Do We Need a “Death Penalty” for Negligent Oil Companies?

April 19, 2012

05 May 2010, VENICE, LOUISIANA, UNITED STATES --- epa02145242 Dispersed oil floats on top of the water in the Gulf of Mexico off the coast of Louisiana, USA, 05 May 2010. The Deepwater Horizon drilling rig exploded on 20 April and has been leaking oil into the Gulf of Mexico at a rate of 5,000 to 20,000 barrels day.

Watch The Spill, a joint investigation by FRONTLINE and ProPublica into the trail of problems — deadly accidents, disastrous spills, countless safety violations — which long troubled the oil giant, BP. Could the disaster in the Gulf of Mexico have been prevented?

Two years after an explosion at BP’s Deepwater Horizon rig killed 11 workers and unleashed more than 5 million barrels of oil into the Gulf of Mexico, deepwater drilling is back up at the levels it was before the April 20, 2010 accident — and expected to surpass it soon.

Since the spill, the government has enacted a series of administrative reforms, including overhauling the troubled Minerals Management Service by creating separate agencies to approve offshore leases and enforce safety and environmental laws. But a new report (PDF) from the presidential commission investigating the disaster gives Congress a “D” grade for its response, criticizing lawmakers for not having enacted “any legislation responding to the explosion and spill,” specifically laws that would support the government’s program to manage offshore activities.

Are we safer if another disaster occurred today? To find out, FRONTLINE spoke with Amy Myers Jaffe, the director of the Baker Institute’s Energy Forum at Rice University.

BP recently came to a reported $7.8 billion settlement with private claimants, and the federal government is still determining how much the oil giant could pay in possible civil and criminal fines for the oil spill. It really seems like our policy right now is to use fines on companies, not just as a means to punish them, but as a deterrent to regulate them. How effective is that?

“With the death penalty, there is a period of time where the company is not allowed to bid for new leases or continue with drilling activities until it cleans itself up… Access to leases and the ability to stay on a drilling schedule is important to a company. It’s a hell of a lot more important to a company and a CEO than just paying a fine.”

We have a system where we use fines, [but] given the high level of lawsuits and cleanup and compensation costs, I’m not sure that fines are actually an effective policy tool. …

You advocate a new government office or position to determine when a company is negligent, and then take action.

My opinion is the United States would benefit from creating a position called “chief safety officer” that would operate either independently or as part of a government agency. It should be someone who’s both a scientist and independent, who knows the technology of offshore drilling.

Through that office and through the court system, if you were to determine that there were companies that were negligent — and that could even be not just for offshore drilling, it could be for companies that drill in shale and have repeated accidents based on negligence — [then] we at our program here at the Baker Institute have advocated for something called the “death penalty.”

With the death penalty, there is a period of time where the company is not allowed to bid for new leases or continue with drilling activities until it cleans itself up, restructures its operations and gets its safety procedures, etc., in line.

I think that would have an incredible impact. It’s a competitive business. Access to leases and the ability to stay on a drilling schedule is important to a company. It’s a hell of a lot more important to a company and a CEO than just paying a fine. …

Has there ever been something like a death penalty imposed on a company after a major accident in the past?

I have never seen one — and not just in the United States. …

Do you know why one has never been imposed?

I don’t know. I think it’s a good idea. In the United States we have a leasing procedure. In some countries, quite frankly, where it’s less transparent, if you’re not a good operator, you might not just win the bid [the] next time, even if you bid the highest. Here, we have a very transparent system. If you’re willing to pay more for the leases, you’re going to win them. …

I think here in the United States it would work, and it would set a precedent for what people do in other places.

Part of it is, in fairness to the industry, that they just don’t have a record of that many of accidents. There are a lot of small accidents, tiny accidents. But we don’t have this history of major accidents like the Macondo [Gulf oil spill]. That’s why it was so shocking when it happened.

What about BP? With the 2005 Texas refinery explosion, accidents and spills in Alaska in 2002 and 2006, and the Thunderhorse rig accident in 2005, hadn’t it demonstrated a troubling pattern of accidents, even before the gulf spill?

There is no question, and I think BP has acknowledged this, that divisions of BP had accidents happen. We all know about Texas City; we all know the pipeline leak in Alaska. I’m sure there were other events that didn’t get as much publicity. I think the company has acknowledged that it had some safety culture challenges. …

So the question is, [are those accidents] going to affect their business de facto, or is it going to affect their businesses formally? De facto, [the spill] did affect their business because companies would be reluctant to partner with BP as the operator, whereas maybe prior to the Macondo accident or some of these other accidents, companies wouldn’t have given that a second thought.

