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University Communications

Viewpoint: Gulf Coast Oil Spill

Release Date: 06-24-2010

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BP oil spill

The Coast Guard responds to the explosion and fire at the Deepwater Horizon drilling rig on April 20. (Photo courtesy of the U.S. Coast Guard)

As oil continues to leak into the Gulf of Mexico, it's clear the long-term effects of this disaster will be far-reaching. Here, three UVM faculty and a post-doctoral researcher address the issue from their respective fields: ecological economics, finance, political science and sociology.

The Mississippi River Delta has lost more than a million acres of land since the 1930's. Kenneth Bagstad, a post-doctoral researcher at UVM's Gund Institute for Ecological Economics sees the BP oil spill disaster adding to this problem. He's a co-author on a new report "Gaining Ground," that explores the value of restoring Louisiana's coastal wetlands -- and the risks of not doing so.

Bagstad: Wetland loss is complicated: it's a matter of having channelized the river and controlled the flow of sediment that used to replenish the marshes naturally. It's also a function of oil and gas canals that were dug through the marshes to allow for oil exploration -- back when we didn't have to go miles off the coast! Now, with the BP disaster, the wetlands are threatened by oil washing up. This kills plants, and when plants die you don't have them there to stabilize the soil. Combine this with more hurricanes and we can foresee even bigger losses of coastal wetlands.

What are some ideas from ecological economics that might help with the kind of disaster?

Bagstad: We should consider performance bonding for risky and high-payoff activities -- like energy exploration in fragile environments. If we had companies ponying-up the money up front to help with catastrophe relief down the road, it gives them the financial incentive to act more prudently and safely. They get the money back if there is no disaster.

Performance bonding is common in the construction industry: what happens if the company goes belly-up halfway through the project? You have to have some guarantee that you're going to be able to finish the project and not be left with a useless, half-finished building. Performance bonding is used everyday, but it hasn't been used yet in large-scale energy exploration.

Ecological economics takes a deep look at the proper roles of government and business -- where are the incentives for business to look out for the long-term future? They're really not there in the current economic model. The focus is quarterly profits. From a traditional business perspective, if you can cut some corners on safety or the environment and human health -- and make some more money -- that's seen as a good thing.

Your new report estimates the value of the Mississippi Delta's ecosystem services as being between $12 billion and $47 billion -- each year. Over a decade, that would provide more value than the entire market capitalization of BP.

Bagstad: We need to get back to weighing true costs and benefits: what are the losses to residents of the Gulf Coast and the nation and world if we keep letting these marshes erode? What are the losses to economies and traditional ways of lifeā€”for shrimp fisherman and coastal communities? How do we account for having a living Gulf and not a dead Gulf?

John Burke, professor of political science, is an expert on public administration and the presidency.

What is your perception of the administration's handling of the oil spill and how do you think this will impact Obama's presidency? Did his recent address to the nation help?

Burke: We're still in the middle of this crisis, which makes it difficult to evaluate, but my sense is that the White House got a slow start coming out of the gate. That's not all that unusual -- when things like this occur it's initially hard to tell how serious the situation will be and the White House faces a judgment call on whether to get heavily involved because once they do they get ownership and then they become accountable for it. But (given Katrina) the slow response does surprise me a little.

The speech was rather predictable, and my guess is that it won't turn Obama's numbers around. If it does it's not likely to last. It's interesting how long it's taken him to meet with BP executives. It should have happened weeks ago.

As a president, Obama has been adept at decision-making, but this is a problem of crisis management and implementation and his background, as well as the people in his inner circle, is largely legislative. Governors who become president have had to deal with these sorts of things -- a prison break or bridge collapse -- so they're more attune to them. I think that may be part of the problem here.

The optimistic assessment is that in August they'll have some of these relief wells drilled and that may mark the end of it but the environmental damage is going to be tremendous and that's going to go on for years. They are now heavily involved in terms of dealing with this and whatever the historical source is, it's now Obama's crisis and I think that's going to have an impact on his presidency.

The other thing that's interesting is that the president has actually gone down there much less than George Bush went to New Orleans in a similar timeframe in the aftermath of Katrina. That's part of the ceremonial side of the presidency. Presidents function as the head of state and we expect them to do these kinds of things. I'm not so sure it does much good practically -- what matters will be how long and how bad the crisis is.

That's why I think this is more like the Iranian hostage crisis under Jimmy Carter than Katrina. In part, it's the duration, a clear problem for Carter. Secondly, like the hostage situation the president doesn't have the direct power to remedy it. Carter had to put up with the Iranians and Obama's got to deal with BP. The federal government isn't in the position to run the operation itself, it's got to rely upon oil companies so they're kind of hostage to a third party. Plus we're now hearing from the media this is "day number x," very much like during the hostage crisis. My guess is that because of the extensive damage this is going to continue to be a top news story.

