I
refer to him as "bubble boy" because in the conservative dream world he
continues to seek refuge in, he did a heck of a job during Katrina. How
tone deaf and offensive; I wish the locals booed and egged him all the
way to Louis Armstrong Airport. Of course he didn't visit the Superdome,
Lower 9th, or his other "greatest hits". He didn't take press questions
either. Maybe he still doesn't have a good answer for, "Did you make
any mistakes during your presidency?"
What's
next, he visits Baghdad as the conquering hero? I'm sure ISIS
commanders would be happy to host him. Total a-hole. For the 5th anniv.
of the Deepwater Horizons disaster this year, even BP leaders weren't
dumb enough to visit the shrimping villages, not expecting the victims
to shower them with appreciation for all their "restoration" work.
Showing posts with label oil. Show all posts
Showing posts with label oil. Show all posts
Friday, August 28, 2015
Thursday, January 9, 2014
The US will soon be the number one energy producer, but is it worth it?
This is mostly driven by fracking and the growing global demand for energy keeping fracking economical. I am not insinuating causation here, but it's probably not coincidence that the top energy producing nations are all corrupt, repressive, wealth imbalanced, polluted, and economically dysfunctional outside of the energy sector. Therefore, I am not sure we should want the US to go down the same path. The notable exceptions are Canada and Norway, but they benefit from strong public institutions and more balanced economies. In our post-Citizens United, underfunded-EPA, too-big-to-fail corporate reality, I just hope we don't resemble Nigeria or Russia too much.
We've already discussed all the potential reasons that fracking is an environmental risk, but what about the economic upside? Some in the industry would claim that the fracking boom vaulted the US out of recession. It's undeniable that more jobs, corporate profits, and taxes were generated, but enough to have a material overall GDP impact? Business Insider and W Post are not sure (see below). The boom has triggered the market price of gas and electricity to go down a lot, but energy is a small fraction of modern industrial costs (compared to labor and raw materials), so it's not like the lower prices led to much higher profits or cheaper products for consumers. Also, the oil & gas industry is fairly automated with low labor participation relative to capital investment. So there weren't that many new jobs created, and even in drill-baby-drill Texas, only 6.5% of jobs are in energy (and 1% nationally). So even if the industry doubles in size (and you believe the API's claim that for every 1 new petro-job created, 2.7 other indirect jobs are too), it's not enough to make up for the 7M-plus jobs lost during the Great R. But what about GDP growth? Well, oil & gas is only 2.5% of our economy (it's a commodity after all), and of the 7.6% GDP growth the US experienced since 2009, only 0.6% can be attributed to the "energy boom" according to Capital Economics.
Therefore, is all the environmental risk worth these meager benefits? As we've discussed before, just because it is economically justified at present to do something doesn't mean it's the best available course of action long-term. And in many cases, once we commit down a path, we can't undo it later. We can always drill in the future after more testing is done and if national needs dictate. But if we drill now (chasing short-term bucks and jobs, however small), we can never revert to "the way it used to be" if we discover that we made a mistake.
Tuesday, July 19, 2011
The economic inefficiencies of our energy policies
Environmental economics helps to inform policy decisions to increase "fairness" and "sustainability". Fair, sustainable decisions should not leave future generations worse off than we, in terms of aggregate natural and man-made capital available. Carbon trading operates on this principle. Although company X is polluting in the present and thereby hurting the future, it can become more sustainable by offsetting its damage with conservation/research outlays that benefit the future. So the general strategy is to find policies that satisfy sustainability criteria, and of those choices implement the ones with the highest dynamic efficiency. Of course the strictest sustainability criterion mandates that we should preserve the natural world exactly as it is for the future, so that our consumption is limited by the replenishment rate of the resource (forest, fishery, etc.). But that is a hard sell these days, and of course impossible for non-renewable resources like minerals and fossil fuels. Peak oil is probably behind us and the discovery/creation of new deposits is greatly outpaced by our consumption rate. If we can't leave our progeny the same abundance of fossil fuels as we enjoy now, at least our energy use should create profits that can become capital set aside to compensate the future. Alaska basically does this and pays its residents yearly dividends from its "permanent fund" (but really all of it should be off limits).
Republicans and some Democrats pre-BP spill were advocating "drill baby drill" to solve our energy problems. But from a fairness standpoint you can see that makes no sense (we're just leaving less oil for the future). And since domestic oil generally has higher costs of production (labor, regulatory compliance, insurance), we're retaining less profit, even if we were nice enough to set it aside for the future. Plus there's not much left to tap. "Easy oil" has already been exploited in the US, so untapped deposits entail a lot of risk and cost. Deep-water drilling blowouts, arctic pipeline leaks, and water pollution from natural gas fracking are not just hypothetical dangers, but we've witnessed them with horror. Even though the environmental costs of production aren't really included in the retail price of energy, exploration in hard-to-access locations is already super expensive. It's only cost-justified when the demand for oil pushes the market price above $70/barrel like it is today.
The booming tar sands industry in northern Canada and elsewhere is a consequence of this. If you're not familiar: building-size earth movers (that consume a lot of fuel as you can imagine) dig up tons and tons of dirt, transport it to giant boilers that heat up the sludge and separate the usable fuel from the sand. And all this takes place at the top of the world, so there are a lot of costs associated with moving equipment and people up there, keeping them warm and sane, and pumping the fuel back to civilization. Beyond the environmental damage and infrastructure concerns, it also costs about 3 gallons of cleaner natural gas to make 1 gallon of dirty oil from tar sands. Even a child could see that something is amiss with that paradigm. But just because the market says this transaction makes sense doesn't mean we should accept it at face value.
Speaking of natural gas, it's not a panacea either. Since methane is gaseous at normal temperatures, high-pressure transportation and storage is challenging. In order to be cost-effective, it has to be super-cooled to -259 F for international tanker transport. Although we've been lucky so far, LNG facilities are an attractive terrorism target, as an LNG fire is much hotter and harder to contain than an oil fire. Also, methane is much more potent than CO2 for greenhouse effect.
But shouldn't we drill more at home to reduce our dependence on imports? Only if it will make us better off, and it usually doesn't. It's just easier to buy foreign oil - that's why we still do it despite the risks. Yes our money goes to people who may not like us very much, but it's hard to quantify how much actual damage that is causing. What about Middle East terrorism? We are implicitly paying a "security premium" for foreign oil. Some of that is our taxes to fund the US Navy that is mostly in charge of keeping the sea lanes safe for tankers and other vessels. Other monies are allocated to maintain the Strategic Petroleum Reserve: a billion barrels of oil stored in caves in the South in case of embargoes or other supply disruptions. And of course there are the oil wars and support to oil dictatorships. The security premium is good in that it lowers consumption and makes domestic supply more attractive, but the bitter truth is the premium is more efficient than trying to be energy independent (that would require a major US economic downsizing). So we have to live with OPEC and volatile imports, but how can we reduce our pain? Conservation always helps, but it won't fix the problem because of the oil we still need to use, much of it will be foreign. In addition, the government can impose tariffs equal to the security premium. The revenues collected could fund alternative energy research and pollution control. But tariffs piss people off (people we depend on), so DC would prefer to subsidize domestic suppliers (but that won't make oil any cheaper to consumers).
Price controls are a touchy issue too. We know that the middle and lower classes are getting squeezed by higher energy prices, and we don't want people to lose their jobs because they can't commute or die because they can't afford to keep the heater/AC on. It isn't humane if some people are priced out of access to energy. Of course OPEC and other local monopolies reduce supply in order to capture more "economic rent" or resource royalties. But when the gov't holds commodity prices below their market price, it causes consumption to increase, which exacerbates climate change, hurts the future more than it helps the present, and makes it harder for alternative energy to gain market share. If price controls are in place long-term, consumption will be so high that all the cheap gas will be used up until the extraction costs of harder sources equal the price cap. Then producers have no incentive to sell gas. And even though prices are forced lower, during shortages there's no guarantee that poorer people will get access to fuel. Subsidies make a lot more economic sense. Let prices rise to the market rate, but compensate the poor so that they can afford it.
Price controls also create perverse incentives for suppliers. Politicians may cap prices to look good in an election year, but if producers know the cap will expire next year, they may cut back supply to make more money in the future. So we'd have over-consumption plus supply shortage. This happened with natural gas in the US in the 1970s. For some reason, the gov't put price caps on interstate gas purchases but not intrastate. So suppliers preferred to sell locally, which totally screwed people in gas-poor states.
