“Sarah Palin Says “Drill, Baby, Drill” Was Right”

From CBS News, an excerpt of a Palin twitter message:

“Extreme Greenies:see now why we push’drill,baby,drill’of known reserves&promising finds in safe onshore places like ANWR? Now do you get it?”

There seems to be some revisionism going on; fortunately, electronic databases can highlight dissemblement or (perhaps too convenient) forgetfulness. Ms. Palin is now claiming that here “drill, baby, drill” statement did not refer to offshore drilling. Here are some quotes that indicate that she did explicitly refer to offshore drilling. From Media Matters, a quote from Palin in Loveland, CO, October 20, 2008.

And whether Joe Biden approves it or not, we will develop clean coal technology and we will safely drill for the billions of barrels of oil that are warehoused underground, including our offshore sources. We will drill here and drill now. (Cheers, applause.) Drill, baby, drill. Drill, baby, drill.

Regarding an inability to remember, here is an item from Reuters:

Ixtoc’s blowout caused the world’s worst ever oil spill. More than 140 million gallons of crude poured into the Gulf of Mexico, eventually washing up on beaches in Texas, hundreds of miles away. That is roughly three times more than what has so far spewed into the Gulf of Mexico from the Deepwater Horizon disaster.

That disaster made plain what could go wrong in deepwater drilling. After all, it took Mexico’s state oil company Pemex PEMX.UL 297 days and the drilling of two special relief wells — the industry’s slow moving but only certain fix for blowouts — to intersect and cap the raging Ixtoc well, located in 150 feet of water.

But a review of hundreds of pages of U.S. government documents related to the Ixtoc spill, as well as interviews with many experts, shows that regulators for years downplayed the possibility of a similar disaster occurring in the United States.

“I remember people saying ‘this would never happen if an American company was operating,'” said John Farrington, a retired researcher at the Woods Hole Oceanographic Institution who was part of a U.S. government-funded research cruise around the Ixtoc slick in September 1979. “There was a lot of wishful thinking going on.”

In fact, a combination of politics, money and hubris encouraged the industry to drill ever deeper. Warnings from researchers in the aftermath of Ixtoc that little was known about how crude spilled deep under water might behave or that runaway deepwater wells could be more challenging to cap fell on deaf ears.

It seems to me that we need to heed Jim’s point about the dangers of groupthink, technology-based over-optimism, and agency problems (managers taking risks exceeding that desired by shareholders) as well as externality issues [1] [2]. And to remember the past.

61 thoughts on ““Sarah Palin Says “Drill, Baby, Drill” Was Right”

  1. Steven Kopits

    Where’s the groupthink? There was disagreement between BP and TransOcean on the rig. That’s not groupthink.
    The BOP is a proven tool. It worked for 31 years in the Gulf. How is that groupthink to rely upon a proven system?
    From what I’ve read, the damage from Ixtoc was remedied by natural processes within 2-3 years. Right now, Macondo seems to be tracking at 1/3 the Ixtoc spill.
    It is not clear that there were agency problems. It would appear that the BP rig manager was acting in line with expectations upon him. Was BP management acting in line with expectations from shareholders? How much risk did they think they were taking? Did they understand the risk? It may have been a poor corporate culture (finance-driven, not operations driven) or it may have been simple misjudgment. There are explanations other than agency problems.
    “In fact, a combination of politics, money and hubris encouraged the industry to drill ever deeper.” Politics has nothing to do with it. Incremental oil is in deeper water. That’s why the oil companies are there around the globe. Politics can stop it, but economic realities are the impetus to be in deep water.
    As for hubris, well, yes, deepwater’s an engineering challenge. Engineers like challenges, as do some of the rest of us. They believed they could drill deepwater safely, and in truth, they could. But everyone–absolutely everyone I know in the industry–knows this is a hazardous business. The BP manager made a critical operating mistake by replacing the drilling mud with seawater. That’s not hubris, that’s an error of judgment.
    As for over-confidence in technolgy, well, do you ever fly on aircraft? Sometimes they crash. Is it hubris to think they won’t–even though history tells you that sometimes they do. You’re relying on proven technology without a ‘Plan C’. So did the engineers in Houston. They may have been wrong, but they didn’t need hubris to have confidence in a solid track record extending back two generations.

  2. Lyle

    Taleb was so right about black swans but they exist in other areas but financial. The spill is similar in the group think to Challenger and Columbia, caused by a number of things each of which ate a little from the safety margin until there was not left. Engineering disasters often involve the ability to see the black swan in the water, (actually a black swan is quite appropriate in this case as if a swan landed in the spill you would get a black one).
    If you go back that far the thinking at BP resembles that of White Star Lines and the Captian of the Titanic in 1912.

  3. CoRev

    Menzie, it appears that the extreme environmentalists will/do not accept any responsibility for the oil spill. As Steve Kopits says the oil companies go where the oil is, and/or go where they are driven to because of environmental constraints.

  4. Barkley Rosser

    Um, and just exactly where did Steve Kopits say what you say he said? Looks like you are imputing something in his remarks that is not there.

  5. Steven Kopits

    Well, I think it is fair to say that oil companies go where oil can be extracted economically and where regulations and other political factors make that possible.
    I do not believe I would blame extreme environmentalists for this spill. Even if there were no restrictions on drilling in the US, this well would probably have been drilled sooner or later.
    To appearances, the blowout was caused when a manager under time and budget pressure made a bad call on a nasty well, and the BOP, the failsafe device, failed.

  6. kaymn

    Brasil is drilling and in even deeper water so bite on Sara all u want…she is right if the US dosent do it others will.

