Economics, Energy and the Environment

Never Let an Oil Crisis Go to Waste

Last June, my colleague Steve Hayward and I published “The Dangers of Overreacting to the Deepwater Horizon Disaster.” In the Outlook, we speculated about what the damage might be, and the risks that the government would inflict economic (and environmental) harm by increasing our use of biofuels such as corn ethanol.

How did we do? Regarding ecosystem damage, we wrote:

It will be some time before we have a better idea of the nature and extent of the environmental damage from the Deepwater Horizon spill, but while the severity of the spill should not be downplayed, there are a few reasons for cautious optimism. In general, ocean ecosystems tend to have faster recovery times than either freshwater or land ecosystems because the area available for the dilution and dispersal of spilled oil droplets is so vast, because turbulence in the ocean helps aerate the water, and because it is relatively easy for areas to be repopulated from adjacent areas once the disturbance has stopped.

We further speculated:

Still another cause for optimism is the location of the oil. The novel conditions of this spill have created a unique and previously unforeseen situation: rather than mostly rising and moving to shore, most of the oil is remaining dispersed in solution in the ocean. While that oil is bound to cause significant damage to marine life, the damage would likely have been much worse had more of the oil made landfall along Gulf Coast shores. Indeed, it is possible that the conditions of the Deepwater Horizon spill may cause the bulk of the oil to stay in less vulnerable ecosystems, where resilience is highest and recovery is fastest.

That certainly seems to have been the case. While there are reports of oil on the ocean floor, possibly smothering some deepwater habitat, the fears of massive contamination of coastlines, or massive fish kills, did not materialize.

Unfortunately, one of our other predictions also came true: the government overreacted to the spill, imposing a six-month moratorium in the face of opposition from not only the oil industry, but their own expert review commission. The moratorium has cost the Gulf Coast dearly.

As Professor Joseph R. Mason of Louisiana State University recently testified:

Output losses continue to mount with stalled development in the Gulf, rising from $2.1 billion regionally and $2.8 billion nationally to $3.3 billion and $4.4 billion, respectively. Job losses are estimated to have increased from 8,000 regionally and 12,000 nationally to 13,000 regionally and 19,000 nationally. Lost wages previously estimated to amount to $500 million regionally and $700 million nationally are now $800 million regionally and $1.1 billion nationally. Finally, lost tax revenues estimated to be $100 million on the state and local level and $200 million on the national level now amount to $155 million and $350 million, respectively.

And in his recent speech on energy, the president fulfilled another of our predictions, doubling down on biofuels, saying, “Now, another substitute for oil that holds tremendous promise is renewable biofuels—not just ethanol, but biofuels made from things like switchgrass and wood chips and biomass.” The president went on to explain that the administration wants to subsidize four “next-generation biorefineries,” despite the fact that nobody has come close to demonstrating cost-competitive, market-ready technology for producing ethanol from cellulose, and some studies have shown that biofuels—even cellulosic ethanol crops like switchgrass—lead to ecosystem destruction and, perversely, more greenhouse gas emissions.

So what have we learned one year out from the BP Horizon spill? Well, we’ve learned that ecosystems are resilient, which doesn’t really come as much of a surprise. We’ve also learned that environmentalists follow the Rahm Emanuel Playbook: they ginned up media hysteria and ratcheted up fear levels to advance their policy goals of ever-increasing regulations, ever more costly energy, and a national policy focused on using more expensive, less reliable biofuels and more expensive battery-cars. Also not a surprise.

Never let a crisis go to waste.

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