Commentary: Incentives for Safety in the Oil Drilling Industry
Hugh Gorman, a technology historian at Michigan Technological University, has written a book on the history/evolution of pollution control regulations in the industry (Redefining Efficiency: Pollution Concerns, Regulatory Mechanisms, and the U.S. Petroleum Industry, 2001).
Here are some of his thoughts on regulatory policies in general and the current BP situation in particular:
- Technology and policies evolve together. While it's inevitable to assign guilt in a horrible disaster like this, Gorman says it's also very typical for industry advances to outpace regulations, which then play catch-up. The Valdez spill, for example, led to many changes in tanker regulations.
In the case of the BP spill, the move to deep water drilling made blow-out protectors (which started out as a safety device on land) less useful. On land and in shallow water, blow-out protectors can be easily serviced and tested. A mile under water, though, is a completely different environment and the design of blow-out protectors has not kept up.
Because it is a safety technology (and not critical to production), companies have had no strong incentives to rethink its design and role. They certainly have the incentive now.
- Technological failures are never due to one thing failing. Systems fail. So the regulatory focus should not only be on blow-out protectors but on the whole system. Again, while technologies to get the oil out of the ground have been evolving rapidly, safety technologies and regulations have not kept pace with the level of risk.
- All innovation involves trial and error, a step into the unknown. This applies to policy innovations as well as technological innovations. In fact, designing effective regulations is as creative and difficult as designing effective technologies. Regulatory changes should have a period of review built in. In five years, for example, people should ask, are the regulations working?
The important thing is to start the process of review and reform. The National Academies of Science and Engineering are great at doing studies that get the ball rolling.
If regulations are effective, companies will innovate in ways that make it easier to meet those regulations. Refinery technology, for example, has been transformed over the last 50 years due to effective pollution control regulations.
- It is always possible to make technologies safer. It is simply a matter of cost. For example, you could require two blow-out protectors or a parallel hole. (Gorman isn't recommending this, just offering examples of expensive approaches.)