  7. mp

    In the Titanic disaster, shipbuilding technology pulled ahead of Board of Trade regulations. Specifically, prior to the Titanic sinking, the number of lifeboats required was based on tonnage, not the number of passengers. Both White Star and Harland and Wolff were WELL AWARE of the decisions made concerning lifeboats, but rolled the dice. They lost some money, but over 1,000 souls unknowingly gave their lives for that bet.
    Further, comparing oil drilling technology to aircraft technology is ridiculous. In aviation, so-called “proven” technology is subject to constant scheduled inspections to prove reliability and there is an accountability trail for every rivet and its record of installation. I see no such inspection requirements or accountability trails in oil well drilling, nor do I see licensing of the personnel who drill them. All I see is a bunch of roughnecks armed with just enough knowledge to be incredibly dangerous.
    One thing is certain: if aircraft were designed, built, operated and maintained the same way oil wells are drilled and operated, no one would fly, except maybe the cowboys.

  8. justmeint

    This entire toxic scenario is frightening
    Did You Know?
    BP engineers alerted federal regulators at the Minerals Management Service that they were having difficulty controlling the Macondo well (Deepwater Horizon) six weeks before the disaster, according to e- mails released by the Energy and Commerce Committee.
    I dont think this would have happened on Exxons watch, Tom Bower, author of The Squeeze: Oil, Money and Greed in the 21st Century, said in a June 11 Bloomberg Television interview. Theyd be much more careful and much more conscious of the need to supervise subcontractors.
    WELL excuse me your sainted Exxon. and Chevron and ConocoPhillips.
    Lets just take a look at a few of your past misdemeanours, and then we can consider again if the moratorium on deepwater drilling should be lifted, and place it all firmly back into your nice clean hands!

  9. CoRev

    Barkley, that was my translation of Steve’s: “Incremental oil is in deeper water. That’s why the oil companies are there around the globe. Politics can stop it,…”
    If you have another translation, OK.

  10. Jeff

    This used to be an economics blog. Menzie seems intent on turning it into just another partisan political forum. When you feel the overwhelming urge to post something snarky about Sarah Palin, just lie down till it goes away. If you just can’t stop, go reread Capitalism and Freedom until the urge lessens.

  11. tj

    Just to add some balance, here are a few whoppers that President Obama has told:
    Source: 2009 Pulitzer Prize winner – http://www.politifact.com/truth-o-meter/promises/rulings/promise-broken/
    “Will eliminate all income taxation of seniors making less than $50,000 per year.”
    “Will ensure that federal contracts over $25,000 are competitively bid.”
    “I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”
    “Barack Obama is committed to returning earmarks to less than $7.8 billion a year, the level they were at before 1994.”
    “will not sign any non-emergency bill without giving the American public an opportunity to review and comment on the White House website for five days.”
    “No political appointees in an Obama-Biden administration will be permitted to work on regulations or contracts directly and substantially related to their prior employer for two years. And no political appointee will be able to lobby the executive branch after leaving government service during the remainder of the administration.”
    As president, “will use the bully pulpit to urge states to treat same-sex couples with full equality in their family and adoption laws.”
    “Will maintain fiscal responsibility and prevent any increase in the deficit by offsetting cuts and revenue sources in other parts of the government.”

  12. Menzie Chinn

    Steve Kopits: It seems to me hubris that you can drill and not have a true response plan in place in case things didn’t work out.

    I agree, a lot of incremental oil is in deep water; but that doesn’t mean it should be drilled for. According to the micro textbooks, the socially optimal equilibrium conditions are marginal social benefits equal marginal social costs. I think it’s been demonstrated that there are externalities associated with both deep water oil production, and consumption of oil.

    Jeff: Read Capitalism and Freedom is your advice? Been there, done that. If that’s your advice, I think that speaks volumes. As for me, I can think of about a gazillion better things to do with my time.

    By the way, on a substantive note, is there anything factually wrong in the post?

  13. ASB

    What happened to analysis by counterfactual? I think we need to keep in mind that the fact that an oil spill occurred doesn’t mean that it was incorrect to drill in the first place. Provided that there are adequate negative consequences to a spill (legal damages, lower credit rating, cleanup costs, lost revenue, etc.), BP should have taken them into consideration when it started drilling (and it may be reflected in the price of oil to some extent). That doesn’t mean it was a bad decision to drill, but rather that a bad outcome occurred.

  14. David Pearson

    To my knowledge, Palin is not President. Obama is. Please post again after reading this Rolling Stone expose of the Ken Salazar’s MMS. In particular, please comment on the words chosen to decorate the MMS celebratory cake AFTER Obama was elected.
    My point is not to defend Palin, but to point out that accountability is more important in GOVERNMENT than in POLITICS.

  15. CoRev

    Menzie said: “By the way, on a substantive note, is there anything factually wrong in the post?”
    It’s really hard to tell since there is so little meat. But I can say that this statement is unsubstantiated. It was not in your referenced article.
    “Ms. Palin is now claiming that here “drill, baby, drill” statement did not refer to offshore drilling.”
    So are your own statements built on a foundation of oily sand?
    What was in the article was this statement: “Extreme deep water drilling is not the preferred choice to meet our country’s energy needs, but your protests and lawsuits and lies about onshore and shallow water drilling have locked up safer areas.”
    Why ignore that quote? For a large part of the populace it may very well reflect their reality.
    That ole rule of unanticipated consequences can certainly bite us.

  16. Greg Ransom

    Wow, you are as dishonest as a politician.
    Palin never said she opposed offshore drilling in the statement you quote.
    Why pretend falsely that she did?

  17. Menzie Chinn

    CoRev: Just because I’m critical of deep water drilling as previously regulated does not mean I think we should do offshore drilling closer to the coast. There are alternatives; demand management is one of them. We should be evaluating the relative cost/benefit ratios of these alternatives.

