7 June, 2010Issue 12.4Politics & Society

Email This Article Print This Article

A Murky Horizon

Joel Krupa

© Penguin Books Ltd.

BP is fast becoming the acronym that needs no introduction. For anyone with even a passing interest in current global affairs, no company in recent memory has dominated the newsstands and online op-eds in quite the same way as the London-based energy giant. A brand name that once proclaimed its synonymy with “Beyond Petroleum” is quickly losing its already tenuous environmental credibility as the April 20th offshore oil rig explosion systematically works its way through the Gulf of Mexico and the rest of the ocean. The spill is now being picked up by complex ocean currents and threatening not only some of America’s most prized coastline, but also vulnerable ocean ecosystems and biodiversity around the world.

BP CEO Tony Hayward has weathered the majority of the criticism to date, albeit with the occasional maladroit remark (“what the hell did we do to deserve this?” comes immediately to mind). Many analysts have praised his poise and composure under fire. Nevertheless, all of his eloquence may not be enough to avoid igniting a mini-revolution. Judging from recent comments by the BP Chairman Carl-Henric Svanberg, BP will likely be paying out a multi-billion dollar dividend to all shareholders. Such a move is likely to exacerbate severe tensions with outraged Americans, still burning from the jingoistic wealth transfers of the 2007-2008 bank bailouts and mortgage-backed securities crisis, who are unsure about the extent of the spill’s effects and the long-term implications for America’s food supply, tourism industry, and environmental quality.

BP, however, is in a bit of a bind. It is coming under fire from investors—from large institutional bodies like the Norwegian sovereign wealth fund to everyday British retirees—realising substantial losses in their stock price, epitomised in the 30% slump that followed the recent announcement that the leak will likely not be fully resolved until at least August. Moreover, after initially distancing itself from the contractor managing the spill, BP has promised to fully compensate all affected groups, exposing itself to untold and potentially indefinite liabilities and promising further undulations in share value.

If the spill was unexpected, it was not altogether surprising. As a company that lauds itself for exemplary safety performance, audit processes, and contributions to the growing low-carbon energy sector, BP has an unremarkable track record. In fact, this is not its first recent case of major corporate neglect. A 2005 BP oil refinery fire in Texas City killed 15 workers and seriously injured dozens more, with subsequent reports proving gross miscalculations in process safety and hazard analysis. Incredibly, subsequent safety failures were reported at the same refinery, including further casualties. Not surprisingly, rumours abound about the safety shortcuts taken on the Deepwater Horizon rig.

Many political analysts are ruminating over how these events will affect the political career of President Obama. Populist rage is growing, fueled by a steady stream of images of ravaged beaches, oily brown pelicans, ravaged coral reefs. A recent editorial in the New York Times speculated about the linkages that could be created with other crises, arguing that this event might be the defining moment in Obama’s administration. Will this be Obama’s “Bush during 9/11” moment, in which he unites a country and retains, and perhaps delivers on, his promise of believable change? Or will he be the scapegoat—a lame duck one-term president who for all his promise could not deal with the most pressing issues of the day and confront entrenched corporate interests?

Despite Obama’s less-than-prescient decision in April 2010 to substantially reopen offshore drilling in the United States (currently indefinitely suspended), his admirable unwillingness to engage in the “drill, baby, drill” mantra of the Republicans and persistent refusal to allow access to the pristine Arctic National Wildlife Refuge have helped keep off many potential critics so far. At recent press conferences, Obama has retained much of the cool and calm intellectual analysis for which he is best known; but this characterisation might end up undermining his perceived ability to take charge of a potentially catastrophic situation. His critiques of the tight industry-government relationship and the energy status quo, designed to convey genuine anger and frustration, are beginning to sound rehearsed and unconvincing in the face of mounting public fear and the spread of oil to previously unaffected areas.

It goes without saying that environmental disasters are not foreign to natural resource extraction industries like oil and, despite well-written energy-backed reports that argue the contrary, are expected to occur from time to time. The most famous example prior to the BP incident was the 1989 Exxon Valdez spill in Alaska, a preventable incident that jolted the US Congress into setting up an oil-financed spill liability trust fund. Fewer people remember a disturbingly similar 1979 spill in Mexico that was significantly bigger (emptying millions of barrels into the Gulf of Mexico), as well as the obliteration of Kuwaiti ecosystems after Saddam Hussein’s thugs released and burnt billions of gallons of oil after the Persian Gulf War; and fewer still are likely aware of Texaco’s (now part of Chevron) role in polluting a vast swath of Ecuadorian rain forest.

