Oil Spill Revisited

If you had to guess how many birds were killed by the oil spill, what would you guess? A hundred thousand? A million?

According to this government report: 2,188.

BP is apparently charged $50,000 per endangered animal killed by the spill. Which means that BP owes $109 million.

But is that the cost of all the lost birds? Is the value of a pelican really $50,000?

Planet Money has an interesting podcast on this subject. They find estimates that range from $30 to $45,000 per day. Basically, the whole valuation process of goods that have no market is difficult. The result (spoiler alert) is that a pelican is worth a pelican. Which means, that the value of a pelican is the cost of raising a replacement pelican.

So what does it cost to raise a pelican?

I found some info on a Florida bird sanctuary called Pelican Man's Bird Sanctuary. According to this article, the sanctuary was forced to close due to lack of budget and facing a $200,000 deficit. The sanctuary saved somewhere between 4,000 to 7,000 animals yearly. So if it's operating budget was $200,000 per year* and saves around 5,000 birds per year then the cost of saving a bird is $40 per bird.

According to that estimate, then BP truly owes around $87,500, not the aforementioned $109 million. Even if the government report above represents only a small faction of the true numbers of birds killed. BP could open a wildlife preserve for relatively little and replace the animals lost. You could even charge BP an interest rate on the lost animals and say BP has to replace all the dead animals and an additional 5%.

Forcing BP to pay for what it did is a good idea, wejust have to make sure it's the right amount.


*There were no reports I could find that told the cost of the sanctuary above what it made in revenues from visitors. Which means that $200,000 per year could be a wild overestimate. Just the way I like.

BP Oil Update

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.

Can we afford to spill?

A friend of mine, Harrison, posted this graphic about the BP Deepwater oil spill. The caption reads, "Can we afford to spill any oil?" Um, no I guess not. The graphic shows the damages done by spilling, and I guess how much we need the oil. So, the graphic says, spilling is bad. Ok, sure, but how bad? Bad enough to shut down Obama's proposed offshore drilling? Bad enough to shut down all offshore drilling around the US?

The graphic doesn't have enough information to answer that, so I decided to do some digging, here is what I found:

Based of some numbers I got off a government website, the average amount of oil pumped out of US offshore oil rigs is around 2 billion barrels per year. Suppose that 2010 is peak oil for US offshore rigs and that every year after 2010, the supply dwindles to nothing by 2030. Under these stringent assumptions, that would be 32.6 billion barrels of oil pumped from 2000 to 2030.

There are three main costs that the spill has created, loss of fishing, loss of tourism and damage to wildlife. This website reveals that Louisiana fishing yeilds $2 billion annually. Suppose the spill completely shuts down the LA seafood industry this year and the industry only recovers a little bit each year until after 10 years, it is back to it's $2 billion status.

This EPA website says that the tourism industry for the Gulf Coast is worth $20 billion anually. Suppose the tourism for the Gulf completely shuts down this year and slowly recovers a little each year until 2020 when it get back to $20 billion.

Finally, there was damage to wildlife. This website estimates Exxon-Valdez spill cost $7 billion dollars. So let's assume the same amount of damage from this spill. So in 2010, we lose $7 billion worth of marine life and it takes 20 years to recover fully from the spill.

Using a little present value discounting, the total cost of the the oil spill would be $98 billion.

With that dollar amount in mind, we can find the cost per barrel pumped from offshore oil over the course of 2000 to 2030. So it's $98 billion divided by 32.6 billion barrels which gives us a cost of: $3.02 per barrel.

Spilling really doesn't appear to be much of a cost. Can we afford to spill? No, that's waste, clearly we'd rather not. But does it cost that much? Eh, not really. Should we shut down offshore drilling? No, but we should tax off shore drilling at about $3 per barrel. Why not even make it $4? Even if I undestimated the costs, we'd still be covered*.

*Really love wildlife? Make the cost to wildlife $100 million and the costs per barrel rise to $16. That would still be only about 22% of a $70 barrel of oil.

The Rise of the Super Cow

Harvard economist, Greg Mankiw, posted on his blog experts from an article on cows and their relation to global warming. It says:

"a cow will emit four tonnes of methane a year in burps and flatulence, compared with 2.7 tonnes of carbon dioxide for an average car."

Methane also traps more heat than CO2 does. According to Wikipedia, methane is 72 times worse than CO2. Ergo, a cow is nearly 100 times worse that a car.*

The solution that the E.U. has arrived at, is to tax cows. That way the producers and consumers of beef will have to pay for damage done to the environment. The tax that the E.U. arrived at was 80 euros per cow. At today's exchange rate, that is about $100. According to Beef Magazine, where I go for all my cow-related information, the price of a cow is around $1500 or about a 7% tax.

According to the E.U. beef farmers, who lose out with the tax, production will just move to South America. They are likely right, some production would shift to a place without a tax. I think, however, it would be simple enough to make sure all imported cows and beef products have the tax levied on them as well.

But relocating production is not the only way to avoid this tax. Since the tax is per cow, the simple solution is to breed even bigger cows and to pump them full of growth hormones. That's why I predict that Europe will be dominated by supercows within 10 years. Mark my words.

*According to Wikipedia, there are 96 million cows in the US and 229 million cars. Which suggests (if cows are 100 times worse than cars for global warming) that the focus of anti-global warming people shouldn't be the electric car, but rather the polite cow.