    If you think the quoted statement is representative of Ms. Palin’s views prior to the Deepwater Horizon incident, well, that is definitely your perogative.

  18. mulp

    “If you just can’t stop, go reread Capitalism and Freedom until the urge lessens.”

    Hey, what a way to create a knee-jerk reaction from conservatives just like we see here in the responses!

    Milton Friedman called for taxing pollution to incorporate the cost of pollution into the product producing it.

    That would be a carbon tax on all fossil fuels! It is simple and proportional to the harm done. Coal mining has more carbon plus it has much more damage beyond the CO2 is land destruction and water pollution. Oil has less impact on land and water than coal, but its impact is huge.

    But a carbon tax is said to punish the non-polluting uses of fossil fuel, so based on Friedman’s prescription, economists called for cap-and-trade to limit the pollution directly and have the market find the most efficient way to reduce the pollution.

    Obama has called for cap and trade on carbon which has been hailed by economists for drastically cutting the sulfur pollution faster and for lower costs than regulation. And he called for increased drilling, just as Bill Clinton did, because switching to alternatives will take time.

    A thoughtful plan for the energy future.

    And what he have seen is a knee-jerk reaction by the drill baby drill crowd. Heightened by the BP oil spill which has, after a period of silence, resulted in the knee-jerk reaction that is claiming that drilling is perfectly safe except for the pollution that is caused by the government regulators.

    Reminds me of Gov Reagan who called for more drilling after the Santa Barbara oil spill and did nothing in response to the soiling of the beaches.

    And Gov Reagan’s failure to address the harms of drilling off the California coast resulted in drilling being prohibited.

    The knee-jerk reaction of the drill baby drill crowd is ramping up saying:

    – BOP always work

    – drilling is safe it is only pipelines that leak

    – it is the government’s fault

    – we need the oil because we have no choice

    Jimmy Carter reviewed the policy from the Nixon administration formed in reaction to the oil embargo and put together a comprehensive plan that was a long term plan that included more oil, more coal, more nuclear, more energy efficiency, and lots of research and development into energy alternatives like wind, solar, efficiency, and so on.

    President Reagan came in with the knee-jerk reaction of drill baby drill – we ain’t gonna be green because progress is the smell of pollution. Well, President Reagan wasn’t quite that extreme, but Dick Cheney certainly felt that way and his reaction to climate change Al Gore winning the popular vote was the knee jerk reaction of attempting to kill off every action that would reduce the consumption of oil.

    When it comes to energy, the Tea Party Republicans opposed to big government have the knee-jerk big government needs to subsidize fossil fuels and subsidize pollution and subsidize the most expensive government run nuclear because the number one citizens, the oil corporations should be dictating the energy policy using the power of the Federal government.

    The knee-jerk reaction is that the people can not be allowed to have a say when it comes to energy and pollution, they must be herded like sheep.

    To every objection to drill baby drill, the knee-jerkers have an answer:

    – national security: invade Iraq to open it for US oil companies

    – pollution: there is no pollution after a week

    – drilling causes oil spills: all the oil spills are from underwater pipeline breaks

    – climate change: the facts are ideology

    – resource depletion: oil fields never run out and if government got out of the way Texas would return to the number one oil producing region of 1920

    Every time the dependency on fossil fuels are called into question due to deaths and pollution, the knee-jerk reaction is to claim that the wind and solar kill more people and pollute more, because birds are people and compared to oil rigs on the horizon, wind generators are ugly, not to mention, boats can’t help but run into wind generators while the oil rigs are never hit by boats.

    Besides, in a time of such high unemployment, alternatives to drill baby drill and blast mountains blast, we can not afford to hire millions of people to build long lasting productive capital like wind generators, solar power arrays, electric cars, power grids, energy efficient buildings, we need to employ instead a hundred thousand people drilling oil wells that will produce for a decade or less.

  19. Rich Berger

    Menzie –
    Your bias is showing a bit too much today. You quoted an “excerpt” from SP’s Twitter account. A fuller excerpt –
    “This is a message to extreme environmentalists who hypocritically protest domestic energy production offshore and onshore. There is nothing clean and green about your efforts. Look, heres the deal: when you lock up our land, you outsource jobs and opportunity away from America and into foreign countries that are making us beholden to them. Some of these countries dont like America. Some of these countries dont care for planet earth like we do as evidenced by our stricter environmental standards.
    With your nonsensical efforts to lock up safer drilling areas, all youre doing is outsourcing energy development, which makes us more controlled by foreign countries, less safe, and less prosperous on a dirtier planet. Your hypocrisy is showing. Youre not preventing environmental hazards; youre outsourcing them and making drilling more dangerous.
    Extreme deep water drilling is not the preferred choice to meet our countrys energy needs, but your protests and lawsuits and lies about onshore and shallow water drilling have locked up safer areas. Its catching up with you. The tragic, unprecedented deep water Gulf oil spill proves it.
    We need permission to drill in safer areas, including the uninhabited arctic land of ANWR. It takes just a tiny footprint equivalent to the size of LAs airport to tap Americas rich and plentiful oil and gas up north. ANWRs drilling footprint is like a postage stamp on a football field.”
    It’s easy to misrepresent someone by selectively quoting their remarks. You have to stop relying on Media Matters, too. It’s no substitute for doing your own thinking. Was that your point about groupthink?
    BTW, if Sarah Palin were the president, I think her first priority would be to control the damage, not send lawyers. We warned you about Our President’s lack of experience and zero leadership skills. You just didn’t listen.

  20. Menzie Chinn

    Rich Berger: You’re posting the entire text as if that buttresses your case? Just look at:

    We need permission to drill in safer areas, including the uninhabited arctic land of ANWR. It takes just a tiny footprint equivalent to the size of LAs airport to tap Americas rich and plentiful oil and gas up north. ANWRs drilling footprint is like a postage stamp on a football field.”

