A Regulatory Wakeup Call: Lessons from BP's Deepwater Horizon Disaster
44 Pages Posted: 19 Jul 2011
Date Written: July 18, 2011
Learning from BP's disastrous oil spill in the Gulf of Mexico means understanding why extraction technology innovations flourished while cleanup and prevention technologies stagnated. Only then can we fruitfully identify the kinds of changes to the governance regime that might prevent this sort of tragedy going forward. In learning from the BP disaster, there are two levels at which to understand what happened, and two kinds of lessons to draw: straightforward and complex. The straightforward lesson focuses on BP as a distinct entity, emphasizing the company’s culpability for its poor safety decisions at the Macondo well and elsewhere. The complex lesson does not deny BP’s culpability but seeks to situate the company’s private actions within a broader regulatory context in order to identify systemic failures that contributed to the disaster. This essay delves into both sets of lessons, concentrating more on the “complex” explanation in order to surface gaps in the statutory scheme and conflicts in agency incentives.
Part I begins with a retrospective of the scope and scale of the worst environmental crisis in U.S. history. It then explores the simple explanation for the disaster, situating BP’s environmental and safety record against industry norms and practices, and contrasting BP’s actions with the corporate ethos described in their “beyond petroleum” ad campaign. Part II focuses on the complex explanation, identifying some of the regulatory dysfunctions that contributed to the disaster. While acknowledging that poor private decisionmaking was the central and primary cause of the Macondo blowout, this Part focuses on the regulatory and institutional structures that allowed the situation to unfold in order to identify the points at which different regulatory choices might have fruitfully constrained or redirected private activities. It sketches out a widespread regulatory failure. In particular, this Part focuses on the Outer Continental Shelf Lands Act (OCSLA) permitting process, and the National Environmental Policy Act (NEPA) environmental analyses that are supposed to be required by that process. It details how structural aspects of the OCSLA, as well as cultural norms within the agency and regulated community, virtually assured that these processes would dwindle into mere paper-pushing exercises. Further, it suggests that these flaws had been obvious to critics for some time, in many ways making BP’s Gulf Oil Spill a wholly predictable disaster. The essay concludes by identifying some overarching structural inadequacies in regulatory oversight of private risk management decisions in order to understand why deepwater extraction technology innovations flourished while cleanup and prevention technologies stagnated.
Keywords: Deepwater Horizon, oil spill, BP, Gulf of Mexico, risk, regulation, MMS, offshore drilling, oil, energy, trust, uncertainty, technology, expertise, Macondo, deepwater
JEL Classification: D21, D70, D80, H10, H11, K20, K32, L50, L71
Suggested Citation: Suggested Citation