What price disaster?

Inevitably the debate surrounding the BP oil spill has begun to turn from fire-fighting to finger-pointing. Most notable was President Obama’s recent declaration that ‘BP is responsible for this leak. BP will be paying the bill’. Indeed, the company is already spending $6m a day on clean-up costs and has admitted that this will increase once the slick hits land. Yet what has got tongues wagging is the amount of the final settlement, including damages. Market analysts have predicted anything from $1bn to $12bn, prompting the question – why such difference, or, to put it another way, what price disaster?

In recent paper entitled ‘Cents and Sensibility’ the academic Marion Fourcade addresses such a dilemma. She begins by noting that most commodities are priced according to human desires as revealed through the process of exchange, i.e. the market. Yet many subjectively valued goods are not so easily exchangeable – the natural environment being one of them. So when such goods are damaged and need repairing, the costs have to be revealed in courts, opening the pricing process to a different kind of politics.

To illustrate this politics, Fourcade compares two previous oil spillages to highlight the perverse outcomes that can result. When the Amoco Cadiz tanker sank off the coast of Brittany in 1978, it spilt 227,000 tonnes of oil and was fined $200m. Eleven years later when the Exxon Valdez ran aground off the coast of Alaska, 30,000 tonnes of oil was spilled yet the company made to pay a total of $4bn in clean-up costs, criminal charges and punitive damages. Twenty times the cost for an eighth of the spill.

How did this payout paradox come to pass? Both cases were tried in the US and both involved a large loss of wildlife and damage to livelihoods. The answer is in the definition of who was victimized when nature was soiled and how this was to be valued.

In France the ‘who’ was the local users of the shoreline; in the United States, it was the American public as a whole. This distinction was rooted in the law and culture of the two countries. In French law, all marine wildlife is res nullis: it belongs to nobody. This paved the way for any individual or organisation to formulate a claim to stand as an ‘advocate’ for nature in a court of law. When combined with the strong regionalism of the country and its disinterested government, the onus was therefore granted to Brittany’s towns to negotiate settlement. In the US, by contrast, the tradition of the ‘public trust’ meant that the government was furnished with a firm history and moral obligation to protect the country’s natural resources.

Different methodologies were then used to value the damage to these two communities. In France, bureaucrats calculated the cost of a putative restoration of the environment and biologists were used to estimate the actual price of the biomass destroyed in the spills. This involved tallying the amounts of sea-life that would otherwise have been caught and sold, and pricing them according to their market equivalents that year. In the United States, meanwhile, the Nobel Prize winning economist Robert Solow was hired by the state to calculate the subjective value to individuals of the environment spoiled by the oil, following a method known as ‘contingent valuation’. In essence, a survey was taken asking people how much they would theoretically pay for a preservation programme for the area damaged by the oil spill. The average figure of $31 was then multiplied by the total number of households in the country, giving a total of $2.8bn sought in damages! 

Thus in both cases, nature was seen as a ‘priceless’ object. It was just that for the French, this meant that no price could be attached, and, to the extent that one had to be formulated for the purpose of providing compensation for lost income, it was understood as a productive resource used by local people. For the Americans, operationalising ‘priceless’ meant putting the highest price possible on nature, constructing it as a subjective concept and a reality to be set apart and sacralised.

With worst case estimates putting the BP spill at 1,200,000 tonnes and the Obama government clearly keen to divert any criticism over its slow response, it’s no wonder that BP shares have begun to plummet. Yet for all the speculation over the final fine, it is worth keeping the figure in context. Over the last three years, BP’s annual profit after tax and replacement costs has averaged $18bn. Even the biggest fine mooted so far would still leave the company firmly in the black. Clearly, as expensive as environmental degradation might be in the States, it is still far from challenging the price of petrol.

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