    When I read this, I’m reminded of “housing can’t be a problem — it’s such a small share of the economy.”

    Let’s go back to the original question — do we need to drill there? What are the benefits versus the costs, relative to other alternatives? For Ms. Palin, drilling is it — her only alternatives are drill here versus drill there.

    By the way, I don’t know what the BP run footprint of the Trans-Alaska pipeline is, but that doesn’t seem to prevent some pretty horrendous spills occurring.

    Question: If one drilled closer to shore, in shallower water, would the probability of impacting near-shore-based tourist activity increase or decrease? Safer does not necessarily mean lower externalities imposed.

  21. Steven Kopits

    Menzie –
    Based on observed events, you are correct. It would have been desirable to have yet another back-up plan. But what does this mean, exactly?
    Such a plan would arguably comes in five layers: control, capture/containment, dispersal, protection and clean-up.
    Control – shutting off or sealing the well
    Capture – sequestering the oil
    Dispersal – breaking down escaped oil
    Protection – booms and other barriers to protect coastline and wildlife
    Clean-up – cleaning up contaminated areas
    So these are all response plans, but they imply quite different things. The industry is really only structurally prepared to deal with prevention. Suppose you go to, say, Bechtel, and ask a design engineer, “Well, what do you do if the facility blows up?”. He’ll respond, “If the facility blows up, then I shouldn’t be here. I have no right to be designing these units unless they’re safe. If we’re contemplating an engineering failure or operating failure, then we need to re-design or re-work our processes ex-ante, not ex-post.” That is the culture of the industry.
    So structurally, the industry will continue to focus on prevention, and that means operating procedures, on the one hand, and a major review of BOP design, manufacturing and operating standards.
    As for the rest, it depends on government action, I think. But let’s assume, for example, there was a back-up plan, a FEMA-run, 20 acre facility onshore in Louisiana with booms and dispersant, and well, what else? (Even stocking it is problematic.) Let’s assume we founded it after the 1969 Santa Barbara spill, the last big US spill. What condition do you suppose those stocks would be in in 2010? How prepared do you think the facility would be? Do you think it would have made a material difference?
    If you’re going to make a case against deepwater, then I think it’s a peak oil argument. Hubbert’s peak oil curve is implicitly accompanied by Hubbert’s cost curve (there’s a PhD thesis for you). Thus, in theory, as you come over the peak, marginal costs begin to rise. And what does the data say? Check lifting costs, and you’ll see they’ve blown through the roof in the last five years. So the data does seem to indicate we’ve hit some sort of inflection point in the oil supply.
    Now, it might be reasonable to assume that a response to increasing costs (or decreasing returns) is to assume greater risk to try to minimize costs. By this argument, the oil industry would be facing an external environment that looks similar to that of the financial industry in 2007–with declining returns fostering a need to assume greater risk. Importantly, this line of reasoning sees the problem as a structural, rather than a moral, matter; and BP would be significant only as the weak link in the larger chain. (Given this kind of hypothesis, you can understand why I am so keen to get the EIA off the bench and back into the game. We need people actively engaged with these topics, not telling us ‘Don’t worry, be happy.’)
    On the other hand, it’s possible it was just a bad series of events leading to a disaster. After all, if a plane crashed, we wouldn’t blame it on ‘peak air’.

  22. RicardoZ

    When are you going to stop pretending to be an economist and actually follow your first love, socialist illiberal politics. What does this thread have to do with politics?
    Oh, and by the way I heard that spending on Obama’s Afgahanistan venture has passed the cost of the Bush venture in Iraq. When are you going to analyze that?

  23. CoRev

    Menzie, if this: “Let’s go back to the original question — do we need to drill there? What are the benefits versus the costs, relative to other alternatives? For Ms. Palin, drilling is it — her only alternatives are drill here versus drill there.” had even been voiced in your original article the discussion would have been different.
    But, alas and alack, it was not, and you appear to be changing the argument to an even new straw man.
    As far as your new question set, they still do not change the point that she and several others have made. The environmental movement has caused much of the situation under which these oil companies are operating. Accordingly, environmentalists deserve a portion of the blame and perhaps even should be made partially responsible.
    Someone on another blog made this observation: “Perhaps you have not yet heard of the Workers Paradise, where laborers will gladly slave away in government-guaranteed jobs which are in service of the Environment.
    It will be From each according to his ability, according to the needs of Gaia. The State will wither away and everyone will be busy Saving the Earth.”

  24. Dirk

    Eventually we are going to have to tap deepwater oil, the rest of the oil is drying up. About half of our trade deficit is due to our oil bill, and the chronic trade deficits are the thing that is going to bankrupt the country, not the fiscal deficit. However, when we do drill, the regulations will have to be much tougher, starting with a full inspection from top to bottom of each BOP, and no cutting costs on any drilling proceedures (ie going the seawater rather than drilling mud route). In each major offshore oil provinece, there should probably be at least 2 deepwater capable rigs on standby to drill releif wells (possibly paid for by a consortium of all the firms drilling in the area) and either no caps or a veyr high cap ($10 B has been suggested in legislation) on liability. Firms whould also have too have insurance to cover the potential $10 B, so we don’t have all the deepwater drilling done by relative fly by night undercapitalized firms that would just file CH 11 if something happened.

