Addicted to Risk

Naomi Klein speaks at TED last month about how “our underlying assumption of limitlessness allows us to take the risk that we do.”  She looks at the Alberta Tar Sands, the BP Oil Spill, and our ever falling EROEI, and examines why we continue to see unending growth as the answer to all of our problems.


As Earl heads north, another oil rig explodes in the Gulf

Ladies and gentlemen, this just in.  The Vermillion Oil Rig 380 has just exploded 80 miles of the coast of Louisiana, with 12 people missing.  This is yet another painful reminder of how expensive our energy is becoming.  We will learn a lot more in coming days, but after the Deepwater Horizon, another accident is the last thing we need.

At In A Future Age, we are battening down the hatches in preparation for Hurricane Earl, headed our way in the next 36 hours.  I hope everyone has a safe and happy Labor Day weekend.


Reid to climate: drop dead. Can we afford inaction?

Ross Douthat admits Global Warming is a problem, but argues for inaction.

Today, in the New York Times, Paul Krugman and Conservative wunderkind Ross Douthat present competing theories on why climate change legislation is dead this year.  Douthat, surprisingly, admits that Global Warming is a genuine problem:

“…Conservatives who treat global warming as just another scare story are almost certainly mistaken.  Rising temperatures won’t “destroy” the planet, as fear mongers and celebrities like to say. But the evidence that carbon emissions are altering the planet’s ecology is too convincing to ignore. Conservatives who dismiss climate change as a hoax are making a spectacle of their ignorance.”

Douthat blames the demise of legislation on conservatives; in his words there is “seemingly an unbridgeable gulf between the conservative movement and the environmentalist cause.”  Of course, that framing of Global Warming is purposeful.  In Douthat’s mind, Global Warming is a problem for bird watchers to worry about.  In fact, Douthat provides the argument for inaction by making a dangerous assumption:

“…The assumption that a warmer world will also be a richer world — and that economic development is likely to do more for the wretched of the earth than a growth-slowing regulatory regime. But it’s also grounded in skepticism that such a regime is possible. Any attempt to legislate our way to a cooler earth, the argument goes, will inevitably resemble the package of cap-and-trade emission restrictions that passed the House last year: a Rube Goldberg contraption whose buy-offs and giveaways swamped its original purpose… Not every danger has a regulatory solution, and sometimes it makes sense to wait, get richer, and then try to muddle through.”

Douthat does not discuss the concept of externalities, and this is key.  An externality is the result of a transaction that is borne by neither the buyer nor seller directly, but rather by a third party.  In the case of our fossil fuel supplies, the externalities are only growing.  In addition to greenhouse gasses, you have pollution from coal plants that has measurable health impacts on communities surrounding them, and you have the ghastly side effects of hydraulic fracturing of shale for natural gas.  Of course, don’t forget about the oil spill in the Gulf of Mexico.  The scary thing?  We subsidize these fossil fuels.  Douthat, however, just wants to rely on unending growth to solve all of our problems.  Unfortunately, the Earth will not support unending growth.  Douthat would be wise to read Tim Jackson’s Prosperity Without Growth.

Paul Krugman, on the other hand, points the blame for the demise of climate legislation in a more

Krugman advises us to follow the money.

believable and useful direction.  In Krugman’s mind, we need to just follow the money:

“The economy as a whole wouldn’t be significantly hurt if we put a price on carbon, but certain industries — above all, the coal and oil industries — would. And those industries have mounted a huge disinformation campaign to protect their bottom lines.  Look at the scientists who question the consensus on climate change; look at the organizations pushing fake scandals; look at the think tanks claiming that any effort to limit emissions would cripple the economy. Again and again, you’ll find that they’re on the receiving end of a pipeline of funding that starts with big energy companies, like Exxon Mobil, which has spent tens of millions of dollars promoting climate-change denial, or Koch Industries, which has been sponsoring anti-environmental organizations for two decades.  Or look at the politicians who have been most vociferously opposed to climate action. Where do they get much of their campaign money? You already know the answer.”

That is the key of course.  Producers of fossil fuels do not want to have to account for externalities of their products.  They would rather society at large bear those costs.  We are slaves to growth and slaves to consumption, unable to see the forest for the trees.  As Krugman points out, 2010 is the hottest year on record.  Inevitably we will need to place a cap on carbon emissions; the longer we wait, the more difficult it will be.

Ross Douthat should read this book.

How do we solve these problems?  Herman Daly, an ecological economist, offers some viable prescriptions.  I will highlight one of the most important ones, which you will not see any politician advocate: ecological tax reform.  Right now labor and capital (the value added) is taxed; ecological tax reform would end value added taxes and instead tax that to which value is added: the throughput of resources extracted from nature (depletion) and returned to nature (pollution).  Ecological tax reform would reward entrepreneurs who are able to add value and innovation efficiently.  We want to encourage value added, and discourage depletion and pollution.  It sounds simple, but it goes against the neo-classical devotion to unending growth.  As such, Douthat and his fellow conservative denizens continue to believe in Business as Usual.