And then there's the whole issue of energy deregulation. Traditionally, utilities were regulated monopolies where gov't would set price, but suppliers were obligated to service all customers in an exclusive area. But in 1992, Congress decided to let suppliers sell electricity on open markets, and lower prices to compete for customers. Well, that was the plan at least. If price leadership is key, firms have incentive to cut safety corners and use the dirtiest inputs to provide the cheapest watts. Dysfunctional California joined the party in 1995 since the state was paying power rates about 50% higher than US average. But a perfect storm ensued to cripple the state. Drought reduced hydroelectric productivity and many fossil fuel plants were due for scheduled maintenance shutdowns. This boosted wholesale costs, but suppliers couldn't pass them onto consumers due to a price cap that was law. So rolling blackouts ensued, and some firms like Enron affiliates (famously)
Even China knows that coal is literally a dead-end, but how about nuclear? If the energy market functioned properly, nuclear power would never exist. Besides the yearly tax breaks, gov'ts had to offer huge assistance to promote plant construction, because if suppliers had to absorb the real costs of nuclear accident risk and waste disposal, there would be no takers. We passed the Price-Anderson Act in 1957 to cap liability damages at $560M for a nuclear disaster (and the taxpayer would cover 90% of that, though not sure if those are 1957 or 2011 dollars). It was supposed to expire in a decade (by that time nuclear plants were supposed to figure out safety so that accident risk was a nonfactor), but it hasn't. The gov't share has fortunately shrunk, and now private insurance covers the difference.
Like other insurance, plants pay premiums into a big accident fund, but in this case the sick pay as much as the healthy. Plants with great safety records and top-of-the-line equipment don't get rate discounts, so there's no incentive to provide sufficient safety. But no one wants another Chernobyl, right? Well economically speaking, it makes no difference for nuclear firms. Due to gov't and insurance risk underwriting, they are no worse off if they wet the bed. And I'm not sure how much responsibility companies bear for waste disposal (my guess is not much, otherwise they wouldn't be in business). How scary is that? Sure I believe they still have a conscience and don't want to take the PR hit from an accident, but it concerns me that negligence can't really be punished financially. As we've already discussed, the NRC that oversees nuclear facilities is underfunded and bullied by Congress to back off the plant operators. A fair alternative would be to tax the nuclear firms to compensate those affected by nuclear power issues. France already forces plants to sell cheaper power to those living nearby, and the same should be done for those living near waste disposal sites, in order to make up for lost property values and potential risks. Then future residents can decide whether those incentives make it worthwhile to live there. But after Fukushima, I think nuclear won't be experiencing growth for at least a generation.
To close, energy use is a double-edged sword. Low or high prices are both good and bad for the environment. Low market prices increase consumption (and pollution), but will cause us to deplete our resources faster and transition to sustainable renewable energy. But this will exacerbate scarcity conflicts, force us into riskier exploration before the tech is ready, and probably make the energy transition more traumatic. High market prices will reduce consumption and conserve more resources for future peoples (who can hopefully extract the remaining energy more safely and efficiently), but most of the profits will go to OPEC and other suppliers. High prices will also make alternative fuels more attractive and stimulate research. And of course if energy prices truly reflected social and environmental costs of use ($100-200B/year in the US according to the author), they would be much more expensive ($10/gallon for gas). I am not sure which scenario I am rooting for, but higher prices seem probable. Any way it goes, fossil fuels will dwindle until the remaining supplies are as expensive to extract as renewable alternatives (hopefully by then hydrogen and clean electricity will be viable for vehicles). But if we plan intelligently, we'll be ready that day for a smooth transition instead of furiously struggling to cope.
Monday, August 30, 2010
Why nuclear power won't save us from climate change and oil addiction
http://en.wikipedia.org/wiki/
Maybe you were like me and assumed that expanded nuclear fission power could help humanity wean itself off fossil fuel derived electricity, and reduce greenhouse gas emissions. As of 2009, it supplied 20% of all US electricity, which is greater than all renewable sources combined. It seems like a perfectly "clean" technology: radioisotopes react in a controlled manner, creating heat that evaporates industrial water into steam that turns giant turbines, which powers our homes, businesses, and eventually cars too. The only major waste produced is heat and water. There are plenty of pro-nuclear "data" and persuasive marketing out there (http://www.world-nuclear.org/
Apart from the obvious and still legitimate concerns for plant accidents and waste disposal, nuclear power is a lot dirtier and inefficient than the industry and their political allies would admit, because we have to take the entire "nuclear fuel cycle" into account. First of all, as anyone following the Iranian uranium enrichment saga would know, fuel-grade material doesn't magically seep out of the ground like oil (and even oil must be refined before it is more useful). Uranium and plutonium isotopes have to be processed, concentrated, and separated from non-fissile material in a huge series of centrifuges, which of course requires lots of power to run and therefore have a big carbon footprint. Uranium mining and transportation is also energy-intensive, and any nuclear power plant must have adequate security in the post-9/11 world, which also adds to the cost of every KW produced. Also, high quality uranium is the least carbon-intensive, but quality ore mostly comes from Canada, and some of their major mines are nearing depletion. All other global uranium deposits in the US, Australia, and elsewhere have lower quality material and therefore higher pollution potential.
Obviously the up-front costs of plant construction are huge (maybe $10B, like the recent estimate for a new South Carolina project), also taking into account very generous government subsidies and tax breaks that the renewable energy industry doesn't even come close to enjoying. To be fair, nuclear's gross subsidies are huge vs. renewables, but appear much more reasonable on a per-MW basis ($24 for solar vs. $1.56 for nuclear), though this is partly due to the huge scale of nuclear plants vs. renewable projects. And let's remember that part of renewables' subsidies is a premium we're paying to avoid pollution. It's not meant to be the most economical energy source, though some renewables proponents would argue that it can be with proper government support, less superfluous aid to dirty energy, and consideration of the indirect costs of emissions (such as the BP spill, and health/productivity losses due to respiratory diseases).
With current technology, nuclear plants are built for a service life of 15-60 years, and must be decommissioned in a complex and even more costly process (maybe 2-10X construction cost, taking waste storage into account also). Therefore, many of the plants that were built by the G20 during the Cold War are aging, and half of the world's 443 large-scale reactors will be considered for retirement by 2012. So if the nuclear industry wants to boost their slice of the energy pie, they will need to invest in many new plants that they probably can't afford, and couldn't find the real estate for anyway, since they can't just build on top of a former plant site for 30-100 years, due to possible contamination from decommissioning. Also, an MIT study estimates that the Earth has enough uranium for 1,000 gigawatt-scale reactors for at least 50 years. Sounds great, but actually our ability to discover, mine, and produce fuel-grade material will not be able to keep up with the industry's hopes for growth. Each GW-size plant requires about 200 metric tons of uranium per year. Multiply that over all plants, and fuel production can't keep up: in 2004 plants needed 68,000 metric tons of fuel, but mines only produced 39,000, with the remainder coming from Cold War inventories, recycling, conversions of weapons-grade material. But our stockpiles are due to run out by 2020, possibly leading to a nuclear fuel shortage. That's why the IAEA expects nuclear power production to peak around 2015 and then taper off by 2030 to below-present levels. Nuclear currently supplies 6% of global energy, and may only peak at 10-14%, despite about $2T in total global investment since the technology became available. Just imagine if we spent that much on renewables.
The US hasn't built a new nuclear plant since 1978, and although (even more) new plant constructions subsidies are in Obama's energy plan, I don't know how it's going to pan out, because it's hard enough to get approval to build a much safer and smaller natural gas power plant. Plus with more nuclear plants comes more fuel waste to store in giant steel/concrete tanks at guarded facilities. Already 50% of Americans live within 75 miles of an above-ground nuclear spent-fuel site (whether they know it or not, according to the Federation of American Scientists), so probably the "not in my backyard" mentality will obstruct nuclear's growth (especially with the $50-100B Yucca Mountain waste repository project still in limbo and many logistical issues still unresolved).
All things considered, the DOE estimates that the economic and environmental costs of nuclear power (using current data) make it dirtier and less efficient than all other renewable energy sources but solar (due to very expensive photovoltaics), and in some cases, worse than traditional coal or natural gas power plants (8-13 cents/KWH for nuclear, vs. 6-12 cents/KWH natural gas, 6-23 cents/KWH coal, 3-9 cents/KWH wind/hydro). The DOE also estimates that nuclear's net energy (output divided by all energy inputs needed for the entire nuclear fuel cycle) is about 0.3 to heat a home, meaning we're actually taking an energy LOSS going nuclear (as in, 100 KW must be spent for every 30 KW of electric heating created). Compare this to passive solar home heating with a net energy of 5.8, or a natural gas furnace at 4.9 (which also creates CO2 unfortunately).
Then there's the old hope that technology will save us. New nuclear plant designs do have improved safety and economics, but probably won't make a big enough difference to make nuclear a more attractive energy source. New breeder plants actually produce plutonium while they consume uranium, supposedly making them nearly "renewable", but the technology is unproven, and fuel is not the major cost concern of nuclear power (though as I mentioned above, fuel supply shortage is a concern which breeder plants could potentially mitigate). Nuclear-friendly France experimented with a breeder plant that opened in 1986, but was closed just 12 years later due to operating cost overruns (in addition to the $13B to build it). Consequently, other nations have canceled breeder projects before breaking ground.