  25. d4winds

    Capitalism & Freedom has been updated. Per the Coase Theorem, the state governments in LA, MS, FL, etc. have not provided BP enough subsidy for an optimal allocation away from negative externalities. So the GOM oil spill illustrates yet another market failure directly traceable to government(s). qed

  26. 2slugbaits

    You seem to be making the rather preposterous claim that if only environmentalists had made it easier to drill in ANWR then we wouldn’t have the mess in the Gulf today. Sorry, but that’s a howler on the face of it. Environmentalists have been arguing for conservation, and the way to do that is to tax oil to account for all of the externalities. Opening up ANWR might very well have prevented a Gulf spill in April 2010, but once ANWR was exhausted (i.e., in about 18 months), you could bet your last dollar that Big Oil would have zeroed in on the Gulf. We still would have had the spill. It’s demand for energy that is creating the potential for spills; opening up ANWR and other places shifts the timing of our catastrophes but doesn’t change the bottom line.
    I think you might have missed Menzie’s and Jim’s point about groupthink. All of our recent calamities share at least one common theme, and that’s a tendency to assume thin tailed distributions for extreme and uncertain events when fat tailed distributions would have been more appropriate. And groupthink was one of the things that helped drive this misassessment of risk. In the financial world we had people that all pooled their thin tailed experiences into group thin tailed experiences. In the Gulf oil mess we had oil executives and Cheney/Palin types try and assess risk based on personal experiences across a thin tailed universe. And they all reinforced one another’s views. And we see something very similar regarding climate change; the discussion is all about “most likely” outcomes rather than fat tailed outcomes in the face of radical uncertainty. Groupthink pushes people into underestimating risks, and it does so by hiding uncertainty.

  27. don

    Forget the fine points. “Drill, baby, drill” was a repugnant reflection of Americans’ stubborn reluctance to pay the social costs of oil consumption, something that the knowledgable and sensible of both the right and the left agree on, from Mankiw to Krugman.

  28. 2slugbaits

    Rich Berger,
    You quoted the Palinator:
    Extreme deep water drilling is not the preferred choice to meet our countrys energy needs, but your protests and lawsuits and lies about onshore and shallow water drilling have locked up safer areas. Its catching up with you. The tragic, unprecedented deep water Gulf oil spill proves it.
    So are we to believe that if only we had allowed Big Oil to drill in ANWR today, then they wouldn’t be drilling in the deep Gulf tomorrow? That seems to be your argument. Let me recast what you’re saying in a slightly different light and you can tell me if you would find such an argument convincing. Suppose there’s a big fat guy sitting at a table with two boxes of donuts. One donut box is within arm’s reach and the other is at the other end of the table. Out of concern for his health I walk over and take away the box that’s within arm’s reach. He then gets up from his chair, takes two steps towards the box at the end of the table and falls over with a heart attack. If we took the structure of your argument and applied it to this case, then apparently I would be responsible for this guy’s heart attack because I made him walk to the other end of the table to get the other box of donuts. And you would further have us believe that the guy wouldn’t have gone for the second box if only we had allowed him to eat the first box. I guess I just don’t find your argument very convincing. BP was going to drill in the Gulf as long as there was demand, just as the fat guy was going to go for the second box of donuts unless he was restrained. Environmentalists cannot be blamed for the mess in the Gulf anymore than I could be blamed for fatso’s heart attack.

  29. Steven Kopits

    Upstream Online is reporting that flow estimates for the well now range from 35,000-60,000 barrels per day. The record for the Gulf is 40,000. You may be looking at the Monster of the Gulf, if true. That would go a long way to explaining why things went awry.

  30. CoRev

    2slugs, well howdy doo to Ya!
    Yup! It’s all true. Your reality may be better than Palin’s. Then it might not be. It’s all conjecture, but it is not conjecture that some of the drilling restrictions were caused by environmentalist actions. Even you admitted that the Gulf drilling accident may have been delayed 18 months if we were drilling ANWR. Well, in my reality that 18 months allowed a different decision set and management team not make mistakes.
    See how easy it is to counter strawmen?

  31. 2slugbaits

    Notice that you just conceded that drilling in ANWR would not have avoided drilling in the Gulf. And sooner or later deep water drilling will result in an accident. Just because an outcome is low probability does not mean the risk can be treated as zero, which is what BP effectively did.
    And why would you assume a different decision set? It would have been the same management team. It would have been the same set of incentives. It would have been the same everything. And so far I haven’t heard BP tell us that they did anything wrong. They keep saying it’s just bad luck. Sorry, but even when you try and counter “strawmen” in a blog you still have to stay within the bounds of reality. Just wishing away a problem doesn’t make it go away. You don’t get your own reality.

  32. Anonymous

    I have a couple of obvious questions that you might consider.
    If the ANWR area were open to drilling would this impact the price of oil to the extent that deep water drilling no longer be profitable? It this is not true BP would still want to drill in far out in the Gulf.
    Would the production of oil from ANWR eliminate the United States dependence on imported oil? If not there would still be significant political pressure to allow deep water drilling.
    The argument that environmentalists are responsible for the Gulf spill was put forward by Charles Krathammer in the Washington Post a few weeks ago. http://www.washingtonpost.com/wp-dyn/content/article/2010/05/27/AR2010052702988.html I assume that the reason it hasnt been getting wide circulation is that it doesnt really make much sense.

  33. benamery21

    2slugs:Thanks, as always.
    As you rightly point out environmentalists typically are in favor of conservation rather than displacing drilling (they can’t be blamed for end-runs). I might point out that we could cut our oil consumption in half and still use about the same per capita as the UK, France, Germany, and Japan. I should further point out that this would not be that hard to do. I’m relatively sure we could do this in about 3 years without causing either severe economic damage or massive lifestyle changes, with some decent policy choices. Where else is the world going to find 12 percent of world oil supply.
    Time to put down the donut, America.