Are evangelicals becoming liberals?

Don’t look now, but the Southern Baptist Convention is turning into a bunch of liberals.  At least that is how hyper-partisans like Glen Beck and Sarah Palin would describe them.  Recently, the SBC has come out in favor of environmental regulation and comprehensive immigration reform, two issues that put them at odds with conventional right-wing ideology.

First of all the SBC passed the following resolution in the wake of the ongoing oil spill in the Gulf of Mexico:

“The Convention called on the government “to act determinatively and with undeterred resolve to end this crisis … to ensure full corporate accountability for damages, clean-up and restoration … and to ensure that government and private industry are not again caught without planning for such possibilities.”

Dr. Russell Moore, the dean of the School of Theology at Southern Baptist Theological Seminary and preacher at Highview Baptist Church near Louisville, Ky., helped pass the resolution.  He believes that conservatives should not, as Milton Friedman preached, have a lassez-faire view of government regulation:

“We, as Christians, believe in sin. That means if people are sinful, if all of us are sinful, then all of us have to have accountability — and that includes corporations.  Simply trusting corporations to go about their business without polluting the water streams and without destroying ecosystems is really a naive and utopian view of human nature. It’s not a Christian view of human nature… Human flourishing means a healthy natural environment, and it simply isn’t good for ourselves or for our neighbors to live in a world that is completely paved over and in which every piece of green land is replaced with a Bed, Bath, and Beyond,” he says. “That’s not how God designed human beings to live.”

In addition to that resolution, leaders in the SBC are coming out in favor of comprehensive immigration reform that includes both border security and a path to citizenship for undocumented workers.  Richard Land, head of SBC’s Public Policy Arm, is trying to convince Conservatives that compromise makes political sense:

“I’ve had some of them appeal to me. They say, ‘Richard, you’re going to divide the conservative coalition.’ And I said, ‘Well, I may divide the old conservative coalition, but I’m not going to divide the new one.’ If the new conservative coalition is going to be a governing coalition, it’s going to have to have a significant number of Hispanics in it, that’s dictated by demographics, and you don’t get large numbers of Hispanics to support you when you’re engaged in anti-Hispanic immigration rhetoric.”

Land believes that the fight over the Hispanic vote is being won by the Democrats, which could put Republicans in a bind for years to come:

“The people who have been anti-immigration have lost every one of these arguments,” he says. “They lost it with the Irish in the 1830s and ’40s and turned them into Democrats for three generations. They lost it with the Italians in the 1890s and the early part of the 20th century and turned the Italians into Democrats for three generations. I mean, you know, do they want to do it with the Hispanics too?”

It is surprising for me to discover that I agree with the Southern Baptist Convention on two major issues.  It would be a big coup if Conservatives could make the shift the SBC is advocating.  I am confident, however, that Sarah Palin’s opposition to environmental regulation will win the day.  I am also confident that Republicans will continue to look only at the short term on immigration, as their base gets older and older.  In other words, despite their best efforts, I don’t think the SBC will be able to save the Republican Party.


The apology heard ’round the world.

Republican Rep. Joe Barton apologized to BP yesterday.

Yesterday, as I described during my live coverage of the House Energy and Commerce Committee’s questioning of BP CEO Tony Hayward, Rep. Joe Barton, from oil industry haven Texas, apologized to BP for the “shakedown” that the company faced from the White House:

“I’m ashamed of what happened in the White House yesterday,” said Rep. Joe Barton (R-Tex.) during a hearing on Thursday morning with BP’s CEO Tony Hayward.” I think it is a tragedy in the first proportion that a private corporation can be subjected to what I would characterize as a shakedown — in this case a $20 billion shakedown — with the attorney general of the United States, who is legitimately conducting a criminal investigation and has every right to do so to protect the American people, participating in what amounts to a $20 billion slush fund that’s unprecedented in our nation’s history, which has no legal standing, which I think sets a terrible precedent for our nation’s future.  I’m only speaking for myself. I’m not speaking for anyone else, but I apologize,” Barton added. “I do not want to live in a county where anytime a citizen or a corporation does something that is legitimately wrong, [it is] subject to some sort of political pressure that, again, in my words, amounts to a shakedown.”

Rep. Barton did not agree with the $20 Billion escrow account, which Tony Hayward agreed to with President Obama, and would ensure that money is available to pay “all legitimate claims.”  Well, Rep. Barton apparently hoped that BP would be able to use their army of lawyers to fend off legal challenges, like two other notable companies: Exxon Mobil and Dow Chemical.

