Analysis of Environmental and Economic Damages from British Petroleum’s Deepwater Horizon Oil Spill
25 Pages Posted: 5 Aug 2010 Last revised: 27 Apr 2014
This study examines the environmental and economic damages caused by British Petroleum’s Deepwater Horizon oil spill in the spring and summer of 2010. The process of oil exploration and production is extremely challenging, offering significant rewards that are offset by equally significant risks. The world’s demand for energy is constantly growing, thereby leading to extraordinary efforts and gigantic investments by energy companies to find new supplies of oil. The $365 million Deepwater Horizon was an offshore drilling unit designed to operate in waters as deep as 8,000 feet and to drill down 30,000 feet. The Horizon was drilling an exploratory well about 41 miles off the coast of Louisiana, when on April 20 an explosion killed 11 workers and began the release of massive amounts of oil into the Gulf. The well was eventually capped on July 15. Total damages to BP, the environment, and the US gulf coast economy are estimated to be $36.9 billion. The damages are attributed to three major factors: (1) human error and equipment failure at BP’s Deepwater Horizon offshore drilling unit, (2) failure of the US government to assign, and in some cases to permit, resources to assist with the containment of the oil spill, and (3) misinformation disseminated by the news media regarding the amount and location of oil pollution in the water and on the beaches of the Gulf of Mexico.
Keywords: British Petroleum, Deepwater Horizon oil spill, environmental liability, environmental damages, economic analysis
JEL Classification: F23, G34, K32, Q3, Q4
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