I’m not saying that BP can’t partner, but that maybe the way it gets adjusted is that the number which I would be willing to partner with BP — in other words the amount of benefit to myself or cost to them — is higher now than in the past. When anyone goes into a venture or consortium, there’s a risk assessment that goes into the pricing and the share making in those ventures. Probably post-Macondo there were some adjustments made on a commercial basis. The company did suffer reputational issues.

But that wasn’t formal?

Right, it wasn’t formal. Believe me when I say that if you’re the chairman of a company, and you wake up in the morning and your stock is worth half of what it was before, you’re under pressure, regardless of whether some government regulator is on top of you or not.

In the refining business, days shut down is money in the bank. So there’s a natural penalty for a company where the management can’t operate smoothly. Your performance is going to be less good and your stock price is going to be down and that’s going to be bad for the management. BP did change chairmen.

On the other hand, I think there are some things that belong in the public policy space. I do think when there’s a real big pattern of accidents … there should be a penalty for that beyond just having to pay a fine.

After the gulf spill, the Obama administration imposed a six-month moratorium on deepwater drilling. What kind of an effect did that have?

But that was for everyone. It’s not like there was a moratorium just for a company that was negligent.

I don’t criticize the president. I think he did the right thing. At the moment in time [when] we realize there is something we might not have known, it’s good to take a breath and just have everybody inspect their platforms. I think that was a good decision.

Moving forward, you want to make it company specific. If you were a company that consistently has problems, we, the U.S. government, are going to do something to you. Whether it’s adding to the frequency of inspections [or] whether its something extreme like I’m suggesting, where there’s a death penalty, there needs to be some consequence beyond a small financial fine. The price of oil is above a hundred dollars a barrel; I think a financial fine doesn’t get peoples attention. …

We’re going into deeper and deeper waters. It’s going to be harder to do. I think the rules need to be strict. It needs to be that when you’re going out and you’re going to try something, you need to be as sure as you can be. We want the companies to be as sure as they can be. And also if we’re going to be drilling all around the United States onshore, again, we need to be as sure as we can be. …

Is there a lobby fighting that sort of regulation? Why aren’t the rules stricter?

No, I think the public doesn’t know.

My opinion is that in this country the debate is so polarized, just the way everything else in this country has now become so polarized. So that when you hear that there could be a problem, the debate is: Shall we not drill at all, or should we allow drilling?

With the president having a moratorium, it kind of sounded like that — that we are either going to stop this or were going to do it. That’s not optimal. It would be like the first time we had an accident trying to go to space, we just said, “OK, there’s a possibility of accidents, we’re not going to go to space.” …

It’s all well and good for environmentalists to say we should just not drill at all and we should just do renewable energy. It would be nice if we had that luxury, but that’s not really a realistic choice.

If the realistic choice is, we have 350 million cars that run on liquid fuel, and we need to provide that fuel in some way, then we need to think about the safest possible way to provide that fuel and the best way to incentivize the private sector companies to do that; to provide the right services, best practices. …

Deepwater drilling in the gulf is expanding into Mexican and Cuban waters, where the U.S. doesn’t have control. But if there’s an accident, it would likely affect our shoreline. What are the risks of this expansion?

There’s always a risk to any kind of drilling, and there’s a higher risk if the country that’s doing the drilling doesn’t have proper regulations, or if the people doing the drilling are not as qualified. If the Cuban National Oil company is going to do the drilling together with a foreign company that doesn’t have experience in deep water, that would be a problem. …

What are the new safety standards in place since the spill? Would you say we are safer from a spill and its ensuing disaster today than we were before the gulf spill?

Yes. We are definitely safer today for a number of reasons.

Number one, regardless of the regulatory framework, the stock share price of every company that drills offshore went down when the BP accident happened — not just BP. That caused all the companies to look at their operations and make sure that they’re reducing their possibility of an accident.

Second of all, they have developed containment technology to use in the event of an accident. BP had trouble collecting up the oil as it was coming out of the pipe for weeks and weeks. That would never happen again. Now the companies have developed the technology to have a vessel system to collect up the oil as it comes out of the damaged pipe. … That’s a solid improvement.

The third thing is that there’s going to be probably more R&D [research and development] on the safety equipment. The whole public in the United States knows what a blowout preventer is and that sometimes they fail. So the companies that make those blowout preventers are going to be under even more scrutiny to provide a more reliable product. It’s an engineering challenge. I have faith in science. I believe over time, when there’s pressure to make something better, it’ll be made better. …

And people are working on doing R&D on stronger cements, using nanomaterial or using other kinds of new material science, improved use of sensors, faster, more real-time remote communications. I just think there’s going to be a lot of technical improvements in how people go about doing this drilling post-Macondo because of the experience that was learned looking at that accident.

