Gulf Oil Spill
Grand Canyon University: Economics for Public Administrators ADM-614
September 10, 2014

Gulf Oil Spill
The National Oceanic and Atmospheric Administration (NOAA) estimated that 4.9 million barrels of oil spilled into the Gulf of Mexico over a span of 87 days. This catastrophic environmental disaster is known as the Gulf Oil Spill occurred on April 20, 2010 about 50 miles off the coast of Louisiana. An oil drilling rig (Deepwater Horizon) leased by British Petroleum (BP) ignited and exploded spewing 42,000 gallons of oil a day into the Gulf. Two days later the rig sank increasing the spill rate to 210,000 gallons of oil a day.
Analysis – Government intervention
The U.S. Government named BP as the responsible party in the incident; BP was found negligent in communication and safety practices, the company was held accountable for all cleanup costs resulting from the oil spill. Individuals and businesses that incurred damages as a result of the oil spill were able to submit claims for cleanup cost, property damages, loss of earnings or profits, and for physical injuries or death.
The private industry and public sector both sectors failed in many aspects: inspection measures were not properly in place, safety updates and recommendations were not followed and sufficient resources were not provided to enforce safety guidelines and inspection requirements.
Randall Holcombe’s book Public Sector affirms that government has a role to play in the market economy; he describes how regulation and government intervention are important aspects. Regulations are developed and established to protect both individuals and the market economy. Government intervention should be implemented in the event of any catastrophic disaster. Action by any form of government should immediately embark on efforts to intervene and provide relief of economic downturns.
Market failures of the Gulf Oil Spill began with regulation. An article by Tom Eley (2011), reported that a “categorical exemption” was permitted by Obama administration that released BP from producing a legally required environmental impact study. Within a matter of days of this “categorical exemption,” Deepwater Horizon oil rig exploded.
Government intervention first failed with the Obama Administration defending BP as a responsible party; however, BP would be eventually named as the responsible party in the Gulf Oil Spill. BP was ultimately found negligent and held accountable for all cleanup costs resulting from the oil spill. As a result of government intervention, individuals and businesses were able to submit claims for cleanup costs, property damages, loss of earnings or profits, and for physical injuries or death.
Regulatory Issues The aftermath of Nation’s worst environmental disaster in history, the Gulf Oil Spill, stimulated analysts, researchers, officials and policymakers to investigate the events in relation to this disaster. Also, review of federally regulated offshore oil activities was initiated to determine government oversights. Due to these investigations and reviews, regulatory issues uncovered included the following: safety-case, relief well drilling and risk-informed structure.
Safety Case
The safety case is a set of documents that outlines the potential hazards that oil companies have identified for each of their oil rigs. The oil companies have to identify safety protocols, analysis of risks and processes in case an accident occurs (Jacobs, 2011). Oil companies must re-evaluate the safety case and make adjustments, updates and changes as necessary and required. The current system in the U. S. only covers minimum requirements. The U.S. Chemical and Hazard Investigation Board (CSB) found through its investigation into the BP oil spill, that the lack of the usage of safety case in the U.S. is worrisome (Jacobs, 2011).
There are both positive and negative externalities that arise from the U.S. adopting the safety case. Positive externalities include more education among staff members in the oil companies and aboard the oil rigs. Oil companies that have regular report requirements maintain a safe and productive work environment. Negative externalities will include increases in product pricing to support accomplishing the new requirements under safety case. Also some potential employees may not be hired because of the time that will be necessary for new staff to be trained on the new safety case requirements.
Relief Wells
As a result of the BP Oil Spill, Congress has heavily discussed drilling relief wells while at the same time maintaining oil production. Relief wells are wells that are used to protect oil wells that are out of control by drilling a secondary well at a safe distance from the original drilling site at an angle tapping into the troubled piping and diverting the pressurized liquid (Dove, 2010).
Twelve days after the Gulf Oil Spill, the Obama Administration asked BP to begin drilling relief wells in hopes to control the leak. However, these efforts were unsuccessful due to no prior preparation of plans for drilling relief wells in such a state of emergency as the Deepwater Horizon explosion.

Risk-informed structure Deepwater Horizon’s oil spill triggered an opportunity to build a risk-informed structure that is indicated for sectors where industry is technology driven. An evolutionary process develops the analytic skills for risk quantification within the offshore drilling industry, then generates a data flow to support risk quantification and finally foster a safety culture based on the quantitative risk analysis (Cooke, Ross, Stern, 2011). Safety being the key issue at hand. Development of a risk-informed structure indicates the need of stronger government oversight, liability caps, and definition of financial responsibilities.
Conclusion
The regulatory issues discussed: safety-case, relief well drilling and risk-informed structure share a common denominator, safety. Efforts to guard the safety and welfare of all aspects of offshore oil drilling may have prevented the catastrophic disaster of the Gulf Oil Spill.

References
Alpert, B. "Katrina and BP Oil Spill on Researcher's List of Top Five 'government Failures' 2001-2014." NOLA.Times Picayune, 25 July 2014. Web. 29 July 2014. Retrieved from: http://www.nola.com/politics/index.ssf/2014/07/katrina_and_bp_oil_spill_on_re.html. Baker, P. (2010). Obama gives a Bipartisan Commission six months to revise drilling rules. The New York Times, A16(L).
Eley, T. One year since the BP oil spill: a colossal failure of the “free market, ” 21 April 2011.
Retrieved from: http://www.wsws.org/en/articles/2011/04/bps2-a21.html
Holcombe, R. (2006). Public sectors economics: The role of government in the American economy. Upper Saddle River, NJ
(2014, July 29). Gulf oil spill. Retrieved from Smithsonian Ocean Portal website: http://ocean.si.edu/gulf-oil-spill
(2014, August 10) Deepwater BP Oil Spill. Retrieved from http://www.whitehouse.gov/deepwater-bp-oil-spill
(n.d.) Gulf of Mexico oil spill. Retrieved from http://find.gale.group.com/grnr/docRetrive.do? searchPageType=BasicSearchForm&inPS=true&prodId=GRNR&userGroupName=gale &docId=GD3208701033
Vicente-Mariño, M. (2012). Gulf oil spill. Salem Press Encyclopedia