June 30, 2010

Oil spill could spur climate change legislation

Tragedy can be a catalyst for change. The Clean Water Act was passed shortly after the Cuyahoga River caught fire in Ohio. The Clean Air Act was the result of toxic air plaguing the nation for years. CERCLA (Superfund) was enacted within months after a second State of Emergency was declared at the Love Canal site in New York. The Oil Pollution Act was signed into law in August 1990, largely in response to rising public concern following the Exxon Valdez disaster in March 1989. Decisionmakers are often swift to react after a catastrophe strikes.

While the oil spill in the Gulf of Mexico is wreaking irreparable harm to the environment and devastating local communities, one possible bright spot is that this tragedy could lead to a comprehensive climate change law in the United States, and ultimately to a future that does not depend upon the extraction of fossil fuels miles below the earth’s surface.

Currently, economists, ecologists, and other experts are hard at work estimating the extent of the damage and determining how much it will cost to clean up the spill. Although estimates vary, most agree that the price tag will exceed many billions of dollars. With each figure released, the case grows for why a comprehensive climate change law will reduce our dependence on fossil fuels and associated greenhouse gas emissions.

As BP engineers dream up new ways to plug the hole on the sea floor, historians are digging through dusty file cabinets and rereading old articles about the Exxon Valdez oil spill. They remind us that 21 years ago, nearly 11 million gallons of oil spilled from the Exxon Valdez oil tanker off the coast of Alaska. Exxon estimated that it spent over $2 billion on cleanup efforts (which lasted four years), paid $25 million in criminal fines, $100 million to the federal and state governments for injuries to property and wildlife, and another $900 million for a civil settlement between the company and the federal and state governments. In addition, the company paid $287 million in compensatory damages and $507.5 million in punitive damages (after a larger sum was reduced by the Supreme Court) to a group of fishermen and landowners who filed a class-action lawsuit against Exxon. Overall, Exxon paid nearly $4 billion in cleanup and litigation costs. That's roughly $360 for every gallon spilled.

According to the latest government estimates, approximately 25,000 barrels, or just over 1 million gallons, of oil are still spewing up into the Gulf every day (and even this amount may be on the low end). At this rate, and using the precedent set by the Exxon Valdez, the spill could cost BP as much as $360 million per day. At two months and counting, BP could be liable for approximately $22 billion in damages. And every month that the well goes uncapped, BP’s costs increase by $11 billion. (In early June, an independent research service estimated that the total costs for BP would amount to $35 billion).

Although cleaning up the oil spill is vitally important to the health and welfare of the Gulf States and the regional ecosystem, one cannot help but wonder how this money could have been better spent and the impact those funds could have had on the renewable energy sector.

For comparison, it is useful to look at some of the renewable energy and energy efficiency-related projects that were funded by the federal government through the American Recovery and Reinvestment Act. For example, in late 2009, Ford Motor Company received a $5.9 billion in conditional loan commitments from the Department of Energy (DOE) to transform some of its factories to produce more fuel-efficient cars. In January 2010, Tesla Motors received a $465 million low-interest loan from DOE to build two facilities for manufacturing electric vehicles. In February 2010, BrightSource Energy received a $1.37 billion loan guarantee from DOE to build a 440-megawatt solar thermal power complex in the California desert. Solyndra, which received a $535 million loan guarantee from DOE in March 2009 to manufacture solar panels, estimated that its loan would cover about 70% of project costs for a facility that would produce 500 megawatts of solar power per year.

The combined total of these projects cost taxpayers about $9 billion – an amount that BP will likely incur every 3 weeks that the oil continues to flow into the Gulf. Needless to say, when the final cost of clean-up efforts, federal fines, legal fees, and judicial settlements have been calculated, the total expenses from this spill will be many billions of dollars more than was allocated by federal stimulus programs. Even though the bills will be sent to BP, the US taxpayer will bear a significant portion of the costs and the economic impacts of this disaster will be felt for many years to come. Ironically, less than a month before the spill, BP Solar (a BP subsidiary), announced plans to close its solar panel manufacturing facility in Frederick, Maryland, citing cost issues as the primary reason for the decision.

Bringing economics into the oil game could provide renewed political incentive to promote clean energy legislation. But the recipe for legislative reform is not based purely on facts and figures. It also requires a drastic mobilization of public opinion to push legislatures to act.

And perhaps that is exactly what this oil spill has accomplished that years of scientific papers, geopolitical arguments, and simple commonsense could not. Growing public outrage over seabirds drenched in tar, turtles swimming through thick black sludge, and pristine habitats ruined by toxic concoctions can drive political change at the highest levels of government.

A recent CBS news poll conducted in late May 2010 found that 46% of Americans were opposed to increasing offshore drilling, compared to 45% in favor. In July 2008, the same poll found that only 28% were opposed and 64% in favor. In a healthy democracy, this dramatic rise in disapproval should trigger a permanent moratorium on offshore drilling and the enactment of comprehensive climate change legislation.

Presumably heeding the calls from his constituency, Senate Majority Leader Harry Reid recently announced that he will develop proposals for a new energy bill before the Fourth of July. Reid expressed a need for Congress to “move much more quickly to help the country kick the oil habit as soon as possible and push harder for the production of affordable alternative fuels and advanced vehicles.” Meanwhile, while touring a construction site where Solyndra is building a new manufacturing facility for solar panels, President Obama vowed to pass climate change legislation by year's end.

The BP spill has forced the nation to recalculate the cost of our oil-based economy and will hopefully lead to lasting legislative solutions that encourage the use of renewable energy, prevent future oil spills, and reposition the US as a leader in cleantech development.

Source: Jack Jacobs, Cleantech Law Partners (as published: http://bit.ly/aaIkc9)

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