  34. CoRev

    2slugs said: “You don’t get your own reality.” just after assigning his own reality to an argument. Of course I and everyone has the right when discussing non-reality based alternatives.
    For example saying this: “Just because an outcome is low probability does not mean the risk can be treated as zero, which is what BP effectively did.” shows a basic misunderstanding of management decisions. Decisions are not based upon zero risk overall, but immediate risk for the specific instance. It was and will continue to be very low after this blowout.
    That does not make the series of management decisions made the best possible. That’s why we do after action analysis.
    Anon said: “I assume that the reason it hasnt been getting wide circulation is that it doesnt really make much sense.” Then you would be assuming wrong.
    Many in the press are believers in the Gaia cult. They would not point back to themselves as PARTIALLY responsible out of self preservation.
    Beanamery21 said: “As you rightly point out environmentalists typically are in favor of conservation rather than displacing drilling (they can’t be blamed for end-runs).” Can’t be blamed for end runs?????
    Try the Polar Bear attack to stop drilling in Alaska. Try the Green ships attacking legitimate enterprises around the world. (The Whale Wars are preeminent.) There are so many examples disproving your statement it would take all day to answer
    BTW, Benamery21 response is indicative of the denialist mindset to which I referred in the Anon response. The best example of that mindset is the malaria/DDT discussions. Millions of children’s lives have been lost due to this environmentalist driven mistake.
    Please accept this simple fact. All decisions have consequences and they are not all good. Environmental decisions can result in catastrophic results as well as business decisions.

  35. CoRev

    My point reinforced:
    Moral Self-Licensing: When Being Good Frees Us to Be Bad
    Anna C. Merritt, Daniel A. Effron, and Benot Monin
    Social and Personality Psychology Compass
    Volume 4 Issue 5, Pages 344 357
    Published Online: 5 May 2010
    Past good deeds can liberate individuals to engage in behaviors that are immoral, unethical, or otherwise problematic, behaviors that they would otherwise avoid for fear of feeling or appearing immoral. We review research on this moral self-licensing effect in the domains of political correctness, prosocial behavior, and consumer choice. We also discuss remaining theoretical tensions in the literature: Do good deeds reframe bad deeds (moral credentials) or merely balance them out (moral credits)? When does past behavior liberate and when does it constrain? Is self-licensing primarily for others benefit (self-presentational) or is it also a way for people to reassure themselves that they are moral people? Finally, we propose avenues for future research that could begin to address these unanswered questions.

  36. Adam

    Corev – What you post can be used for dogooder conservatives like Sarah Palin as well as dogooder environmentalists. People are people, no?

  37. Stelios Theoharidis

    Such terrible nonsense. ANWR is a drop in the bucket. A peak of production 876,000 barrels a day which would take ~13 years to get going would represent a $0.50 drop in the price per barrel (~$70 right now) and represent approximately 1.2% of ~70 million barrels a day produced globally (~20 million barrels a day consumed in USA). That wouldn’t do anything to stop deep sea drilling nor would it reduce US oil importation, rather it would offset the production declines in other domestic locations.
    There are a multiplicity of oil companies out there would anyone suspect that their bottom line would be sated by ANWR. It is a complete farce that anyone interested in doing the math could figure out.
    Federal tax breaks that directly benefit oil companies include: the Percentage Depletion Allowance (a subsidy of $784 million to $1 billion per year), the Nonconventional Fuel Production Credit ($769 to $900 million), immediate expensing of exploration and development costs ($200 to $255 million), the Enhanced Oil Recovery Credit ($26.3 to $100 million), foreign tax credits ($1.11 to $3.4 billion), foreign income deferrals ($183 to $318 million), and accelerated depreciation allowances ($1.0 to $4.5 billion).
    Tax subsidies do not end at the federal level. The fact that most state income taxes are based on oil firms’ deflated federal tax bill results in undertaxation of $125 to $323 million per year. Many states also impose fuel taxes that are lower than regular sales taxes, amounting to a subsidy of $4.8 billion per year to gasoline retailers and users. In total, annual tax breaks that support gasoline production and use amount to $9.1 to $17.8 billion. (*This was in 2003)
    So how about instead we let this game play out on a level playing field, or just offer the renewable energy companies the same subsidies that we are offering the Oil, Gas, Mining, and Nuclear industries and see how this plays out.

  38. Rich Berger

    ST –
    Based on per diem consumption of oil of roughly 20 million bbl and a price of $75, I figure that the US spends roughly $500 billion per year on oil. Even accepting your figures for the sake of argument, the net subsidies are negligible.

  39. Silas Barta

    @Menzie_Chinn: What the heck? You have some oversights in this one.
    1) “Twitter excerpt”? Twitter messages can’t get excerpted; they’re only ~140 characters max!
    2) It’s okay to say Mrs. Palin, if you’re going to add the honorific.
    3) Obama supported offshore drilling too; he only differentiated his position in that it should be a stop-gap measure, not a long term solution (see DNC acceptance speech).

    “I remember people saying ‘this would never happen if an American company was operating,'” said John Farrington,

    Yeah, those people sure got proven wrong, didn’t they? (Hint: the B stands for “British”.)

