the possible revenue from a
well against the cost of drilling there and the risk of damage. With the
cap, they can largely ignore the potential damage beyond cleanup costs.
So they end up drilling wells even in places where the damage can be
horrific, like close to a shoreline. To put it another way, human
frailty helped BP’s executives underestimate the chance of a
low-probability, high-cost event. Federal law helped them underestimate
I should know this, but how did that $75 million cap come about? It seems like a silly thing to add in, even ex-ante.
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