Why the oil spill isn't BP's fault

There's nothing the mainstream press enjoys more than an environmental disaster. And paradoxically, there's nothing the green lobby gets a bigger kick from than an environmental disaster.

But the real disaster isn't the oil spill it's the fact that 11 people were killed when the oil rig exploded in late April. Not that you hear too much about that.

You see, as terrible as it may seem, and as incomprehensible as the amount of oil leaking into the Gulf of Mexico is - up to 162,000 barrels equivalent per day - the long term effect of the oil spill is likely to be, well, hardly noticeable.

Sure, you've seen the protests about the impact on wildlife and oil washing up on the beaches. And sure, there have been plenty of references to the Exxon Valdez in 1989, which according to our friends at Wikipedia resulted in the deaths of "100,000 to as many as 250,000 seabirds".

We'll agree, that's a lot of birds. Although, when you put it in perspective, even the top-of-the-range number would have only resulted in a decline of the world bird population by 0.00025 per cent.

And even the population of the formerly endangered bald eagle was barely dinted by the Exxon Valdez. According to the same Wikipedia reference, 247 bald eagles died following the incident. If we assume they died as a direct result of the Exxon Valdez oil spill it still only reduced the total bald eagle population of the Alaska/British Columbia region by about 0.35 per cent, given that population numbers in that region in the early 1990s were forecast to be between 60,000 and 80,000 individual birds.

In other words it would have taken a disaster 243 times larger than the Exxon Valdez to wipe out the entire bald eagle population. So the miniscule impact on wildlife following that event hardly warrants the use of the term "ecological disaster". Ecological annoyance would probably be more accurate.

Look, I'm not saying that you can just go around killing things and then say, "Oh, but it's only 0.0000000001 per cent of the total population, it doesn't matter". What I am saying is this ...

First of all, there's a tendency by the mainstream media to fall for the environmental propaganda too easily. All they need is a couple of videos of a budgie covered in oil and a distressed rock drenched in the same for it to make front page news.

But second, and perhaps more importantly, whenever such a "disaster" as this happens it's invariably the case that the blame is apportioned to the wrong person or organisation.

As you'll have noticed, the evildoer tag has been attached to BP, with the CEO Tony Hayward being cast as the Dick Dastardly of the corporate world.

But as is usually the case, the real cause of the problem has been overlooked. You see, it's not BP that is ultimately to blame, even though the oil has come from their oil rig. And it's not entirely the fault of the legislation passed in the US during the 1980s that limited the liability of oil companies to just USD$75 million if a spill occurred.

No, the ultimate cause of the problem is something as basic as a lack of private property rights. Yep, that's right, a lack of private property rights over gulfs, oceans and shorelines is the direct and ultimate cause of the BP oil "disaster" and the Exxon Valdez oil "disaster", and any other oil disaster you can think of.

A few weeks ago Daily Reckoning Dan Denning referred to a term known as tragedy of the commons.

The gist of the argument is that property that is either owned communally or by no one in particular is cared for less than property that is freely owned by a private individual or organisation. You can see that in almost every instance in society. In most cases where property is privately owned and where the owner values the property, it is better taken care of than property that is publicly owned.

Which is exactly the reason why the oil spill in the Gulf of Mexico occurred.

A lack of private property rights over seas and oceans naturally means that individuals and organisations are less careful about what they do in it or to it.

As an aside, take for example the case of the young American lass who was trying to sail around the world and had to be rescued in the Indian Ocean at a cost of $300,000 to the Australian taxpayer. Do you really think that if the oceans were privately owned the owner would allow a 16-year-old to sail through unassisted, without paying a fee to do so, without insurance should an accident occur, or without paying the private owner an insurance fee in the event of a rescue being needed? Something not too dissimilar to the fees you pay to the RACV or NRMA I suppose!

Anyway, when nobody owns something then there's no recourse for compensation should you do any harm to it. Even if it's publicly owned property the quest for compensation will be less rigorous than if it's privately owned property.