Some like Rep. Edward Markey (D-Mass.) have said Republicans have blocked new safety laws. What would you say about the state of legislation since the spill?

It’s safer, but there could be still be improvements. …

I think having the United States have the same position as the Canadians, where we have a chief safety officer would be a big improvement. I know we’re in a tight budgetary time, but we’re going to have a lot more oil and gas revenue over time as we drill more both onshore and offshore. I think a portion of that revenue should be used to have a higher trained, larger staff of inspectors. We could have the perfect safety regulations and the perfect EPA (Environmental Protection Agency) regulations, and if there’s no one to go out and enforce those regulations, then it doesn’t matter that they’re there. We have to invent the manpower that it would take to improve our regulatory environment.

I mentioned having harder penalties, not just fines, but harder operational penalties for companies that have a pattern of negligence. In some cases onshore, you get people who as a regular practice dump water illegally. People who do that shouldn’t be fined, their permits should be taken away.

What about jail time for negligence?

I think jail time is an effective threat, if you’re talking about shale onshore.

Offshore is more complicated because it’s so hard to prove that someone did something purposefully wrong. Probably offshore, nobody’s doing that. If you’re working on a rig, the consequences of doing something wrong could be that you’d die. You’re not going to do something purposefully wrong on a rig. …

It seems like the Obama administration’s policy is to keep up production — deepwater drilling levels are now at levels they were before the spill — and try to cut back consumption, while exploring alternative ways to meet America’s energy needs. In thinking of ways to meet America’s more long-term energy needs, what is smart policy?

“We should all be willing to pay more of a tax if we want to make a transition to cleaner fuels, and pay a slightly higher price for the fuels that aren’t clean, and have that money … spent on research and development on cleaner technology.”

That’s a good policy, honestly. But the president could never survive [what should happen]. We should all be willing to pay more of a tax if we want to make a transition to cleaner fuels, and pay a slightly higher price for the fuels that aren’t clean, and have that money — not just through a high price but through a tax or a revenue stream — spent on research and development on cleaner technology. …

But there’s a tremendous amount we can do to lower oil demand in this country. Things like the CAFE standards [raising fuel mileage] and so forth, these are all important policies. …

The other thing we have going for us, which is a great thing, people 35 and under actually drive less. So generationally we already have this sort of benefit coming down the road. I’m a baby-boomer, so that means that people who are my peers, who are 60, drive less when they get to be about 60. So we have a whole segment that’s going to start driving less and we have a giant segment coming in behind them that drives less. So if we’re all going to drive less and have more fuel-efficient cars, we’re going to make a lot of progress.

When you say we should all be more willing to pay more for gas and in taxes to make the transition to cleaner fuels, is that politically unfeasible?

Yes, and it’s a shame because people seem like they care. People need to think about banning drilling as almost the same as a tax. When you ban drilling, it means you’re going to raise the costs, you’re going to raise your own energy costs. …

When we ban drilling, we lose state or federal revenues from the royalties from that drilling, and it doesn’t promote renewable energy in any way except through an arbitrarily higher price. But if we purposefully put on a tax, not only do we have that same higher price — because we’re going to have it anyway if we don’t drill — but we have the revenue from it to have a stronger program on clean energy. That would make a lot more sense. …

When you say let’s not drill, you’re voting for a higher price. So why wouldn’t you vote for a higher price purposefully, when we can actually take the revenue and use it for good use. When we vote not to drill, we give that money of the high price to Saudi Arabia. …

In thinking about the reasons you’ve cited for why we are safer today, some of them really seem to be a response to the harsh spotlight and scrutiny that fell on BP after the spill. How important is the media’s role in this?

There’s no question that the media has a role. Specifically, I would say science writers have a role.

It’s very important today, especially in the energy space, for Americans to make themselves more engineering literate. We all need to understand how blowout preventers work and whether that’s a good enough technology.

And we have to come to grips with different kinds of accidents. This accident that just happened in Brazil again is a different kind of accident with a different set of tactical challenges. We, as an informed public, need to absorb when someone explains that this was one kind of accident or another. Understanding the differences between a disposal injection well for wastewater and the actual operation of drilling — because that’s two different things. It’s the media’s job to help us understand that it’s two different things, so that we understand that it’s two different kinds of regulations. That requires a certain level of engineering literacy. … That’s the kind of thing that the media can help with, to get the public up to speed. …

Dig Deeper: BP’s Troubled Past

Explore FRONTLINE and ProPublica’s investigative reporting and documents — some never before published — on major incidents at BP facilities over the past decade that grabbed headlines and raised questions about the company’s record and the government’s oversight.

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