Humans will always tinker with clever ways to generate energy, but of course it takes energy to make energy. If you believe the climate scientists, we don't have a lot of time to counteract major climate change, if it's not already too late. The days of cheap oil are over, but drops in supply will be gradual, and maybe slow enough to prevent major public outcry forcing politicians to enact energy reform. We don't have the resources to invest in ridiculously expensive energy sources like nuclear that may not even provide much benefit over hydrocarbons. Obviously the best way to create new energy is to not waste what we already have, so improvements in CAFE standards, greening buildings, and more sustainable consumption habits will be like creating a new Saudi Arabia in the long run. And what do we have to lose by giving renewables a fair chance, and at least as much government support as dirty energy has enjoyed over the years? I know there are still socioeconomic and environmental costs associated with wind farms and dams, but at least failures there don't compare with Chernobyl or Valdez. Every venture has risk, but the upside of large-scale renewable power is much better than nuclear, "clean coal", or other alternatives.
Wednesday, June 23, 2010
Undermining Obama's leadership
[T]he real story here is that BP had already made the decision to set aside $20 billion to compensate those harmed by this tragic disaster several days prior to the President’s speech. The true outrage is that this was never the President’s idea at all, and he should be ashamed for pretending it was for political purposes.
On Thursday, Rep. Anh "Joseph" Cao told me that he pressed BP on the fund idea a month ago, inspired by the example of Exxon after its 1989 spill off the coast of Alaska. And on Friday I talked with Ray McKinney, another engineer, who is running for Congress in Georgia against Rep. John Barrow (D-Ga.). McKinney stressed that there was no serious disagreement about the escrow issue, and said Democrats were concocting a political debate when all that mattered was making BP pay and investigating the disaster.
"I think what the government has done has been totally mis-focused," said McKinney. "What I hear when I turn on my radio, is a stupid statement some congressman made, and that's what everyone focuses on. There's a lot of finger pointing and a lot of blame, but everyone agrees we've got to finish the relief well and get to the bottom of why this disaster happened."
http://voices.washingtonpost.
Basically, BP had already decided on the escrow fund (an action most prudent corporations would do), and Obama and BP announced it at the White House, both for their own PR purposes.
In the end, politics as usual but hardly a "Chicago-style shakedown".
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Thx, A. Gosh, so first they're mad about the "shakedown", and now they're mad that Obama was passing the account off as his idea? In this case, I don't think the public will say, "Shame on you, Obama!" for the escrow account, even if he is trying to take more credit for the idea than deserved. I don't think many Americans outside of the oil industry or irrationally anti-Obama circles will sympathize with BP on this one. As you said, the consensus is that BP + affiliates are 100% at fault and should pay for the damages 100%. So what's the difference, $20B now or later? Sure there may be some hokey claims filed here and there (as was the case after 9/11, and many of them were paid with little investigation!), but in general I think Americans want to see John Q. Fisherman or B&B owner given a lifeline so they don't plunge into financial ruin, for the short-term at least.
I think Obama entered the White House wanting to really be taken seriously as a legit statesman and C-in-C. So he and his people did all they could to distance themselves from the Obamania idol worship. "It's not about me, it's about we, and what we need to get done for America." But now, after all the ridiculous attacks and hits to his approval rating, I think he has to confront the issue and make it about him sometimes, because it is. I know he's not a complainer, cynic, or excuse-man, but he's got to fire back at these GOP idiots who are really only interested in his downfall, no matter the cost to the nation they profess to love. He's a polite guy and a consensus builder, but by now he should see that all but a handful of GOP lawmakers want to seriously work with him.
I wish he would say, "Some Republicans are fighting me every step of the way, uselessly criticizing every minute detail of my presidency instead of working hard for big picture solutions. Some people don't want change that may compromise their fortunate position in society, so they prefer to side with big banks and polluters like BP, instead of supporting me to rein in Wall Street excesses and compensate the victims of the spill. They fabricate controversies out of false claims or completely uncontroversial issues that have major public approval. They just want to confuse you about me, so my party and I lose big in elections. I'm not a miracle worker and I make mistakes, but I am not what they say I am. America, I want you to know that I took the hardest job in the world at one of the hardest times in our history because I know this great nation's potential, and we're not there, partly because of greed, egos, and corruption in politics. 'Yes we can' only works when we work together. I hope you will recognize that some of your elected leaders don't want that. They want to see me (and us) fail so badly, that they will sacrifice all our futures for their petty 'thwart and blame Obama' game. We don't have a moment to waste, and we've squandered too many opportunities. Terrorism, health care, climate change, energy, and financial reform aren't going away, even if I'm not in office. Much of the GOP have zero helpful ideas for these global problems and sometimes even deny their existence. So instead of falling for distractions like my citizenship status, please help me put pressure on the negative influences in Washington to either get them to finally do the people's work, or send them home in disgrace like they deserve."
It is about Obama, and I can't help but conclude that the utter disrespect for his office must be partially due to race. He's not a self-made joke like Nixon or Clinton. He hasn't done anything terrible yet, and is mostly "no drama Obama". Can you imagine our generals showing such public insubordination to even a buffoon like Bush? The military loved Bush, even though he was responsible for 5,000 of their brothers and sisters dead and many more wounded, with little improvement to our national security. I'm actually surprised that McChrystal got fired, because it makes the Obama admin. look a little thin skinned, but I'd rather have an overly sensitive civilian leadership than a military that answers to no one like Pakistan.
Saturday, June 19, 2010
Economist compares Obama to Putin over BP
I know The Economist philosophically supports the free market and neo-liberal capitalism, so I guess they wanted to come to poor BP's defense after the angry American mob grilled stonewalling Tony Hayward (Dickens would call him "Tiny Tony") in a public spectacle. How dare the descendants of colonist farmers show such disrespect to their mother empire! The Economist had the nerve to compare Obama to Putin over this matter. Obama's been called a lot of horrible things by a lot of stupid people since he hit the mainstream, but that's a new one. Obama is not harassing BP to "do his bidding" for his own lust for power and personal gain, as Putin does. He is prodding them to own up to their responsibilities, repair as much damage as can be repaired, and compensate all who have unjustly suffered for their mistakes. Because as we have seen from previous corporate disasters, companies will do all they can to delay and minimize payments (sometimes for decades). And are we surprised? That is what they exist to do - maximize production and profit, minimize loss.
Sure Obama is trying to score political points in the process and use the crisis to push his clean energy agenda (which may be offensive to some voters), but that isn't really hurting the country, unlike the previous administration giving energy companies the green light to regulate themselves. Yes his secretary Ken Salazar vowed to clean up the corrupt culture at DOI, and doesn't have much to show for it over 18 months, or at least not enough to have averted this disaster. So sure, BP is not 100% at fault. Westerners, and particularly Yanks, are addicted to abundant, cheap energy (we are now reminded of the true costs of "cheap energy"). Our leaders took industry money, gutted regulations, and got out of their way. But the bottom line is no one forced BP to tell Transocean to drill in an unsafe manner, low-ball the oil leak estimates, and half-ass the clean-up effort.
I understand that the Economist would want to remind us that BP's mistakes should not be an indictment of business as a whole. Have they been living under a rock for the past few years? Look how "big business" has performed in our lifetimes (and especially since Obama took office), and maybe they do deserve a blanket indictment. I'm not talking about the mom-and-pop restauranteurs, veterinarians, or freelance architects of the world that just want to make a living and provide great customer service. I'm talking about the big corporations who spend millions courting politicians, even to the point that the biggest oil money recipient in Congress, GOP Rep. Barton from TX, went so far as to open the BP hearings by apologizing to Hayward for his government's angry rhetoric and "shakedown". The companies that give their inept, short-sighted executives huge compensation, globalize their businesses to tap slave-wage labor markets and nonexistent regulatory environments, layoff thousands to appease Wall Street, and in many cases, commit fraud and break the law.
http://news.yahoo.com/s/ynews/
Plus it seems that the bigger or more prominent the corporation, the worse their infractions. Toyota and GM are the biggest auto makers on the planet, and Toyota's quality control practices were hailed and replicated the world over. One problem, in their manic quest to rapidly overtake GM, they forgot their own teachings, and initially denied everything rather than fess up to their responsibility for putting some drivers in mortal peril. GM once ruled their industry, and millions depend on them for their livelihoods. But last year they were reduced to taking government handouts, even though tiny Hyundai posted record sales (so you can't just blame the recession). Fortune magazine gave Enron the title of "most innovative company" for 6 straight years (even Kobe Bryant couldn't win 6 straight titles), and we know how that turned out. Goldman Sachs is one of the best-performing and shrewdest firms on Wall Street, and now they are under investigation for multiple infractions. The world's biggest pharma, Pfizer, had to pay the biggest government fine in history (at the time), for improper drug marketing. Massey Energy, one of the biggest coal miners, permitted lax and negligent safety standards, which claimed the lives of dozens of its workers. And now BP, the world's 4th biggest oil company, has presided over the worst environmental disaster in the New World, stealing the dishonor from the world's biggest oil company, Exxon, after the Valdez spill. The list goes on and on.
