Saturday, May 01, 2010

Environmental Disasters as Regulation Catalysts: The Case of the April 2010 Oil Spill

Back in 2007, I published this classic titled "Environmental disasters as risk regulation catalysts? The role of Bhopal, Chernobyl, Exxon Valdez, Love Canal, and Three Mile Island in shaping U.S. environmental law"

Here is the abstract;

"Unexpected events such as environmental catastrophes capture wide public attention. Soon after five major shocks—Three Mile Island, Love Canal, Bhopal, Chernobyl, and the Exxon Valdez oil spill—Congress voted on new risk regulation. This paper conducts an event study to test whether individual congressional representatives were “shocked” by these environmental disasters into increasing their probability of voting in favor of risk legislation. On average, representatives were less likely to vote in favor of bills tied to these five events. Significant heterogeneity in representatives’ responses to these shocks is documented. Liberal Northeast representatives were most likely to increase their pro-environment voting in the aftermath of these shocks."

So what? Given our new environmental disaster now unfolding near Louisiana's coast, what will Congress be tempted to vote on?

In my 2007 Journal of Risk and Uncertainty paper, I documented an interesting result. Do you remember the Seinfeld episode that focused on the "Upper Hand" in relationships? George was eager to have the "upper hand" on his latest girlfriend to help him have more power in the relationship. In a similar spirit, I document that after environmental disasters such as Chernobyl, more liberal Congressmen propose new legislation related to the recent disaster. This says to me that the Greens in Congress believe that the shock affects the pressure group politics and that the polluters (in the aftermath of the disaster) are on the defensive so this is the right time to try to enact "macho" tough green regulation. This is the reason that voting percentages in favor of legislation do not rise after regulation. The regulation itself is more aggressive in the aftermath of the disaster. So the treatment (the disaster) causes a selection effect concerning what types of bills emerge from Congressional Committees and then are voted on by the entire House.

Turning back to the recent disaster; what effects will it trigger?

1. The "Spill Baby Spill" crowd will use the law of small numbers to highlight the safety consequences of domestic oil production and hint that California's coast will be more likely to suffer if domestic efforts increase there.

2. The nascent electric car industry will lobby for subsidies to accelerate the transition to their use in replacing gasoline vehicles.

3. Will a pro-gas tax contingent in the Congress emerge as they argue that this policy will collect revenue, battle climate change, accelerate the transition to electric vehicles and reduce our desire for off shore oil? Will any Republicans join this coalition?

4. What will the "Drill Baby Drill" crowd push for? Will they point to a "Smart Pump" that can minimize the environmental damage of offshore drilling?

Now after the other disasters, we saw dramatic new regulation --- I'm not showing much imagination here but could someone in the Congress propose something extreme such as No gas use on thursdays?