Neil H. Buchanan

Oil Spills, Mine Disasters, and Everyday Environmental Degradation: The Suddenly Unhidden Costs of Our Standard of Living

By NEIL H. BUCHANAN
Thursday, May 6, 2010

The explosion of an offshore oil-drilling platform on April 20 of this year has already resulted in millions of gallons of oil being released into the Gulf of Mexico.  The resulting oil slick, currently the size of the state of Delaware and growing, will soon reach the Gulf Coast, resulting in what will almost certainly be the worst environmental disaster in the history of the United States.  Matters are, moreover, certain to get much worse before they get better, with estimates of a three-month delay or longer before the hole in the ocean floor can even be plugged, and with five thousand barrels (over 200,000 gallons) of oil entering the Gulf's waters every day in the meantime.

A disaster of this magnitude has, of course, resulted in nearly immediate political posturing and finger-pointing.  The politics are a bit less unpredictable than usual, however, because of President Obama's unfortunate (or, at least, unfortunately-timed) embrace last month of expanded oil production from offshore drilling.  Even so, the response to the Gulf disaster has been generally along party lines, with many Democrats (and some prominent Republicans from coastal states, such as Gov. Arnold Schwarzenegger of California) calling for a moratorium on further oil drilling off the nation's coasts, and most Republicans (as well as some Democrats, such as Sen. Mary Landrieu of Louisiana) dismissing such calls as an overreaction to an entirely acceptable (though lamentable) cost of doing America's business.

Caught somewhere in the middle, meanwhile, the Obama administration has called for efforts to improve the safety of offshore oil drilling, even as it rejects calls to back away from its recent embrace of "Drill, baby, drill."  The essential message from the administration and similarly center-right commentators is that "We need the oil," so there is no point in engaging in understandable -- yet ultimately irresponsible -- calls to view this environmental disaster as a wake-up call to change our course on energy policy.
               
While it is surely wise counsel not to overreact (in any situation), there is a very real danger that this is a wake-up call, and that we are once again going to hit the "snooze" button and go back to a blissful sleep.  What the Gulf oil disaster and other recent events have shown us, after all, is that there are surprisingly high costs to continuing to do things the way we have become accustomed to doing them.  It is far too easy to ignore those costs most of the time, meaning that when they do become obvious, the time is right to stop and reconsider all of our available options.

Such a clear-eyed assessment would, I believe, result in a much more dramatic break from our habitual practices.  If we made such a break, we would not merely be reacting to an event because it has suddenly become salient – as often happens after airplane crashes, when people decide to drive rather than fly, in reliance on the foolish belief that they are safer in their cars.  Instead, we would be acting wisely because the evidence that is now available demonstrates that the tradeoffs are worse than we thought.

The Costs of Environmental Harm: Externalities and Risks

The standard economic analysis of environmental damage treats harms to the natural environment as "externalities," costs that a decision-maker is able to shift onto others without paying those costs herself.  When that happens, the polluter is able to save money by refusing to clean up her mess (or to take expensive efforts to prevent a mess from happening in the first place), and the rest of society is left to deal with the consequences.

In the case of some environmental harms, the damage from the pollution can be mitigated after the fact; and the cost of doing so can be imposed on the polluter.  For those harms that cannot be undone – for example, hacking off the top of a mountain in order to mine coal, or causing the extinction of animal and plant species through any number of industrial activities – the standard response in economics is to ask how much harm the non-mitigated environmental damage imposes on people.  The literature on these topics is vast, but it is fair to say that there is no consensus on how to put an economic value on the costs of many environmental harms, especially irreversible harms of the sort that will soon be visited on the Gulf.

The Gulf oil disaster is already of epic proportions, but one could argue that this was simply one of the risks that we should have known we were taking when we allowed several thousand offshore oil drilling platforms to go into production in the nation's waters over the past few decades.  This particular outcome – a disaster's occurring –might have had a very high social cost, but perhaps it was of such low probability that the "cheap" oil was worth the risk.

I put "cheap" in scare-quotes because, of course, we now know that the oil was not nearly as inexpensive as we thought it was – and we should have thought about its costs very differently.  Just because a person has not yet lost at Russian roulette does not mean that he is not facing the probability of a catastrophic outcome.  When it comes to offshore oil, we were told before the disaster, in essence: "See?  Nothing happened"; yet after the disaster, we are now being told, "Why are you surprised that something happened?  Some damage is inevitable."