  40. 2slugbaits

    How exactly does the paper you linked to “reinforce” your point? If anything it seems to undercut your argument. The thesis of the paper is that people (and presumably large corporations) can use a personal history of good deeds as a kind of moral capital that can then be used in the future to commit horrible crimes. A peculiar and twisted version of the biblical admonition to lay up your treasure in heaven. If you want to apply it to the BP mess, then look at how BP spent billions trying to polish it’s “Beyond Petroleum” image with pretty sunflower logos. A cynic might wonder if they didn’t invest in this kind of good deed advertising as an insurance plan for when they would someday need to cash in.
    Your comments about risk are equally off base. No one ever said that we have to insist on zero risk. That’s an obvious strawman. My argument was that we need to properly understand the parameters of any risky action, and BP clearly did not. Furthermore, groupthink very likely contributed to that “misunderestimate” of risk. If your comments about managing risk are any indication of your professional work, then as a public service you really ought to tell us what projects you were involved with.
    As to subsidies, there are a lot of indirect subsidies to petroleum. For example, zoning ordinances that encourage strip malls and discourage public transportation are a huge indirect subsidy. Agricultural policies are also big subsidies to oil. And let’s not forget the US Navy’s big fleet in the Persian Gulf. But one of the biggest subsidies is that the govt does not tax negative externalities. The govt does subsidize alternative fuels, but not nearly enough. The rationale is that the positive externalities are not yet internalized in the market price, so the govt has to subsidize production. I’m assuming here that you do understand the economics of externalities.

  41. 2slugbaits

    Ivars’ comment: “Sarah Palin is great. You will have to deal even more with her in future US politics.”
    A sad comment on the state of American education. Sarah Palin comes from the “Knownothing” wing of the GOP that seems to believe academic ignorance is a civic virtue.

  42. benamery21

    “Can’t be blamed for end-runs.”
    Blaming environmentalists for environmental damage by oil companies is a lot like blaming prostitution laws for rape. Facile Nonsense.
    Do you deny that the potential for reduction of conventional oil demand in the U.S. is bigger than the potential for increased production? Do so and deny reality.
    Time to put down the donut America.

  43. Ajay

    I am no expert, to me the first time I heard about this I was amazed that the most basic prevention would have been a mandate to dig multiple wells (at least one relief well). I do not understand why such a simple and probably the single most effective prevention method is not mandated. I guess it would cost too much.

  44. CoRev

    benamery, I repeat: Please accept this simple fact. All decisions have consequences and they are not all good. Environmental decisions can result in catastrophic results as well as business decisions.
    Stop the denial environmentalists. You share some of the blame.

  45. CoRev

    Ajay, the problem with the drilling a relief well is it doubles the risk as well as the cost. If it doesn’t double the cost then they are cutting corners on that well/hole.

  46. benamery21

    CoRev: the environmentalists aren’t driving the boat. What ‘decisions’ are you talking about?

  47. benamery21

    Yep, we’re all responsible for every murder, everywhere, because we didn’t stop the killer. If we’d just decided to morph into Superman we could have stopped the bullet. Evil Environmentalists!
    Look, I’m an engineer for a power company. I don’t support every stupidity perpetrated in the name of environmentalism. But, blaming environmentalists for drilling in deep water is just dumb.

  48. CoRev

    Benamery, it always amazes me how some folks can rationalize anything. Who drove the legislation/regulations? Industrialists or environmentalists?
    BP probably made some poor management decisions that has caused this blow out, but the fact they were drilling in deep water versus shallow water and/or land was at least a combination of management and environmental decisions. To deny otherwise is just rationalizing.

  49. benamery21

    “Who drove the legislation/regulations?”
    Well let’s see: What percentage of the lobbyists working Capitol Hill work for oil/gas + electric utilities + automotive ???
    The ONEROUS restrictions on drilling meant that in 2008 we drilled 332 million feet of oil and gas wells in the U.S. That’s the most since 1984,and the 4th highest year in the series (back to the 40’s). The number of wells drilled was the highest since 1986, and the 7th highest year in the series.
    Of the 1879 drill rigs in operation in 2008, only 65 were offshore.

  50. colonelmoore

    Prof. Chinn,
    Here’s a possible thought. We can all agree that politicians are always going to cover their asses. Now that that is out of the way, the rest of us could consider solving problems instead of continually lobbing missiles at each other in the 4/365/24/7 presidential campaign.
    Any transition to another fuel source for transportation is going to be wrenching. Oil is a fast-depleting resource. More than 90% of the oil is in the hands of state actors. If they think that the price will go up, then they are the only speculators that can actually win the bet on price increases, simply by keeping more of their product inside the Earth until the price rises. It is obvious that the private oil companies are going to have to go where state actors either allow them to go or cannot go. We can hope that by enforcing best practices on them that future accidents can be avoided but hope is no policy.
    The one country that is truly able to be at least partly independent of oil is South Africa. If you fly in or out of Johannesberg, your jet will run on jet fuel made from coal. Cars fill up with fuel made from coal.
    The good news is that you can make fuel out of low-grade lignite, which has too much water to be effective for power generation. We have enormous deposits of lignite in many places, including Texas, which is already well equipped to handle petroleum products.
    There are indeed difficulties, not the least of which is that it costs a lot to build the refineries. But every other form of alternative fuel has its own serious problems.
    Coal shares with oil high energy density. Thus, the costs of solving its problems can be spread out over more BTUs than with other fuel sources that can be produced in sufficient volumes to make a difference.
    Not overlooking the difficulties, the basic fact is that with both high and low-grade coals, we have enough feedstock in the US to become a fuel exporter.
    I recognize that many will say that we need to solve the problem in a way that reduces carbon emissions. I will not get into that other than to mention that a consultant that advises companies on how to reduce their carbon footprints said to me that one way or the other, the world will consume all of its oil and all of its coal because if we don’t, then the developing nations will. So a realist would take that into account when examining the choices.

  51. HARM

    It’s terrible but true –environmentalists cause oil spills!!!
    In other news:
    Seatbelts cause accidents
    Condoms cause pregnancies
    Vaccines cause disease
    Education causes ignorance
    Debt = wealth
    War is Peace
    Freedom is Slavery
    Ignorance is Strength

  52. SecondLook

    There are two huge problems with the notion of using synthetic fuels from coal as an alternative to oil.