One can argue that the sheer scale of these mega-companies makes it more likely that there will be some sort of problems under their umbrella, vs. smaller outfits at least. But their oversight/safety/compliance infrastructure should grow with the rest of the business. A 200 pound person can't survive with a child's kidneys. These businesses I mentioned may be too big to fail (apart from Enron), but maybe they're too big for their own good too. As Hayward said, he was "out of the loop" regarding the Deepwater Horizons drilling project. Many of the big banks caught in the subprime crisis claimed that they had no idea they were even dealing in those securities. When a company's leader has no idea what his or her company is doing, maybe that company needs to rethink the way it does business. I know one CEO can't micro-manage a billion-dollar organization, but the chain of command and communication should at least include the execs. Otherwise you just have a chaotic, out of control, short-term-profits-driven entity that is under tremendous pressure from shareholders, employees, and investors to cut corners and cheat to make more money.
In the Olliver Stone film "Nixon", the president confronts an anti-war protester. Both want the Vietnam War to end, but Nixon explains that it's not so simple because of the complex military establishment. The protester said it sounded like a beast that can't be controlled. I hope that is not what big business has become, but many warning signs point to it. I know that big corporate disasters and fraud are still relatively rare (the ones we find out about at least), and many companies follow the rules and behave ethically. But just because disasters like BP and Enron were possible in our free market society should be enough cause for alarm for us to rethink our entire economic system. I'm not saying a command economy would be any better (see North Korea), but when the status quo is failing, we have to contemplate alternatives. Unlike The Economist, I feel that it's better in this case to over-react to a potential problem rather than pretend none exists and the system is working fine.
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You've omitted the primary reason they make the comparison. This should be a republic, a nation of laws and not men. Instead of pursuing the law, Obama is calling BP into his office to strong-arm them into extra-legal requirements: for the good of the nation, or for his own political good, depending on your spin. But good or bad, it's outside the law, and that's why the Economist comments that the "collapse in BP’s share price suggests that he has convinced the markets that he is an American version of Vladimir Putin, willing to harry firms into doing his bidding."
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No, the collapse in BP's share price is due to their spill and poor damage control thereafter, both of which Obama had nothing to do with. BP's stock price actually went up on June 16 when Obama met with BP execs to "strong-arm" them into agreeing to open the $20B escrow account (from $30 to almost $33). And the next day the share price held pretty steady at $32, so maybe investors were just happy that some sort of positive agreement was reached. So the data don't support the Economist's claim.
We are a nation that respects the rule of law, but we have no laws to date to handle an environmental disaster of this magnitude. If the $20B account is extra-legal, then BP doesn't have to agree to it. Deals are cut all the time in Washington, and sometimes what's good for the politician/party is also good for the country. Obama doesn't strike me as the shake-down kind of leader. BP would only agree to the $20B account if the alternative was worse (criminal action maybe?). Maybe Obama threatened to revoke BP's drilling leases on Federal land or confiscate assets. Both actions are completely LEGAL and acceptable for a president to do considering BP's horrible safety record in the last 10 years and their duplicity in their promises to improve (see the long ProPublica article below if you're curious).
I find it amusing how some people in the media/politics are getting so outraged about Obama "kicking around" BP (ostensibly for petty political gain, and not because it's the justified thing to do), yet they don't seem to exhibit a similar level of anger over the worst environmental disaster in American history that is affecting at least 5 states and millions of people/jobs for decades. And the critics seem to forget that Obama was pretty calm and rational during the first month of the spill, almost to a fault, and didn't take it to BP when he could have.
http://online.wsj.com/public/
http://www.propublica.org/
http://www.npr.org/templates/
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Regarding the share-price question, I look at http://www.google.com/finance?
I agree that the spill is absolutely outrageous. But the problem isn't just BP, and focusing just on BP isn't going to fix it or prevent it happening again.
Why weren't there laws in place? This isn't the first time there's been a big spill in the US, nor the first time that BP's created problems - they had 760 pre-spill OSHA violations, something like 97% of oil-industry violations (http://www.businessinsider.
The ideal situation would have been that lawmakers in DC identified these problems and put laws into place to handle this situation. That's a failure of leadership. Big companies have been profit-driven since Adam Smith: why are we surprised by this? Look at Standard Oil, or the big railroads of the past. The job of government is to put the rules into place to set the proper incentives for those companies. Instead, we have no laws to handle this situation.
The second-best situation would be to start putting those laws into place now. Fix the regulatory scheme. Reform tort law: why does the Oil Pollution Act limit the legal damages from an oil spill at a hilariously-low $75M (http://www.
Even better, turn this energy and fury into a change in American energy policy. That would be real leadership: refocus popular anger from the short-term immediate cause to real long-term change. The simple reality is that America's use of oil contributes to this. The amount of oil spilled in the Gulf gets spilled *every year* in Nigeria (http://www.boingboing.net/
Instead, we've got Obama publicly shaking down BP. That's certainly easier: westerns work better when one guy has a white hat and the other has a black hat. But it's not leadership, it's public theater. And it ensures that this will happen again.
To be clear, I do think BP should go under as a result of this. Given their current cash position, I don't think that's impossible. They have a big line of credit from JPM right now ($50B) which could keep them afloat, but with CDS spreads widening and the various debt problems in Europe, I wouldn't be surprised to see JPM pull that. They have something like 13B in cash and another 10B in yearly profit, but if the estimates of daily oil spill increases, or they don't fix it, their liabilities could be much higher. Then we might get to see whether BP is too big to fail (it's like the too legit to quit of the 21st century!).
I'd just like to see the blame and fixes extend beyond just blowing up BP :)
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Thanks for the links and your comments!
I don't think this crisis is about putting BP in front of a firing squad like that inmate in Utah. I think it is about them owning up to their responsibilities for the damage they caused to the US and its people. We allow them to do business in our country with certain expectations, and when they fail to meet their obligations, some punishment is in order. BP and its execs have acted pretty callously and unapologetically for the first 1.5 months of the crisis, and now the best they can give us are alligator tears before going to a sailing regatta. The people and Washington don't appreciate that. Yes, maybe we're using BP to score political points and serve as a warning to other would-be violators, but as you said, destroying BP won't help us avoid another disaster, and won't bring the Gulf back. But let's remember that there's a good chance BP will be just fine in a decade, since much of their business is outside of the US, and they can write off all their fines and penalties. Everyone predicted the death of Exxon after Valdez.
FDR also made public spectacles and called out big industry and the banks whose business practices led to the Depression. From the NYT: Mr. Obama wanted to transcend partisanship. Instead, however, he finds himself very much in the position Franklin Roosevelt described in a famous 1936 speech, struggling with “the old enemies of peace — business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.” And that’s not necessarily a bad thing. Roosevelt turned corporate opposition into a badge of honor: “I welcome their hatred,” he declared.
As you said, during last week's BP-Obama meeting, the closing price was pretty much unchanged, so their stock didn't "collapse" in response to the $20B settlement that Vlad Obama forced upon them. But as I said, during the day of the 16th, the stock went up, not down. So if the meeting was so disastrous for business confidence, the share price didn't reflect that. Regarding the jump in basis points, that's how third-party bankers evaluate BP's prospects. Their debt status is near junk like Greece, but it may be irrational and inaccurate. It's just a guess, and has little to do with BP's actual financial viability and obligations to the US government. As we saw during the credit crisis, debt rating agencies were way off target and contributed to the collapse. BP and Greek debt are still much safer investments than a lot of stuff out there.
No one ever said the problem was all BP. In multiple emails I said it was also on the oil-thirsty public and our high-consuming way of life (not to mention our out-of-sight-out-of-mind political mentality), and also the lax regulators and politicians who took oil money and let the companies police themselves. But in this case, the spill is 100% the fault of BP and Transocean. Obama didn't blow up the rig. Problems with the cleanup and repair effort are on the industry and government both. But for the spill, I don't think BP can come out and blame the government for not regulating them better. Because that is an admission of their own incompetence (even though they assured everyone that they had deep water drilling down to a near-foolproof science), and contradicts the oil industry's efforts to ease regulations and expand drilling over the last decade. "It's not our fault, the government should have watched us more carefully!" Well they're not allowed to pull that excuse when they're the ones who told the government and public that everything was fine and to leave them alone.