Simply because of the lack of a profit motive and the lack of direct ownership. If oil washes ashore at a theme park located on a private beach and a public beach, odds are that the private owner will act faster to clear the mess as it could have an impact on revenues and profits.

But the public beach would have less of an incentive. The clean up process would probably need approval from committees or boards. It would need to be the "right" kind of cleaning process, not just any old process, and so on. The bureaucrats would be in their element. Looking busy doing nothing.

Then there's the matter of private ownership of the oceans. It's not such a crazy idea you know. It's no crazier than private ownership of land.

Of course we'll agree that it's harder to erect a fence in the middle of the Atlantic Ocean, but that's the beauty of technology that can simply and easily record boundaries electronically on maps. Just as national waters are recorded on maps today.

Consider the situation in the Gulf of Mexico right now if specific areas of the gulf were owned by the private sector. As an owner of a particular area you'd be keen to ensure that those using it took good care of it. Not only because it would make it more attractive for others to do business there - for example, other oil drillers or fishermen or tourist operators - but also because of the consequences of inappropriate actions by firms in your property could have on adjacent sea and land properties.

We've got no idea whether BP has been negligent with their drilling operations or not. But what we do know is, if BP was drilling in a privately owned Gulf of Mexico, the private owner would want to be darn sure that BP was behaving itself. The private owner would want to receive a fee from BP for the use of that particular sea area. Doubtless the owner would also want to make sure that BP had adequate insurance should anything happen.

The private owner may also provide addition services to those using its sea property - such as oil spill services. After all, an oil spill by one driller would have a major impact on other companies doing business in that area of private sea - other drillers, fishermen, shipping firms, etc.

And imagine the consequence of the oil drifting into adjacent sea areas. For the private sea owner, if one business causes other businesses to stop using that area of the sea then that's going to be bad news for the owner.

But as another aside, what about other issues, such as piracy on the high seas? If you own a section of the ocean and you're able to charge ships to use it, you'd be able to attract more traffic if you can demonstrate how secure your section of the ocean is: that ships can pass freely without the fear of ambush.

Anyway, getting back to the oil spill. While BP is being cast as the villain, the truth is that BP isn't as villainous as the mainstream media, politicians and special interest groups claim. I mean, does anyone seriously believe that BP intentionally caused the oil rig to explode, killing 11 men and releasing millions of barrels of oil into the Gulf of Mexico?

Yet listen to the mainstream knuckleheads and you'd think BP couldn't give a stuff that up to USD$11.3 million worth of oil is leaking into the Gulf each day. Could it really be true that BP doesn't care that it's losing so much money in potential profits?

No, of course it isn't. BP would rather have the oil flow into a tanker rather than into the sea.

However, because of a lack of private property rights there's no private owner putting pressure on BP to clean the mess up. In addition, there's no private owner who could have invested in equipment or chemicals to ensure the problem didn't spread into adjacent privately owned areas.

Or, there was no private owner to stipulate that BP should have an emergency plan in place should the worst occur.

Instead you've got US President Barack Obama calling the oil spill "the worst environmental disaster America has ever faced". And claiming that he's going to "kick ass" - we assume he means kicking bottoms not kicking donkeys.

But funnily enough, nearly two months after the rig exploded we're yet to see exactly what governments or government agencies have done.

The fact is that if oceans were privately owned BP may never have been able to afford to locate a rig where it did. After all, drilling thousands of metres under the sea bed is pretty expensive and risky.

But as is usually the case, when you've got a government manipulating a market to encourage offshore exploration in areas that otherwise would not be economical, it will always create distortions and lead to unintended consequences.

Especially when a government passes a law limiting the liability of offshore drillers to just USD$75 million. Which - if you'll pardon the pun - is a drop in the ocean compared to the billions the clean-up is forecast to cost.

So look, I won't deny that perhaps BP deserves to shoulder some of the blame. But the fact remains that the biggest contributor to the current oil spill, the Exxon Valdez, and all other so-called environmental disasters is actually the basic lack of private property rights over the seas.