25 years after a plume of fatal toxic gas escaped from a Union Carbide plant in Bhopal, India, and killed thousands of sleeping Indians instantly, and tens of thousands later, eight former executives were finally found guilty and sentences to two years in prison and a fine of about $2100, only last week.  In 1989, Union Carbide, which was later purchased by Dow, paid only a $470 Million settlement, which provided only $550 per victim.   Additionally, Dow is not taking responsibility for cleaning up the site.  In fact former Union Carbide officials still refuse to take responsibility for the leak, blaming it on sabotage.

In the other case, Exxon was required to pay only $500 million, from what was once a $5 Billion punitive award, after a nearly 20 year legal saga. BP can fight this battle much longer than any Louisiana fisherman.  The $20 Billion escrow fund is an act of good faith on the part of BP.  For Rep. Barton to insist that is it a “shakedown” is to say that the Dows and the Exxons of the world should be able to avoid accepting the consequences of their actions.

Apparently Barton, after being condemned by fellow Republicans, retracted his apology.  However, many conservatives do support Barton, and object to the escrow account.  It is a mystery how one could side with BP on this case, with clear evidence of their liability.  Ultimately, a huge company like BP has more power than most modern States.  Even in the United States, companies like BP can capture the regulators and ensure favorable legislation through their financial support.  In that environment, how can conservatives claim that the power of mega-corporations should go unchecked?  How on Earth could Barton side with BP, when we now know all the cost-cutting that led to the disaster on the Deepwater Horizon and in the Gulf of Mexico?


Live coverage of Energy and Commerce Questioning of BP CEO Tony Hayward

Rep. Henry Waxman chairs the committee grilling BP CEO Tony Hayward

Here is live video of the hearing.

Rep. Henry Waxman expressed his exasperation in his opening statement:

“BP repeatedly took shortcuts that cost lives and increased the risk of catastrophic blowouts… There is not a single e-mail that indicates that you understood the danger… We are seeing in the oil industry the same corporate indifference to risk that we saw in the collapse on Wall Street.”

Rep. Bart Stupak scores this zinger:

“You owe it to all Americans, we are not small people, but we deserve to get out lives back… Mr. Hayward, I am sure that you will get your life back, with a golden parachute to boot.“

Republican Rep. Joe Barton called the $20 Billion compensation fund a “slush fund” and a “shakedown.”  I suppose he trusts BP to settle quickly, unlike Exxon, which only recently finished its legal case on the Exxon Valdez spill, and paid limited settlements.  I suppose he forgets that Dow Chemical only recently completed its legal settlement after the 1984 Bophal catastrophe, where approximately 15,000 Indian people died after a chemical leak.

Rep. Mike Ross, Democrat of Arkansas, pointed out the obvious: “Mr. Hayward, since this hearing began one hour ago, 112,846 gallons have spilled into the Gulf… It seems apparent that BP put profit before safety.”

Rep. Peter Welch of Vermont artfully described the numerous accidents and safety failures that BP operations produced in the last decade, and concluded: “We’ve heard time and time again from BP that this is an aberration… for BP, regrettably this is business as usual.  This is déjà vu, again, and again, and again.”

The opening statements are over, and Tony Hayward already is slumped. Now he is ready to testify. After Mr. Hayward was sworn in, and was about to begin his opening statement, a woman in the back screamed that Mr. Hayward needed to go to jail.

Tony Hayward’s opened with this: “The explosion and fire on the Deepwater Horizon and the resulting oil spill in the Gulf of Mexico never should  have happened, and I am deeply sorry that it did.  When I learned that 11 men lost their lives, I was personally devastated. Three weeks ago I attended a memorial service for those men, and it was a shattering moment… I can only begin to imagine their [friends and families’] sorrow.”

I understand how serious the situation is.  It is a tragedy.  I want to speak directly to the people who live and work in the Gulf region.  I know that this incident has had a profound impact on your lives, and caused great turmoil and I deeply regret that.  I also deeply reget the impact the spill has had on the environment, the wildlife, and the ecosystem of the Gulf.  I want to acknowledge the questions that you and the public are rightly asking.  How could this happen?  How damaging is the spill to the environment? Why is it taking so long to stop the flow of oil and gas into the Gulf?  We don’t yet have all the answers to these important questions.  But I hear and understand the concerns, frustrations, and anger being voiced across the country, and I know that these sentiments will continue until the leak is stopped and until we prove through our actions that we are doing the right thing.”

Well, Tony Hayward and BP may not have all the answers, but the House committee will try to get them.