As you probably know, pro-oil legislators wrote a loophole in the offshore drilling permits process. Regulators have only 2 weeks to review and sign off on drilling proposals before companies are allowed to start their projects. Everyone damn well knows that the MMS is understaffed, undertrained, underpaid, and the ones that do make decisions are often pro-oil former industry lackeys looking to buddy up to companies to earn a cushy return to the private sector. There is no way they can read thousand-page reports with complex data in 2 weeks. So essentially, it's like they don't even need to get an approval. This is the fault of industry lobbyists and corrupt public "servants". Energy extraction should be as scrutinized as financial accounting and food/drug safety (and we're still not perfect in those areas).
I completely agree with the need to have newer, better, stricter laws on the books. But we're just 2 months after the rig explosion. It's going to take Congress some time (universal health care took over a decade after all). We're still collecting the data, and the GOP are being assholes every step of the way, pulling the "government stifling business and taking away our rights" card every chance they can. But we can't have it both ways - either we want to roll out strong, effective, rational regulation of businesses in the national interest, or we just accept the status quo with the conservative ideology of deregulation and short-term profit-taking. If we have to temporarily trample on the rights of the "poor, defenseless corporation" when real flesh-and-blood people are getting screwed, then that's a sacrifice I'm willing to accept.
I don't think Obama will rest now that he has "shaken down" BP; that was never the end goal. Of course he used this occasion and his prime time address to stress the need for energy alternatives, and he will continue his push for a greener economy like he promised years ago on the campaign trail (of course the energy industry will fight him tooth and nail). He was under fire for not getting madder about the situation, so he responded. Maybe he went too far with the $20B, but the Dem Congressional leaders were also involved, and we'll let the historians decide in the future There were some concerns that BP would drag its feet to "honor all legitimate claims", so he cut through the red tape and made sure the victims got some help before the next ice age. He works for the people, not BP. The money is part of the process, but not the objective. Give Obama some credit, I think he knows that we have to change the way we do and regulate business so that we're less dependent on risky energy exploration and have more peace of mind that strict safety measures will avoid catastrophes. As you said about Nigeria, it is also sad that our dependence on imported oil conveniently allows us to ignore all the environmental and social harm energy extraction causes in the Third World. Well once we have more energy flexibility at home, we can be more selective with our sources of imports, and hopefully boycott the companies and nations that commit gross violations.
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I thought it was pretty clear, as per a speech given by Obama, that he WAS using this as a stepping stone to a new improved energy policy focusing on clean and sustainable energy, is that not the case?
And if i had to address point 1, why weren't laws in place? I would say that it is because businesses own government on this kind of thing. Kind of addresses the difficulty of point 2, make some now.
I think t's point of washington deal making is what makes or breaks the Putin reference. The understanding is that when Putin makes a deal behind closed doors, it was an offer you couldn't refuse. I don't think we believe that is the case with Obama. It may ACTUALLY be the case, which would make him Putinesque for sure, but i don't think that is public perception at this point.
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Thanks M, that was my point exactly regarding the difference with Obama and Putin. Plus BP has an army of litigators who are much better than government lawyers, so if Obama played hardball with them and overplayed his hand, they would find a way to roast him for it.
For all we know, the $20B fund may be a LUCKY BREAK for BP. As J said, they made over $10B in profit last year, and their cushy royalties agreements with the government mean that they shortchange the American people millions each year too. Maybe they won some government concessions and guarantees that they wouldn't revoke their licenses or whatnot. History has shown us that oil companies often escape full punishment, and I wouldn't be surprised if their allies in government helped them this time too.
For all we know, the $20B fund may be a LUCKY BREAK for BP. As J said, they made over $10B in profit last year, and their cushy royalties agreements with the government mean that they shortchange the American people millions each year too. Maybe they won some government concessions and guarantees that they wouldn't revoke their licenses or whatnot. History has shown us that oil companies often escape full punishment, and I wouldn't be surprised if their allies in government helped them this time too.
Thanks for your comments, G. I'm proud of Obama for doing this much so far and not being scared to be publicly anti-business (at least corrupt business). Actually my "approval rating" for him is the highest it's been since his inauguration. He didn't want this crisis; it's distracting the government and people from all his other policy initiatives. But he's doing what he can to fight for the victims and use the crisis to show us how we have fallen so far during the Bush years. We need more regulation (as if the recession wasn't proof enough), and cleaner ways of getting energy - plus we need to use energy more sparingly, which I wish he would stress more, instead of riding around in a big motorcade of Chevy Suburbans. And I hope he would use the BP crisis to show how horribly the GOP is behaving and how they are truly bad for America. As if health care wasn't bad enough, the GOP are just acting outrageously regarding BP and the financial reform bill. He's got to nail them to the cross for this, and even dare to call them unpatriotic (they called the Dems that during the War on Terror anyway).
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To add to this, I think no one (at least no one I've read) suggests that BP shouldn't be fully liable for all costs that result from the spill. As long as the escrow account is only used to pay all the legitimate damage claims that result from the spill (and, if it turns out to be less expensive than $20 bil, the rest is returned to BP), then the escrow account, on a net-net basis, doesn't really change BP's ultimate cash position.
What it mostly does is in the name of efficiency. First, it saves a lot of litigation and time costs on both sides. If BP doesn't set up the escrow account, then the government would have to sue (assuming BP initially refuses to pay), or keep sending individual bills to BP. Likewise for private parties. It is therefore in both parties interest to set up some means of expediting claims (if you assume BP actually is interested in a good-faith effort to pay legitimate claims and not on releasing packs of lawyers to try to get out of every damage payment).
I think ultimately the escrow fund is a pretty minor achievement by Obama (not that he's in a position to do much anyway). For it to be a Putin-esque style shakedown, it would require Obama forcing them to hand over private shares/monies to the government without compensation. Instead, he asked them to set aside some money on a contingency basis to meet all legitimate outstanding damage claims against them, to be refunded to them in the event that the fund is not exhausted. Any competent corporate bod/executive does this anyway for expected litigation costs, they just don't publicly make deals with the president to do it.
Basically, Obama gets some face for making BP do "something". BP does what it was going to do anyway (set up a contingency fund) and gets some positive press for "owning" the disaster. I think that's probably why the stock price was largely unaffected: the agreement doesn't really mean much one way or another for BP's ultimate fate. Maybe it spooked some bond investors by the size of the fund, but that has to be because BP is revealing to the market information about how much it thinks the damages may be, not because the government "shook them down".
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I think your reply is very well stated and sums up my feelings to a great extent.
One thing to note about the CDS market is that volumes are *way* down (like 90%) from the highs in 2007 so you do have a point about the pricing perhaps not being as aggressive as it could be (though I should mention that CDS prices are based on mathematical models and it might be a bit haphazard to characterize them as nothing more than a guess)...
PS: I think you're right about blame for the disaster but I have a feeling of dismay to think that only now (2 months later?) the media is talking about how the redundant control mechanism was compromised (i.e. there was only one of two working safety mechanisms) and that no one seems to be asking why the safety systems aren't passive control mechanisms (like the kind in a nuclear reactor) rather than active control mechanisms.
PPS: I think the administration can't be blamed for the clean-up; once a disaster has occurred there isn't much that can be done (especially when the technical challenge is the thing requiring management). The government can definitely change the shape of the incentives which are in place and the regulations which give rise to the systems which are utilized in practice... but come on - Bush was the oil man, not Obama!
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To add to this, I think no one (at least no one I've read) suggests that BP shouldn't be fully liable for all costs that result from the spill. As long as the escrow account is only used to pay all the legitimate damage claims that result from the spill (and, if it turns out to be less expensive than $20 bil, the rest is returned to BP), then the escrow account, on a net-net basis, doesn't really change BP's ultimate cash position.
What it mostly does is in the name of efficiency. First, it saves a lot of litigation and time costs on both sides. If BP doesn't set up the escrow account, then the government would have to sue (assuming BP initially refuses to pay), or keep sending individual bills to BP. Likewise for private parties. It is therefore in both parties interest to set up some means of expediting claims (if you assume BP actually is interested in a good-faith effort to pay legitimate claims and not on releasing packs of lawyers to try to get out of every damage payment).
I think ultimately the escrow fund is a pretty minor achievement by Obama (not that he's in a position to do much anyway). For it to be a Putin-esque style shakedown, it would require Obama forcing them to hand over private shares/monies to the government without compensation. Instead, he asked them to set aside some money on a contingency basis to meet all legitimate outstanding damage claims against them, to be refunded to them in the event that the fund is not exhausted. Any competent corporate bod/executive does this anyway for expected litigation costs, they just don't publicly make deals with the president to do it.
Basically, Obama gets some face for making BP do "something". BP does what it was going to do anyway (set up a contingency fund) and gets some positive press for "owning" the disaster. I think that's probably why the stock price was largely unaffected: the agreement doesn't really mean much one way or another for BP's ultimate fate. Maybe it spooked some bond investors by the size of the fund, but that has to be because BP is revealing to the market information about how much it thinks the damages may be, not because the government "shook them down".