So what can be done to combat these injustices? The most obvious move is a shift toward large-scale investment in clean technology and energy efficiency, a repositioning that will require massive private sector capital flows into largely unknown territory. The challenges are significant, as governments are coping with the embedded technologies of yesteryear—coal, oil, and gas—and the deep pockets of their propagators. Government officials will need to send strong regulatory signals and develop attractive investment packages to ensure that the necessary infrastructural and energy policy frameworks are in place, as there is still no broadly accepted consensus on a one-size-fits-all policy for economies around the world. Furthermore, the requirements of emerging economies will need to be addressed. A recent study commissioned by the Renewable Energy and Efficiency Partnership argues that the BASIC countries (Brazil, South Africa, India, and China) all need to provide further detail for their existing, relatively progressive alternative energy policies if the requisite private sector investment flows are to occur in a timely manner.

Second, corporations will need to undergo fundamental changes in their managerial structures and incentives. A culture of quarterly reports and lavish bonuses encourages not only the shifty accounting measures and financial metrics of the Enrons and WorldComs of the world—it also leads to shortcuts in safety and environmental standards. Of course, the opportunities for reform may be limited. A recent survey of corporate executives showed that “short-term earnings” were the most important trend for corporate strategic focus, far outweighing employee safety and environmental responsibility—a troubling recurring theme in the big business community as a whole.

Third, governments will need to advocate for substantial improvements in corporate environmental disclosure. Professor Mitchell Crusto of the College of Law at Loyola University, New Orleans contends that corporate environmental disclosure needs to include three major components: an investor focus that allows shareholders to adequately assess risk, an economic focus that allows a business to fully account for the costs of environmental liabilities, and, most importantly, a human rights focus that ensures that high levels of human safety, health, and well-being are maintained. In a resource-constrained world, corporate environmental disclosure cannot be driven only by clever marketing campaigns, voluntary glossy promotional materials, and the minimum obligations imposed by federal securities acts and environmental compliance statutes. Instead, corporate disclosure policy must harness both market-based and command-and-control policy mechanisms to ensure that the needs of business, the state, and communities are realised, while ensuring that any reform is stringent enough without encouraging a mass exodus into less regulated business areas. Such a movement has strong backing from activist institutional investors like the aforementioned Norwegian sovereign wealth fund. Groups such as the non-profit Carbon Disclosure Project, which represents investors with combined assets over $20 trillion, are spearheading the push for reporting of greenhouse gas emissions figures and other environmental outputs from large publicly traded companies.

A fourth (and controversial) option has been debated in legal journals for decades and implemented in varying degrees in countries around the world. It could be possible to adopt a court-appointed steward for different natural areas that can “speak” on their behalf in the same spirit that those deemed incompetent or endangered are awarded a protective guardian. Under such a scenario, a group like Friends of the Earth could intervene in the event of an environmental injustice by appealing to a public administrative body that will consider the injury and possible relief. A natural object would then be able to seek redress, as it were, on its own behalf, overcoming present legal difficulties ranging from standing constraints to deciding the appropriate beneficiaries of favorable judgments. Of course, the legal and political implications of such a development are immense, and cannot be addressed here; suffice it to say that such a proposal might act as both a deterrent against events such as this, and a means of determining recourse and liability in the event of their occurrence.

Regardless of the chosen course of action, this crisis will be remembered for evoking political, economic, and technical questions about how society deals with nature, meets the energy needs of a growing population, and the effects of searching for energy in unconventional locations. There are the obvious questions of the technical feasibility of drilling in areas where we cannot easily arrest explosions, the economic feasibility of new unconventional energy supplies with even larger environmental impacts (such as the enormous Arctic oil reserves), and the political practicability of raising energy prices and levying stiffer taxes on the multi-trillion dollar global energy industry.

But there are also the profound philosophical and moral dilemmas that inevitably arise. How will BP repay all affected parties adequately and fully—including marginalised communities and impoverished individuals that rely on the Gulf of Mexico for their livelihoods? How can we quantify the value of the ecosystem of the Gulf and neighbouring natural areas that are now damaged or lost? More broadly, is it truly ethical to continue to rely on antiquated energy systems when the necessary technology is available, albeit at higher prices than conventional supplies? There is much to learn from this disaster; hopefully, we will be able to answer the questions and apply the lessons before another disaster strikes.

Joel Krupa is reading for an MSc in Environmental Policy at Mansfield College, Oxford.