    First, as you mentioned is the sheer cost involved. Not only the upfront expenses of liquification plant construction (which would also entail a major expansion of our rail system to handle the additional vast amounts of coal that would have be shipped), but the actual cost of production per barrel of synthetic oil.

    Second, and more consequential, there simply isn’t enough coal. It’s common spread to say that we, and the rest of the world, have huge quantities of coal; a close examination strongly suggests otherwise. Data on coal reserves, proven, probable, and possible, is generally considered to be both unreliable, and heavily overstated. (The same can be said about conventional oil reserves, but that is another story.)

    Best estimates by scholars in the field put peak coal production occurring globally before 2050, American production going in decline in the early 1930’s. Worse case scenarios imply production plateauing or declining by the mid 2020’s. None of those estimates take into account using more coal for liquid fuels – if that became widespread, the decline, obviously, starts earlier.

    In short, substituting one carbon fuel for another simply isn’t going to be a workable solution. It’s at best a stopgap, but one that actually may end up making the transition to a post-fossil fuel world more difficult.

  53. benamery21

    How to reduce oil use by 50% in the U.S. almost overnight (3 years):
    I don’t guarantee any of the data below (most of it was generated off-the-cuff), please correct if in error, serious criticism is welcome (defeatist pooh-poohing, not so much). This is kitchen table (and sink) talk for one path alternative and is focused on oil rather than energy overall.
    Basically eliminate (90% reduction) residential and commercial use (fuel oil and propane primarily for space heating) by using natural gas, wood/pellets, and electricity (heat pumps). It’s amazing how many houses/neighborhoods with gas are still using fuel oil. This is about a 5% reduction in overall oil use. How? Pay for conversions (~$70B at $5K a pop, would more than cover it). Offset increased natural gas and electricity use by installing 60M programmable thermostats (all residences with an existing non-programmable). Longer term (10 years), offset electricity and natural gas use by weatherizing homes and adding solar water heat to homes in southern climes.
    Industrial: If we successfully reduce oil consumption by half, refinery energy use will drop by half. Since this sector consumes almost half of U.S. industrial petroleum energy, this will reduce industrial oil use by about 25%. This would likely creep back up or be partially offset immediately, as we imported crude and exported refined products to better use existing infrastructure. I have not considered this as increased U.S. consumption.
    Efficiency gains (industrial audit program) of another 15 percentage points would increase this to a 40% (industrial oil) reduction. Fuel switching from LPG to natural gas would allow another 10 percentage point reduction (in industrial use). Use the LPG saved on residential and industrial to fuel converted fleet vehicles (displacing gasoline, conversion/fueling is easier than CNG/LNG in short term), or export it (longer term there is higher value for this fuel type in less developed economies). Industrial reduction totals about an 11% reduction in oil use.
    Transportation: Raise gas/diesel tax by $1/gal, peg to inflation with an adjustment for consumption. This should reduce transportation usage (71% of total) by about 20% long-run (14 percentage points of total). Add minimum liability auto insurance coverage to the gas price. Drivers with points/accidents would be required to purchase a supplemental policy or pay an increased fine. Drivers could purchase comp/collision or additional liability coverage as now. This would raise the price of gas by about 10% (but reduce insurance premiums) and reduce transportation consumption by about 5% (3.5 percentage points).
    Mandate and 100% subsidize (ala CARB/Smartway) 20% fuel efficiency (primarily aerodynamic, but nitrogen and lightweight rims and super-singles, etc too) retrofits for heavy trucks … (3 percentage points).
    Tax truck diesel another 25% to keep per mile fuel cost constant.
    Pay to make road diesel B20. (2.5 percentage points).
    Mandate 20% jet fuel displacement by biodiesel (1.5 percentage points). Foregoing two items will require substantial increase in biodiesel production.
    Invest in rail signaling and trackage and update regulations. Divert 20% of tractor-mile truck traffic to rail over three years. (2 percentage points)
    Drop import tariff on ethanol. Increase proportion of gasoline displaced by ethanol from 4% to 10%. (4 percentage points). Import roughly 0.5mbpd ethanol from Brazil and Caribbean — guarantee price floor for 10 years to allow 150% capacity expansion (takes 3 years).
    Require addition of real time mileage displays to all 1996 or later registered vehicles (license fee raised, with deduction for compliance). Research proceeding on behavioral effect on consumption but believed to be non-trivial. (Ill take credit for 0.5%)
    Drop speed limit by 5-10mph temporarily (while longer term measures kick-in) on freeways/highways which exceed 55mph (3% of transportation).
    Longer term:
    Assess Property Tax on employee free parking at best, highest use.
    Create carpool information infrastructure to include: Database of fixed destination pairs and times; Algorithm matching of partial routes, partial schedule, different employers, different partners; Free emergency car-sharing and taxi service (up to a quota) for missed connections.
    Expand subsidized metro transit significantly.
    Invest in improved FAA infrastructure to reduce jet fuel consumption.
    Invest in high-speed rail to displace jetliner and individual auto traffic.
    Keep raising CAF.
    Index fuel taxes to inflation and efficiency.
    Reduce oil and gas tax subsidies, increase royalties, severance tax for the #3 oil state.
    Real free fast air service at the pump and car wash. Slow air compressors requiring tokens and located away from the pump discourage consistent tire inflation habits. Oregon-style full-service at the pump required everywhere with a mandatory checklist and windshield smartchip? Free air filters and fluid top-off included? Waived by drivers in a hurry, but repeated waivers would generate fees.
    After-market tire rolling resistance standard and feebate (CAF style).

  54. CoRev

    bename, an interesting proposal. Let’s assume in the real world we could get to 1/2 of your proposal we would still be better off. Your proposal on top of the current 5-12% per capita drop due to the recession is still a big drop.

Comments are closed.