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I think your reply is very well stated and sums up my feelings to a great extent.
One thing to note about the CDS market is that volumes are *way* down (like 90%) from the highs in 2007 so you do have a point about the pricing perhaps not being as aggressive as it could be (though I should mention that CDS prices are based on mathematical models and it might be a bit haphazard to characterize them as nothing more than a guess)...
PS: I think you're right about blame for the disaster but I have a feeling of dismay to think that only now (2 months later?) the media is talking about how the redundant control mechanism was compromised (i.e. there was only one of two working safety mechanisms) and that no one seems to be asking why the safety systems aren't passive control mechanisms (like the kind in a nuclear reactor) rather than active control mechanisms.
PPS: I think the administration can't be blamed for the clean-up; once a disaster has occurred there isn't much that can be done (especially when the technical challenge is the thing requiring management). The government can definitely change the shape of the incentives which are in place and the regulations which give rise to the systems which are utilized in practice... but come on - Bush was the oil man, not Obama!
Friday, May 28, 2010
Krugman's article on Obama and the spill
G was kind enough to send me a piece from Krugman about Obama and GOP criticism over his handling of the spill: http://www.nytimes.com/2010/
Did you see the press conference today? I agree with Krugman that Obama has done about all he reasonably can for the spill. The government doesn't have the know-how or equipment to fix drilling disasters. I guess he could threaten BP and make them hurry up, but based on their track record, do you want to rush a reckless, accident-prone company into another mistake? Obama could have mustered up more anti-spill resources and pulled rank on BP for the cleanup though. Recruit the fishing boats, get all the booms and vacuums you can requisition. Overwhelming force to silence the critics and put people at ease, even if it's not fixing the problem 100%. Apparently 7 nations have offered us help, but we only accepted it from 2: Mexico and Norway (a nation with vast offshore drilling experience in worse waters, yet with a better safety record). But he still did much better than Bush during Katrina.
As Krugman and Obama have said, I don't know why there is such a blanket anti-government sentiment among conservatives. Reagan said government is the problem, but government is the solution (and the unique solution) for many things too. Do they really not care that America lost trillions in wealth due to de-regulation, that hundreds of people are dead due to gutted, corrupt federal inspection agencies, and that we are stuck in 2 un-winnable wars because the separation of powers failed? Bad, dysfunctional government is a problem, so why not fix it instead of weaken it more? They are sending our concept of government to a "death panel". Just because of the Toyota pedal problem, do critics say that all cars are bad and we should do away with them? You can't judge something based on its worst performance (also a critique of our penal system). And you especially can't judge when you set up something to fail beforehand for your own selfish purposes. If they don't want government, then what is their alternative? Every man for himself? We'd just be a nation of paranoid, selfish assholes stealing from and lying to each other. Is that their American dream? Is that conservatism? Freedom must go hand-in-hand with personal responsibility, as any GOP would say. But clearly personal responsibility is fallible, so who is there to enforce it but the government and rule of law?
More on the MMS:
http://www.npr.org/templates/
In one case, it was reported that a MMS inspector gave his inspection form to a rep of the company being audited. He filled out the questions in pencil, and the MMS guy just wrote over in pen. Another was being recruited to a company at the very moment that he/she was auditing the company. Needless to say the company passed and he/she got a new job.
Monday, May 17, 2010
What caused the Deepwater Horizons to sink?
http://news.yahoo.com/s/ap/us_
L also informed me of a great "60 Minutes" interview with a Transocean (world's biggest offshore drilling company) Deepwater Horizons worker who was there during the explosion. That rig did the drilling, and another would handle the oil collection. Apparently the DH did already successfully drill the world's deepest well that I mentioned last week (4k feet water + 35k feet rock), and the current well was a "mere" 5k water + 13k rock. Much of the accident is due to BP's reckless, rushed, greedy timeline. In their haste to tap the huge Tiber reserve (since drilling cost BP $1M/day), they drilled too fast and destroyed their first well. That set them back 2 weeks (delaying the job from 21 to 42 days), showing that haste makes waste.
Regarding the blowout preventer (BOP), they ran a test 4 weeks before the accident. There is a giant rubber seal called the annular that closes around the drill pipe and essentially shuts off the well like the washer in your faucet. But during the test, a worker accidentally moved the drill pipe. So it rubbed on the annular while it was fully engaged (like driving with your parking brake engaged), which probably damaged it. Workers on the surface found chunks of rubber coming out of the well later. A damaged annular may skew pressure tests/measurements (and those tests are the main data for drillers to determine whether it's safe or not to let oil in the well), but the manager said it was "no big deal". Also there are 2 electrical control pods that connect the BOP to the surface (1 primary, 1 backup). They lost communication with 1 of them. A later investigation showed that the BOP was also leaking lubricant and had weak battery charge. But rig tests showed full functionality, so they went ahead as planned.
BP and Transocean managers were fighting over how fast to finish the job too. Drillers use a heavy metal-doped fluid nicknamed "mud" to fill the well and keep the pressurized oil from shooting up. But it needs to be removed before the oil can start to be pumped. Halliburton was paid to install a set of concrete plugs along the well to reduce the pressure without mud. One of the plugs wasn't finished yet, but BP ordered Transocean to remove the mud and get rolling. If the mud and third plug were in the well, it's quite possible that the blowout wouldn't have happened. Each of these mistakes may not have been critical, but the sum of the errors led to the catastrophe. Though the terrible part is that it was all human error and human decisions, not really technical failures. But no matter how infallible our tech gets in the future, how can you divorce human frailties from the offshore drilling equation? Laws can't be written to safeguard against every possible circumstance and bad judgment.
Despite all these concerns, they "stayed the course". Just as a crew was flown in to celebrate the rig's record of 7 years without accident, the explosion occurred. Flammable gases from the well probably leaked through the damaged annular and reached the rig, where it was sucked up by the rig's diesel electricity generators and blew them up. 11 people were incinerated and the rig sank soon after.
http://www.cbsnews.com/video/
http://www.cbsnews.com/video/
Thursday, May 13, 2010
More on the BP Gulf spill
http://www.newsweek.com/id/
Some interesting articles regarding the aftermath of the BP disaster. Incidents like the Gulf oil leak and the West Virginia mine deaths remind us of the question: how many lives and how much environmental damage are we willing to offer up on the altar of commerce and cheap energy? If we had a renewable energy economy, all of that harm could be avoided, unless a solar panel came loose in the Mojave and crushed a mouse. Unfortunately or not, very few Americans are directly affected by these industrial disasters, like the Middle East wars. So therefore it is a lot easier for the rest of us to ignore problems or even live in denial as long as the gasoline and electricity keep flowing. But although we don't see it, Alaskan fishing communities are still devastated two decades after the Valdez spill. Local ecosystems will probably never recover to pre-spill vitality, and fishing economies were decimated (suicides and domestic violence have risen significantly in those hard-hit communities too). Yet those victims have been swept under the rug, since oil is so vital to Alaska's economic survival (and provides hefty payouts and kickbacks to many in power), so Palin et al. up there are as pro-drilling as ever. Sacrifices for the "greater good", I suppose. I hope this sad narrative won't repeat in the Gulf, which is still struggling after Katrina, but I don't think their future is bright (in some cases, it has taken an entire year to finally plug a blown out well).
The recent NYC terror scare reminded us to be vigilant, and the government/law enforcement often state that we can't afford to be wrong even once - zero tolerance for terrorism. If only we could hold companies to the same standard regarding environmental harm (and we're not even talking about climate change yet, though the Kerry-Lieberman bill is sparking new discussion on the sausage making of energy reform: http://www.kqed.org/epArchive/
If we don't care about the millions of dead avian and sea life, what about the human costs? The Texas City refinery explosion that I previously mentioned killed 15 and injured 180, so imagine the ripple effects for that community. Toxic fumes displaced 43,000 other shelter-seekers. It could happen in the dozens of US communities near refineries. BP was fined tens of millions, but it was a slap on the wrist considering the magnitude of the crime. And it's no accident that the federal investigation was weak at best. The EPA lawyers were chomping at the bit for a home run case, but the Justice Department suppressed their efforts or watered down the case to the point of futility. BP's strategy to stunt the investigation after their Alaska pipeline leak was creative: they responded to the federal subpoena by spamming the EPA with 62M pages of documents, fully aware that the government only had 3 or 4 employees on the case. They got off nearly Scot free. Last year, BP spent almost $16M on Washington lobbying (a record for them), and like Goldman Sachs, they want a return on their investment. In the past, BP has made consultants out of major government players: Leon Panetta (current CIA director), George Mitchell (Obama's special envoy to the Middle East), Christine Todd Whitman (Bush's EPA chief), and Tom Daschle (former House majority leader and Dancing with the Stars contestant). What do you think they discussed - geology and pipelines?
