The oil spill in the Gulf of Mexico threatens to do as much damage to U.S. energy policy as it has to the environment. Obama’s weeks-old executive order allowing for limited coastal exploration — which we never considered a sure thing — has been stayed and will probably be rescinded. There will be budgetary considerations as federal dollars are used to clean up the Gulf. And there will be legal concerns: What kind of responsibility do BP and Transocean bear?
The answers to the policy questions will depend on the extent of the damage and on the most important factual question: How did this happen? Others already have observed, correctly, that the risks involved in drilling off the coast of the United States are small in proportion to those involved in shipping oil across the ocean or drilling off the coasts of countries that do not treat safety and environmental standards with our own degree of care.
Oil remains the most cost-effective source of transportation fuel we have; as long as our economy is thriving, we will need to produce or import a lot of it. Global-warming alarmists and zealous proponents of alternative energy have already made the BP spill the new Exhibit A in their case against fossil fuels. In evaluating their claims, we should be mindful of the economic and environmental costs of the spill relative to those associated with their preferred alternatives.
Consider the cost of cap-and-trade legislation, for instance. It’s hard to know what the economic damages of this spill will be, but even if they exceed the estimated $7 billion that it cost to clean up the Exxon Valdez spill, that would still be a far cry from the estimated $161 billion annual hit to GDP that would result from enactment of the Waxman-Markey cap-and-trade bill. On the environmental side of the ledger, will the damages from this spill outweigh the thousands of birds killed in wind turbines each year? Possibly. How about the slashing and burning of thousands of acres of rain forest that come as a result of ethanol subsidies? We doubt it.
It should also be noted that the rig in question was built to drill at depths of over a mile. Deep-water drilling is a newer technology, and this episode demonstrates that we still have a lot to learn about the associated risks. BP and Transocean will be saddled with enormous costs in the wake of this disaster, and investors in these rigs will think twice before putting money into similar projects in the future. In other words, the market will act as a check on deep-water exploration practices. At this time, it is not obvious that any new regulation would serve any purpose other than to let politicians claim that they’ve “done something” in response to the accident. As usual, overreaction is a significant danger: The reaction to Three Mile Island set the development of safe and clean nuclear power back for a generation.
As for the administration’s now-it’s-lifted, now-it’s-not drilling ban, most of the exploration and drilling that would take place if Obama actually followed through would be located in shallower coastal waters. The safety record of shallow-water drilling remains very impressive, and this deep-water calamity neither tarnishes that record nor indicates that it couldn’t be duplicated if Obama opened more of the coastline to exploration. In any case, the president’s moratorium on new drilling is a self-defeating proposition: New rigs will take years to construct and to begin production; their safeguards will incorporate whatever lessons we learn from the investigation of this catastrophe. If there is any present danger of further damage, it comes from existing operations, which the president, who has good political reasons to dread a spike in the price of oil, does not at the moment propose to restrict.
A word on conspiracy theories: It is unfortunate that the timing of this event, coming so soon after the administration’s drilling order, has led some commentators (of varying degrees of seriousness) to entertain some outlandish scenarios. The environmental movement did not sabotage the rig to further its agenda, nor did Big Oil do it to create artificial scarcity in the market for crude. Disasters happen, and this is one.
But it is not one that should not reorder our thinking when it comes to energy production. “Drill, baby, drill,” has lost whatever usefulness it may have had as a slogan, but offshore drilling remains a crucial source of energy — and clearing obstacles to future exploration is still part of the right policy mix.