Kevin Chiang is an associate professor of real estate/finance. His research interests include real estate investment trusts, real estate investments, sustainable real estate, and portfolio management.

Is BP to blame for what's happened? How can corporations help prevent tragedies like this in the future?

Chiang: The reckless decisions and actions made by BP management nearly two months ago have destroyed the livelihood of many Gulf Coast residents and the firm value of BP. During this time period, the firm value of BP has dropped nearly by half in the amount of approximately $100 billion. While it is easy and comforting to blame tragedies, like this, on corporations, it is not clear whether this popular public reaction makes sense. After all, the majority of BP shares are owned by public small investors, like you and me, in our retirement and investment accounts.

So, what went wrong here? In the modern economy, it is quite common that shareholders delegate daily corporate decisions to professional managers. These managers are agents, whereas you and me are the owners of the firms. Whenever this happens, it is possible that our agents may put their personal interests in front of ours and not behave in a professional and ethical manner. For example, some BP managers may want to maximize firm profits by cutting corners on safety. If things go well, they participate on the upside and their bonuses soar. If things do not turn out the way they like, they do not entirely participate on the downside and they escape with their golden parachutes. A golden parachute is a labor agreement that an executive will receive certain significant benefits if his/her employment is terminated.

There are at least two approaches to deal with this type of agency problem. First, corporations need better corporate governance. Corporate governance is the set of processes, policies, and compensation scheme affecting the way a corporation is managed and controlled. When corporate governance is done right, managers are held accountable for their decisions. I am pleased to report that corporate governance is the most researched topic in financial economics in the last decade. This new body of knowledge should help corporations improve their corporate governance in the future. Second, business schools need to recognize the need to nurture our future business managers with professionalism and ethics. These managerial attributes are fundamental to the wealth of firms and the state of the economy. We have seen more and more business schools either offer stand-alone ethics courses or integrate ethics into their curriculum.

Associate professor Alice Fothergill, a disaster sociologist, has been following children impacted by Katrina since the Hurricane hit the Gulf nearly five years ago.

From a sociological perspective how do you think the spill will affect families in the region?

Fothergill: Poorly. What sociologists contribute to this discussion is the issue of vulnerability, who or what groups are most vulnerable to disaster. We've studied Bhopal, Chernobyl, the Exxon Valdez so we have decades of research on crises of this size. We know exactly how social location will matter.

With this spill, in terms of race, I'm hearing concerns about Native Americans possibly experiencing cultural genocide -- they've been there for centuries, but they're all on the water. Also Vietnamese fishing communities. Both groups experienced widespread damage in Katrina. They've barely recovered.

Exxon Valdez research found that indigenous groups suffered the most, economically and environmentally but also in terms of mental health. Outcomes were terrible because their lives were so tied to the land and water. Alcoholism, child abuse, suicide rates all went up.

We also know disasters are gendered -- the experience of men and women, because of the different work they do and their different access to resources and power, have very different experiences. One of the worries for the Gulf Coast now is gender-based violence. In general after a large-scale disaster crime goes down but that's mostly public crime, not private crime. Men often feel they should be a family's protector and things become out of their control. The stress is happening in private [and can lead to] domestic violence. The impacts are great and men don't necessarily get help.

My focus is largely on kids. When families lose their livelihood there's a lot of displacement and that's incredibly hard on children. They often lose their extended network of family, their friends, they lose time in school. What we've seen in every disaster is that the family will be in crisis for a long time, recovery is a very long process and this could mean most or all of their childhoods. So they will witness the alcoholism and fighting and possibly domestic violence. They will be extremely vulnerable in that way.

On the other side there's a lot of altruism after a disaster and sometimes we see new groups emerge, people becoming politically empowered, so there's also a window of opportunity. Sometimes women who have never been politically active find themselves speaking out for the first time -- they see their children being affected and they act. Sociologists are working to get people to trust local knowledge, to listen to women. They know what their communities need.

Researchers are also handing out video cameras and tape recorders, having teenagers and women's groups document what's happening. We're learning how important it is to let people's voices be heard, to let the people of the coast tell their story. We can give them a few tools to empower them and aid in their recovery.

But the affects of disaster are compounding. It becomes harder to cope if you've used up your economic resources and emotional strength. I can say from my own research with families and children that Katrina is not over for people. They're still recovering. I saw an email after the spill from a woman down there saying, 'How much does Louisiana have to take? This is too much burden for this one place.'