Friday, May 7, 2010

The Gulf of Mexico Oil Spill - A Regulatory Failure?

The New York Times just came out with an article making this argument. The bottom line is that federal regulators repeatedly warned the rig operators that they need to install backup systems to control the underwater valves that are used to cut off the flow of oil from the well in cases of emergency.

However, despite these warnings, the rig operators never complied, partly, and most alarmingly, because the federal agency in charge of rig operations and safety, the Minerals Management Service, has failed to formulate explicit regulations to that effect, and has failed, so the article claims, to monitor the rigs.

The strongest claim in the article is that the regulatory agency has been captured by the oil industry it is in charge of regulating. Regulatory capture is a familiar problem discussed in public choice theory, causing negative externalities, erosion of public trust, and a general failure to act on behalf of the public interest. According to various investigations, the Minerals Management Service has been poorly managed, including the taking of bribes by agency officials, revising reports to minimize environmental concerns, and engaging in drug use and sex with oil industry officials. So, literally, then, the agency is in bed with oil industry!

What is the solution? Well, effective regulation is a good start. But how to achieve that? As the article reports, some countries have separated the officials responsible for oil operations from those charged with saftey regulations. This can be helpful because, as experts argue, when operations and safety are placed together, safety concerns become subservient to operational concerns. The chief motivation is to keep the oil pumping and the money flowing, which often comes at the price of safety. Thus, separating the two functions and giving an independent status to safety regulators, might alleviate such subordination.

No comments:

Post a Comment

Website Tracker