Friday, May 28, 2010

What New Legislation will Be Caused by the BP Spill?

In the past, the Congress voted on new risk reduction regulation shortly after environmental disasters took place. What will this recent BP Spill trigger?

Thomas Friedman would vote for a "Patriot Tax" and I agree with him but I don't see the President suggesting a two dollar a gallon tax on gasoline right now.

If we ban drilling on our coastline and if we don't pass carbon legislation, then we will need to import more oil and will remain reliant on some non-democracies to continue to feed us dirty resources.

Will we pursue an electric car agenda to replace our gasoline fleet with electric vehicles? (A Tesla in every garage?). In this case, we need to start thinking about streamlining the permitting and the construction of new power plants and transmission cable. NIMBY lawyers better be ready to be on the defensive.

Perhaps the Congress will enact a law banning oil spills. Now, on this point I do not know how much of an investment BP made in minimizing the probability of a spill and what "fail-safe" checks they built into their system. No process can be risk free but at the margin, how much $ do we want oil companies to pay to lower the risk of disaster? Do they have the right incentives under current torts and public relations challenges to invest in minimizing the probability of disaster? Companies such as BP and Exxon know that they will be sued and pillored in the press and blogs when a spill occurs; how much ex-ante precaution does this trigger?

The unspoken issue here is "out of sight, out of mind". When we import natural resources , we do not think about the safety issues (coal mines) and the environmental issues associated with harvesting those resources, we just buy the final product. When domestic production generates the coal and gas, we see the "dirty work". I thought that we never wanted to know how the sausage is produced.

Switching subjects; calories have become too cheap and now the world has fat cops .