The current Federal cap for environmental damages is a paltry $75M, and the Gulf disaster will cost an order of magnitude more. Obama vows to hold BP accountable for every penny, and their CEO Tony Hayward promised to "honor all legitimate claims", which sounds like the health insurance industry. But BP is the #4 oil company in the world, and so we face the "too big to fail" problem with them. BP is a major employer/taxpayer/campaign contributor, and is the #1 oil supplier for the US wars in the Middle East, doing $2.2B in business with the Pentagon last year. If we lean on BP too much, don't you think they're going to play that card?
BP made over a $17B profit in 2007. Apart from the recession, they have done really well in the last 5 years. If we are serious about avoiding environmental disasters, ensuring safety at facilities, and holding energy companies accountable, we have to hit them where it hurts. Revoke their license to do business. Like the Pfizer Bextra email I sent out before, the FDA has the right idea by blocking medical companies convicted of fraud from doing business with Medicare (unfortunately they let Pfizer off the hook that time because they were "too big"). For energy companies convicted of skirting safety regulations and guilty of causing environmental/human disasters, we should revoke their permits and confiscate their assets. That will keep them on the wagon, or weed out the reckless companies that shouldn't be in business anyway. But of course it's not just the companies' fault. They do what makes business sense. They don't necessarily want to club baby seals, but if the benefits of skirting regulations to improve output outweigh potential government penalties from rare accidents, of course they will keep being reckless.
We people are to blame for our addiction to cheap energy. We should boycott polluters like we did to apartheid South Africa, but then where will we get our power? If we get tough with Big Oil, they will rebut with, "Sure we can reform our operations and become safer/cleaner, but it could cost American jobs and we're going to pass on those costs to the consumer". Then we shut up. The feds are to blame as well, with the Department of Interior is one of the most corrupt parts of our government. Finally the regulators are under fire after the recent coal and oil disasters, and some may have accepted bribes. Obama was right to separate the regulatory and royalty-collecting arms of the DOI due to the obvious conflicts of interest (obvious to anyone outside of Washington it seems). And even so, the US people are getting really shortchanged on energy royalties like we were a Third World shit hole. Oil companies build their offshore platforms just beyond the state waters limit to avoid taxes, yet their wells suck up oil from adjacent rock that the state owns (like "I drank your milkshake!" - Daniel Day Lewis). In Mexico, their constitution states that natural resources belong to the PEOPLE. Not so here. Of course the Mexican people get shortchanged from corruption as well, but they are more progressive than us on this front at least.
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Did we find out that BP is at fault for this particular leak? Or that it was through skirting of regulations that this occured? In theory there is a moderately low risk way to drill in the ocean, and i assume the regulations that exist are to hold you to that moderately low risk method. I read, more so in the end, about how BP skirts regulations in favor of good business, but was that the case here? I am asking as i have no clue, not as a rhetorical point. And i believe that BP has most certainly, at least in other isntances, chosen money over "the right thing" but what about in this specific case?
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Well BP blames the rig owner they leased from (since the "fail safe" blowout preventer valve didn't close, in fact 4 of them failed), and the rig owner blames Halliburton for a leaky well head. And Halliburton blames BP because they were just carrying out BP's work order that BP designed. So the merry-go-round of BS continues.
I am not an expert, but drilling a mile underwater in a hurricane area is NOT low risk (industry/conservative propaganda: http://www.aei.org/article/
http://abcnews.go.com/US/
http://en.wikipedia.org/wiki/
American Enterprise Institute: The two main reasons oil and other fossil fuels became environmentally incorrect in the 1970s--air pollution and risk of oil spills--are largely obsolete. Improvements in drilling technology have greatly reduced the risk of the kind of offshore spill that occurred off Santa Barbara in 1969... To fear oil spills from offshore rigs today is analogous to fearing air travel now because of prop plane crashes in the 1950s.
Thursday, April 29, 2010
Oil spill in the Gulf of Mexico
http://news.yahoo.com/s/afp/
"There have been 509 fires, at least two fatalities and 12 serious injuries on oil rigs in the Gulf of Mexico since 2006." -BusinessWeek
What bad timing that under a month after Obama unveiled a plan to expand offshore oil drilling in the Eastern US and Gulf of Mexico, the BP disaster occurred (11 workers suspected dead, thousands of barrels pouring into the Gulf across a 600-mile-wide area, with the slick heading towards wildlife protected wetlands). Maybe it's a sign. Obama has already ticked off much of his liberal base over concessions to the GOP/Wall Street, dithering on gays in the military, the painful passage of watered-down Obamacare, and inaction on immigration reform. Now this move has angered environmentalists.
Parts of Florida may be on the table as well, but the plan faces protest. It's funny that the flip-flopping FL GOP governor and US Senate hopeful Charlie Crist (who tends to vote anti-gay but is suspected to be a closet homosexual, but that's another story: http://www.pamshouseblend.com/
BP has had a bad safety run in the last decade. In 2005, their refinery at Texas City exploded, causing 15 deaths. In 2006, a corroded pipeline caused 1,500 barrels worth of oil to leak in AK's North Slope, and the next year they had a 2,000 gallon methanol leak in Prudhoe Bay. The company has paid hundreds of millions of dollars in fines from these accidents. Who knows how much the Gulf disaster will cost, in terms of dollars and environmental harm?
All the easily-accessible oil has been tapped in North America, and most of the world. Expanded offshore drilling through harder rock in deeper water (also areas in hurricane zones) is more expensive, complex, and dangerous. Is it worth the environmental risk and infrastructure investment to do this, just to add a few million barrels per year (and the US consumes 22M barrels per day)? So it's a drop in the bucket gain. Yes oil accidents are rare overall, but when mistakes happen, they really cause problems. Would it make more sense to just keep buying more foreign oil (by foreign, I mean Canada and Mexico mostly), or even affordable Brazilian ethanol, instead? But then US energy and farming companies have a shit fit.
Monday, October 27, 2008
Better Place: an expanded model of electric transport
http://www.sciam.com/blog/60-second-science/post.cfm?id=electrifying-cars-down-under-2008-10-23
http://www.betterplace.com/
The business model for automobiles and cellular phones don't seem very similar at first, but that will change if entrepreneur and former SAP software engineer Shai Agassi has his way. His CA start-up called "Better Place" is pitching a new electric automobile network, and companies/nations have been so impressed already that he's garnered a billion dollars in venture capital, even in this tight economic climate. He already has contracts with Denmark and Israel, and Australia (the most carbon-spewing nation per capita, even more than the US/China) recently signed on as well.
His innovative approach centers on paying for the miles you drive instead of the actual car, like cell phone plans with minutes included and the phone comes free (or heavily discounted). If all works well and his system reaches a sufficient scale for efficiency, he even makes the audacious claim that customers will get their cars for free. Deutsche Bank analysts have studied this possibility and concluded that it's feasible. Renault-Nissan have developed the prototype vehicle for Better Place's network, and unveiled at an Israeli auto show in January. It uses an advanced litium-ion battery (like personal electronics) and has a range of about 100 miles with peak horsepower of 91. Sure it's not a Corvette, but it's not an Insight either. It's performance is comparable to a 1.6 L vehicle and looks like a typical compact 4-door sedan (see below). 500,000 units are supposed to hit showrooms, starting in 2011 for the first customers Denmark and Israel.
With a projected 2.5 charging stations per EV on the road, customers shouldn't have to worry about running out of power, especially when most urban residents drive less than 40 miles per trip. Using current technologies, 1 mile of normal driving power will take 1 min to charge, so it won't be an all-day ordeal. On-board GPS will locate the most convenient charging locations. Israel estimates that 1/6 of its parking spots could be converted into charging stations to make this work. There will also be automated battery replacement stations that operate similar to car washes (see simulation video below). This way, you can just get a fresh power supply without much delay if you're taking a cross-country trip. Small nations like Denmark and Israel may not need it, but for Aussies driving across the Outback (or potentially Californians commuting from SF to LA), it will help a lot. So in order to be accepted by the consumers, EV charging mustn't be more inconvenient than our current system of refueling at gas stations and taking your car in for regular oil changes/tune-ups (which EVs won't need).
http://www.youtube.com/watch?v=f9bc4vNccL0
So Better Place will make it's money on mileage/power plans for its customer network. I am not sure how much it will cost to drive a mile, but again, it has to be affordable vs. gasoline to gain acceptance. The up-front infrastructure costs will be huge, but hopefully governments will contribute in return for the benefits of less pollution and oil dependence. Especially for nations like Israel and Denmark with abundant renewable power (wind in Europe, sun in the Middle East), nature will literally power human transport. Though this model may not work for rural peoples, who could get gasoline credits or hybrid subsidies instead. Of course this plan is quite radical, and may encounter stiff resistance from more conservative oil and auto interests, who still refuse to stop marketing SUVs. Aircraft, buses, and freight trucks will still need to rely on fossil fuels, but alleviating the passenger vehicle sector will do wonders for our oil consumption. Though another concern is where the electricity will come from. It doesn't do much good to power electric cards from coal or petroleum-fired plants, so the power sector has to evolve in parallel for their plan to be successful. Hence Better Place's partnerships with power companies like Australia's AGL Energy, in order to build wind farms of sufficient scale to power their auto grid.
