In my last post, I made some guesses about the costs the BP oil spill was imposing on the environment and Gulf tourism and fishing. I assumed that BP would be able to cap the leak and clean up would proceed from there. However, that is not the case, and I thought I ought to go back and look at some of my numbers and how they hold up in the face of new potentially higher costs.
My original estimate was $98 billion. So far it has cost BP around $3 billion and they have a total of $7 billion in escrow for future payouts.
President Obama made a speech that BP was going to "pay every dime for the oil spill." If this is true then the $10 billion cost to BP must also be the total cost of all damages. This would mean my estimate of damages done was $88 billion too high.
My conclusion in the previous post was that a tax of $3 per barrel would earn enough to fully pay for this spill. Given that the true costs are likely to be far lower than I estimated, the cost (and thus tax) per barrel of offshore oil would be much lower. Perhaps, somewhere around $1.
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Surely this isn't the whole story. $3 billion is only the money BP has payed so far. It doesn't come close to encompassing all the costs of the spill (loss of tourism, fishing industry, wildlife, coastal businesses, marsh habitat, beaches, cost for government relief efforts, opportunity cost of everyone working on the spill, and on and on...). I have to admit that I find believing Obama's line that BP will pay "every dime for the oil spill" is a little naive. BP is a giant company which will do everything in its power to pay as little as possible, or so economic theory tells us.
ReplyDeleteBP does actually pay for the opportunity cost time for the people cleaning. Unless they are cleaning as volunteers.
ReplyDeleteLoss of tourism and loss of fishing profits, are something BP is currently accountable for so presumably that's what the $3 billion so far has gone to cover. If there are people left who have legitimate damage claims that were not paid by the end of this, then BP has gotten away with something. (Although if other people have falsely exaggerated their claims against BP then the money can get used up even though that's not BP's fault.)
My original estimates include some very rough calculations on the full losses to tourism and fishing. It remains to people much closer to the situation than I am to do actual estimates of the damage. My guess is probably much higher than it will turn out to be.
If BP pays $10 billion and my estimate is correct then they've only paid about 10% of the damages. If BP really is on the hook for all the damages then I was off by a factor of 10. Reality will probably be somewhere in the middle.