Regulating oil


Following the BP oil spill, the Obama administration announced on Thursday that it will suspend Shell’s Arctic program that was to commence this coming month. In fact, all exploratory offshore drilling will be stopped, and a moratorium placed on new deepwater wells until 2011.

It has been a recurrent theme these past few years to increase control over any industry that experiences problems: the financial sector, healthcare, and now, the latest gem of the collection, oil. At the rate the events are unfolding, we’ll soon have a Randian nightmarish dystopia on our hands. For there’s nothing that could possibly go wrong with a few politicians in Washington with no expertise in the oil industry deciding what the appropriate safety standards are…right? Ironically, the ones who will suffer most from such tighter regulations are going to be the consumers who will see a hike in oil and gas costs.

On the other hand, it is in BP’s interest to (literally) clean up the mess as fast as possible. The reason the problem still hasn’t been solved, a month after the incident, is because it presents a tough technological challenge. It’s doubtful that the government would have been more efficient had it taken over earlier. And while critics claim that BP has weak incentives to ensure safety, since the losses to the company are minuscule compared to its profits, the dangers to its reputation are much more hazardous.

The bottom line is that we will never be 100% ensured against spills, no matter how much we regulate the market, unless we stop consuming oil altogether. If anyone is to blame, first and foremost are the consumers of oil that regularly expect their demands to be met by the market. Regulation will not protect us from environmental disaster, but shifting to newer and cleaner forms of energy will.

Meanwhile, we’re left to wonder which industry will suffer the next regulation-craze. Toyota anyone?