But the sad reality of all of this is, "If the 700 million cars on the road today were powered by re-chargeable batteries, our carbon footprint would be reduced by 10%," according to BetterPlace.com. A lot of effort for just 10% savings, but maybe weaning us off gasoline automobiles from an energy security standpoint is the larger benefit. Though on a separate page in Better Place's website, they estimate carbon savings of 40%. So not sure which figure is more accurate, but every bit helps.
Wednesday, September 24, 2008
Congress earns its sub-20% approval rating
http://news.yahoo.com/s/ap/20080924/ap_on_go_co/congress_spending_10
From the AP:
The legislation came together in a remarkably secret process that concentrated decision-making power in the hands of a few lawmakers. They include House Appropriations Committee Chairman David Obey, D-Wis., and [House Speaker Nancy] Pelosi.
Republicans blasted the process by which the measure came before the House. Lawmakers had just a few hours to scrutinize the 357-page measure — along with 752 pages of accompanying explanations and tables of previously secret pet projects — before the vote. Debate lasted less than one hour.
The rush also ran counter to Democratic promises for more open disclosure of billions of dollars worth of home-state pet projects sought by most lawmakers.
-------
Pelosi and Co. played us for fools in 2006 when they promised to make Congressional spending more transparent. Ooh, they're more honest than the corrupt GOP because they *disclose* their pork now. Not to the public of course, but Congressmen had a few hours to read over 1,000+ pages (they probably didn't) and an hour of debate before passing the $630B spending bill 370-58. Talk about moral hazard, who cares if it's taxpayer dollars!?! And this bill doesn't help Main Street very much: some aid for flood/storm victims and heating subsidies, as well as insignificant increases to unemployment assistance/food stamps. During America's worst economic crisis in decades, they pushed through this new spending bill under the radar with 2,322 pet projects totaling $6.6B. We wouldn't even know about all this if it wasn't for Taxpayers for Common Sense (http://www.taxpayer.net/). Actually the timing is fortuitous for them, because everyone is buzzing about the Wall Street rescue plan, so the media might not pay much attention to this (well Congress adjourns next week ahead of the election anyway, so they were in a hurry). And if people were discussing the bill, it was probably regarding the lifting of the offshore oil drilling moratorium portion, even though that won't affect us until 2011 at the earliest.
Bush had vowed to veto such pork-laden bills, but now he's a lame duck and Congress was crafty enough to attach the earmarks to a defense spending bill. The Bushies got a record $488B for the Pentagon, including funding for 20 more futuristic F-22 Raptor fighter planes ABOVE the number requested by the Defense Dept. (which is probably sizeable). Each one costs $138M. That's like me declaring to the IRS that I am due $5,000 reimbursement on my 2007 tax return, and they decide to give me $10,000. Why? During this serious economy crisis, why doesn't the Pentagon have to scale back like the rest of us?
What, our current aircraft aren't killing enough Muslims? Has Al Qaeda upgraded so much that our present fleet is obsolete? The F-22 project is a Boeing/Lockheed boondoggle that has wasted over $60B since 1990. It's almost as bad as the missile shield. I know it pales in comparison to the proposed $700B financial bailout, but at least with the bailout Uncle Sam gets the rights to crappy mortgage securities that *might* turn profitable some day (they did in the case of the Japanese banking crash and bailout in 2002-2006, but not to say I'm a fan of the "Paulson God Mode" plan). Well, I guess we're hoping to sell the fighters to Israel and NATO allies some day, but most of the proceeds will probably go to the defense contractors.
And somehow the auto lobbyists conned Washington into securing $25B in low-interest-loans (read: free money) for Detroit, to give them yet more time to retool their anachronistic business models for the reality of $4 gas. Ordinary citizens with good credit can't get a mortgage to save their life, but Detroit gets $25B to research what everyone else already knows!?! Uh, it's not like this came as a surprise, and look what the competition has done. European companies developed more efficient diesel and constant-variable transmission, and Japan is pumping out new 30-mpg partial-zero-emission family sedans and hybrids every year. But Detroit gives us the Escalade Hybrid, new minivans (nothing mini about them though), and Ford Flex (20 MPG highway - whoopee!). We keep subsidizing these inept morons, yet funding for scientific research, college grants, disability assistance, and various social servies keeps shrinking?
Interesting link about the previous financial bailout in Japan, and it's near success (if it wasn't for the current housing bust):
http://news.bbc.co.uk/2/hi/business/7623779.stm
From the AP:
The legislation came together in a remarkably secret process that concentrated decision-making power in the hands of a few lawmakers. They include House Appropriations Committee Chairman David Obey, D-Wis., and [House Speaker Nancy] Pelosi.
Republicans blasted the process by which the measure came before the House. Lawmakers had just a few hours to scrutinize the 357-page measure — along with 752 pages of accompanying explanations and tables of previously secret pet projects — before the vote. Debate lasted less than one hour.
The rush also ran counter to Democratic promises for more open disclosure of billions of dollars worth of home-state pet projects sought by most lawmakers.
-------
Pelosi and Co. played us for fools in 2006 when they promised to make Congressional spending more transparent. Ooh, they're more honest than the corrupt GOP because they *disclose* their pork now. Not to the public of course, but Congressmen had a few hours to read over 1,000+ pages (they probably didn't) and an hour of debate before passing the $630B spending bill 370-58. Talk about moral hazard, who cares if it's taxpayer dollars!?! And this bill doesn't help Main Street very much: some aid for flood/storm victims and heating subsidies, as well as insignificant increases to unemployment assistance/food stamps. During America's worst economic crisis in decades, they pushed through this new spending bill under the radar with 2,322 pet projects totaling $6.6B. We wouldn't even know about all this if it wasn't for Taxpayers for Common Sense (http://www.taxpayer.net/). Actually the timing is fortuitous for them, because everyone is buzzing about the Wall Street rescue plan, so the media might not pay much attention to this (well Congress adjourns next week ahead of the election anyway, so they were in a hurry). And if people were discussing the bill, it was probably regarding the lifting of the offshore oil drilling moratorium portion, even though that won't affect us until 2011 at the earliest.
Bush had vowed to veto such pork-laden bills, but now he's a lame duck and Congress was crafty enough to attach the earmarks to a defense spending bill. The Bushies got a record $488B for the Pentagon, including funding for 20 more futuristic F-22 Raptor fighter planes ABOVE the number requested by the Defense Dept. (which is probably sizeable). Each one costs $138M. That's like me declaring to the IRS that I am due $5,000 reimbursement on my 2007 tax return, and they decide to give me $10,000. Why? During this serious economy crisis, why doesn't the Pentagon have to scale back like the rest of us?
What, our current aircraft aren't killing enough Muslims? Has Al Qaeda upgraded so much that our present fleet is obsolete? The F-22 project is a Boeing/Lockheed boondoggle that has wasted over $60B since 1990. It's almost as bad as the missile shield. I know it pales in comparison to the proposed $700B financial bailout, but at least with the bailout Uncle Sam gets the rights to crappy mortgage securities that *might* turn profitable some day (they did in the case of the Japanese banking crash and bailout in 2002-2006, but not to say I'm a fan of the "Paulson God Mode" plan). Well, I guess we're hoping to sell the fighters to Israel and NATO allies some day, but most of the proceeds will probably go to the defense contractors.
And somehow the auto lobbyists conned Washington into securing $25B in low-interest-loans (read: free money) for Detroit, to give them yet more time to retool their anachronistic business models for the reality of $4 gas. Ordinary citizens with good credit can't get a mortgage to save their life, but Detroit gets $25B to research what everyone else already knows!?! Uh, it's not like this came as a surprise, and look what the competition has done. European companies developed more efficient diesel and constant-variable transmission, and Japan is pumping out new 30-mpg partial-zero-emission family sedans and hybrids every year. But Detroit gives us the Escalade Hybrid, new minivans (nothing mini about them though), and Ford Flex (20 MPG highway - whoopee!). We keep subsidizing these inept morons, yet funding for scientific research, college grants, disability assistance, and various social servies keeps shrinking?
Interesting link about the previous financial bailout in Japan, and it's near success (if it wasn't for the current housing bust):
http://news.bbc.co.uk/2/hi/business/7623779.stm
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