Tony continues: “I’ve been to the Gulf Coast.  I’ve met with fishermen, business owners, and families.  I understand what they are going through, and I promise them as I am promising you, that we will make this right. After yesterday’s announcement (of the $20 Billion fund) I hope that they feel we’re on the right track.  I’m here today because I have a responsibility to the American people to do my best to explain what BP has done, is doing, and will do in the future to respond to this terrible accident.”

Tony Hayward certainly claims to understand everyone’s troubles.  It reminds me of Bill Clinton, he used that language a lot.

“To sum up, I understand the seriousness of the situation, and the concerns frustrations and fears that have been and will continue to be voiced.  I know that only actions and results, not mere words, ultimately can give you the confidence you seek.  I give my pledge as the leader of BP that we will not rest until we make this right.  We’re a strong company, and no resources will be spared.  We, and the entire industry will learn from this event, and emergy stronger, smarter, and safer.”

OK, I give in, Tony Hayward really understands.  While stock prices rose yesterday after the establishment of the $20 Billion fund, I am not sure BP is, or will remain a strong company.  Words may not hurt Tony Hayward, and words will not give confidence, but Tony will be under fire shortly, and will have to provide some tough answers.

Mr. Hayward is tapdancing early.  He was asked the following questions by Rep. Stupak, which is gave the identical non-answer:

Should there be a ban on companies with miserable safety records drilling off our coast? … Who are we going to hold accountable?  … Do you expect to be CEO of BP much longer?

Tony’s response to all: “Since I’ve become CEO, safe reliable operations have been our first priority.”

Rep. Michael Burgess, (R-TX) is, like his colleague Joe Barton, most concerned with the $20 Billion fund, and not the CEO right in front of him.

Rep. Waxman asked if BP made a fundamental mistake in the selection of the casing?  Tony responded: “I wasn’t involved in that decision.”  Tony is not taking responsibility for the decisions and actions of his company.

Rep. Waxman and Tony Hayward had this remarkable interchange:

Rep Waxman: “Don’t you feel any sense of responsibility for these decisions?

Tony Hayward: “I feel a great sense of responsibility for this accident.”

Rep. Waxman: “What about the decisions?”

Tony Hayward: “I can’t pass judgement on those decisions.”


Was BP acting in the best interest of British pensioners?

BP CEO Tony Hayward will appear before the House Energy & Commerce Committee Thursday

On Thursday, Tony Hayward will appear before the House Committee on Energy and Commerce, and offer testimony about BP’s failures on the Deepwater Horizon Rig.  These documents, released by the Committee in advance of the hearing, make it clear that BP cut corners.  This e-mail, between BP engineers a week before the blowout, discusses BP’s choice of a faster, less expensive, and less protective casing for the well:

From: Morel, Brian P

Sent: Wednesday, April 14, 2010 1:31 PM

To: Miller, Richard A

Cc: Hafle, Mark E

Subject: Macondo APB

Rich,

There is a chance we could run a production liner on Macondo instead of the planned long string. As this does not change much for APB based on the original design assumptions of a trapped annular, I don’t see any major effects, but wanted to confirm I am not missing something. Attached is the proposed schematic, please let me know if you have any questions. We could be running it in 2-3 days, so need a relative quick response. Sorry for the late notice, this has been nightmare well which has everyone all over the place.

Thanks

Of course, among the documents are also approval e-mails from the Minerals Management Service.  There are also e-mails from Halliburton, showing that BP went against the Halliburton recommendation for the number of centralizers, devices to keep the casing centered on the well while the cement was poured and set.  Halliburton recommended 21, but BP went with only six, because the well was behind schedule.

BP and the British Government, are fighting American efforts to force BP to set up an escrow account to ensure claims settlement, and to cease payment of dividends.  Of course, in Britain, BP dividends account for a large portion of retirement income:

‘BP’s position at the top of the London Stock Exchange and its previous reliability have made it a bedrock
of almost every pension fund in the country, meaning its value is crucial to millions of workers. The firm’s dividend payments, which amount to more than £7 billion a year, account for £1 in every £6 paid out in dividends to British pension pots. BP is so concerned about Mr Obama’s power to affect share value that it has urged David Cameron to appeal to the White House on its behalf. Downing Street, however, has refused to get involved. “We need to ensure that BP is not unfairly treated – it is not some bloodless corporation,” said one of Britain’s top fund managers. “Hit BP and a lot of people get hit. UK pension money becomes a donation to the US government and the lawyers at the expense of Mrs Jones and other pension funds.”’

Now, did BP have British pensioners in mind when it opted for cheaper casing, and fewer centralizers?  No, it opted for risky cost-cutting instead of safe, secure profit that pensioners would expect. Will blaming the President help the pensioners?  Not quite.  The pensioners are simply learning the same lesson that stockholders of Enron and Worldcom learned, that many corporations incentivize short term earnings without an eye to the long term.