New Events Provide New Information, Which We Must Take Into Account

When unexpected events occur, the new evidence should allow us to reassess what we know, and what we do not know.  In the immediate aftermath of the Gulf oil disaster, what we now know – and what we did not know before – is just how bad the worst outcome can be.  No one, so far as I am aware, claims to have known that a disaster on this scale was a possible consequence of our offshore drilling operations.  In fact, President Obama's now-infamous comment in early April that offshore drilling generally does not result in oil spills, while literally true, captures the essence of the mindset that minimized or ignored the worst-case scenarios.

In addition, as the various agencies involved in the investigation and clean-up of the spill delve into the causes of the explosion that led to the disaster (as well as the failure of the post-disaster mitigation efforts), we will almost certainly learn that the safety and mitigation technologies are much less reliable than we thought.  In other words, while it is possible in theory that this will turn out to have been a simple one-off disaster; it is much more likely that the post-disaster investigations will expose shortcomings in the state of technology and governmental oversight – and an accurate, candid assessment of those shortcomings that could lead to a radical reassessment of the risk/reward tradeoff in environmental policy.

This opportunity to constantly learn from disasters is not, moreover, limited to an event of overwhelming impact such as the Gulf disaster.  Earlier this year, as readers will no doubt remember, an explosion in a coal mine led to the deaths of 29 miners, the worst mining disaster in the U.S. in forty years.  (Although this point has already been lost in the larger environmental tragedy, the explosion on the Gulf oil platform also killed eleven people – a tragedy in itself.)  The resulting investigations of the mine have led to revelations of much greater risks than were previously known, including revelations of the degree to which regulators were failing to do their part to force the companies to "internalize" the costs of coal mining.

As with the Gulf oil disasters, defenders of the coal mining industry quickly reminded us that "America needs coal."  This argument, while true in one sense, is completely misleading in another, more fundamental sense.  No country "needs" a particular kind of energy source, either as a qualitative or a quantitative matter.  If the cost of anything is high enough, we can and will figure out how to do without it.

Therefore, it is reckless and foolhardy to respond to recent events by simply asserting that we need oil from offshore platforms (or from the Alaskan National Wildlife Refuge, or from the Middle East, or anywhere else), or to say that workers' deaths are – again, regrettably – inevitable.  With new information comes the responsibility to ask whether once-rejected strategies (especially conservation and alternative fuels) are now the better choice.  More fundamentally, this new information gives us the opportunity to look anew at what we often call our "way of life."

The High Cost of Being an American: What We Ignore When We Reject Policies for Being "Too Expensive"

Over the last several decades, the American standard of living has come to be supported by unsustainable production techniques.  Using automobiles and airplanes to the near-exclusion of rail transportation, for example, has resulted in ever-worse traffic jams, exurban sprawl, and air pollution.  When we consider whether to build high-speed rail, however, we are quickly reminded that such systems are "very expensive."  What that has really turned out to mean, however, is that the costs of the current modes of transportation have been to a large degree hidden from view.  Oil spills in the Gulf are a probabilistic consequence of a society of solo drivers; but because those costs were not obvious up front, we have been happy to keep driving in cars that burn artificially cheap gasoline.

These hidden costs are, moreover, hardly limited to the energy sector.  Over the last several decades, far too many Americans have come to believe that their diets should include meat at every meal, whereas meat was once an expensive luxury.  Even setting aside the important moral issues that should make eating meat a thing of the past, it turns out that eating meat is still an expensive luxury.  Providing the quantity of animal carcasses necessary to satisfy America's newly-developed cravings, we now know, has created a vast and ongoing environmental disaster.

Meat production uses much, much more land than grain production requires, and the waste from the doomed animals fouls both the air and the water so badly that some areas have become uninhabitable because of the stench and the health hazards to humans.  The difference, of course, is that we do not see those costs at the grocery store.  Even so, those costs are very real, yet they are so predictable that they are perversely not viewed as newsworthy.

When all of the hidden costs of our lifestyle are taken into account, however, it becomes clear that being an American is much more expensive than it seems.  We keep the direct (and the visible) costs of our harmful activities low, and render the indirect costs invisible until it is too late.

If we were to take into account all environmental costs and risks, of course, we would not necessarily abandon every potentially polluting activity.  Even so, it is clearer than it has ever been that the costs of our lifestyle are much higher than we have been willing to believe.  Any reasonable assessment of these true costs will surely lead us to change what we are willing to tolerate in the name of "cheap" energy and food.  If we do not face the true costs now, we soon will.  Just ask anyone living along the Gulf of Mexico.


Neil H. Buchanan, J.D. Ph. D. (economics), is a Visiting Scholar at Cornell Law School, an Associate Professor at The George Washington University Law School, and a former economics professor.

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