The Economic Impact of the BP Oil Spill

In April of 2010, a British Petroleum operated oil drilling rig off the Gulf of Mexico, the Deepwater Horizon, exploded suddenly after high pressure methane gas from the oil well rose to the drilling rig, causing it to ignite and then sink to the bottom of the ocean floor. The explosion caused a sea-floor level oil blowout, and crude oil was leaked into the surrounding water for three months before a solution was found. After eighty-seven long days, the wellhead was finally capped, and the oil from the well was contained. In the three month span it took BP to figure out a solution to this catastrophic problem, approximately 4.9 million barrels of gasoline were dumped into the water.

This oil spill is considered to be one of the largest human caused disasters of our time, and is the largest accidental marine oil spill in history. The spill caused extensive damage to surrounding water and beaches, which is an area that many industries depend on to operate their businesses. States on the coast ranging from Florida to Texas immediately felt the impact of this spill on their economies through their fishing, real estate, offshore drilling, and tourism industries. While the Deepwater Horizon oil spill negatively impacted some industries, some industries were actually able to benefit from it. Environmental Service firms have thrived since the spill, causing their industry to grow.

While it may seem that only those states on the coast would be affected, the spill actually impacted the United States as a whole, as Congress is having to reevaluate certain laws dealing with how offshore oil drillers are liable for their economic damages relating to an oil spill. The BP oil spill in 2010 economically affected many industries throughout the country, both regional and national, in both positive and negative ways. 1. Negative Economic Impacts of the Oil Spill

Almost immediately after news of the Deepwater Horizon oil spill broke, states along the Gulf Coast began to worry about how their businesses would be affected. Many of the main industries located in these areas rely on the ocean in one way or another for their businesses to be profitable. Fishing, real estate, offshore drilling, and tourism are four coastal industries that were directly affected by this event.

The fishing industry was impacted in various ways. During and after the spill, a large section of the Gulf Coast’s waters were blocked off, leaving commercial fisherman unable to fish. For many local commercial fishermen, their only source of revenue comes from selling the fish they are able to harvest. Even if the waters were not blocked off, the chances that the fish that have survived in the surrounding water are not tainted as a direct result of the oil spill are very low. It can take up to multiple decades for complete ecological recovery to occur, and some species of fish may never fully recover (Terrance 501). With the supply of fish decreasing, the price of fish will inevitably rise.

Restaurants will have to raise their prices to keep up with the rising prices of seafood, which then affects the customers. However, as a result of the spill, many Americans are shying away from seafood. Many are afraid to eat seafood that was caught in the Gulf because they are scared that it might cause them to get sick. So even if the fishermen were able to fish as normal, their revenues would still decrease due to the low demand for seafood.

The real estate industry has suffered losses in the recent years due to the communities on the coast looking less attractive to buyers than they previously did. The values of homes and condos have decreased because people do not perceive the areas affected by the spill to be as valuable as they once were. As the property values decreases, so does the amount of tax revenue that local governments receive. Local governments use property tax revenues to support local education, government projects, and pay for protection services such as local policemen and firemen. With less money on hand to support these activities, the community as a whole is likely to suffer.

The real estate industry is also likely to incur losses due to many residents of beach towns holding jobs that were directly affected by the spill. Commercial fishermen, seafood restaurant owners, and charter boat companies are some of the few that are now struggling. After the government decided to place a moratorium on new drilling in the Gulf, many oil rig workers were laid off as well

. This leads to these newly unemployed locals either having to relocate with their jobs or move away to find new ones. This poses a problem however, when they are unable to sell their homes due to their recently decreased value and the lack of potential buyers. Those in the market for a beach house are more likely to look for one in a beach town along the Atlantic Coast than the Gulf Coast. This also affects those home owners who try to rent out their homes to people on vacation. With less people choosing to vacation to areas that were affected, the renters are having to decrease their rental fees or offer other incentives to attract potential renters.

Shortly after the BP oil spill occurred, President Obama issued a moratorium, which postponed 33 oil rigs from operating for a span of 6 months (Guarino). He did this in an attempt to determine what caused the BP oil spill, however it seemed to do more harm than good. Offshore drilling is another one of the Gulf Coast’s largest industries, as it provides jobs for a large majority of those that live on the coast.

The issuance of a moratorium pushes the owners of the rigs to search for other customers in other parts of the world, and often times taking up contracts that could span many years. This leaves the local oil rig workers jobless. BP voluntarily offered to create a one million dollar fund to help compensate the laid off workers, but that will hardly put a dent into what they made working on the rigs.

Tourism is another prominent industry in the Gulf Coast that has been negatively impacted by the Deepwater Horizon oil spill. With the ocean being blocked off and contaminated, very few people want to visit beaches along the coast for their vacations. This directly impacts hotels, restaurants, charter boat companies, and other typical tourist type venues, which rely on tourists to keep their businesses running.

Even after two years, many are still hesitant to visit the beaches in the Gulf. BP has given Florida, Mississippi, and Alabama millions of dollars for advertising to promote that their beaches are no longer contaminated by oil, but their local industries still have not been able to thrive like they were before the spill. Despite the beaches being clean, people still perceive the Gulf Coast as being tainted, and many still refuse to go back. Hotels have tried to cut their rates, change their cancellation policies, and offer extra features to their guests, but none of those efforts have proved to be beneficial so far.

While the tourism industry surrounding the Gulf has suffered, many of their losses have been offset in various ways. After the spill occurred, BP was forced to hire thousands of employees to aid in their cleanup efforts, making BP “one of the region’s largest employers. At the peak of the crisis, the company employed 48,000 workers and contracted 6,000 vessels” (Guarino). Many local residents whose sources of income formally relied on the ocean or tourists in one way or another were able to find jobs with BP. In addition to local residents, BP hired many workers from other places. This helped with the loss that local hotels and restaurants were facing.

The workers that were brought in from out of town helped to offset the losses the local businesses were facing by replacing some of revenues that tourists would bring. Local shrimp and oyster boat owners were able to rent their boats and provide their services and equipment to relief effort crews in the area. Insurance adjusters, engineers that worked to find a solution to the oil spill, and various news crews also visited the affected areas after the event, none of whom would have been there if the spill hadn’t taken place. While these visitors helped the local economy in many ways, they were not able to completely make up for the lost revenues that tourists would bring. 2. Positive Economic Impacts of the Oil Spill

While most industries were impacted negatively by the oil spill, some industries actually benefitted greatly from it. Stephen Gandel believes that “a disaster is also an opportunity. And for many environmental firms, BP’s Gulf blowout is an absolute gusher. (24)” Since the spill, oil-cleanup has become the region’s biggest industry (Gandel 24). BP is responsible for fixing all of the damage it caused to the area by the oil spill, and with the spill being as large as it was, it is taking a large force of people to clean it all up. It was estimated by Wall Street analysts that between fourteen and twenty-three billion dollars will be spent by BP on just cleaning up the coasts (Gandel 25).

One company, Miller Environmental Group, has thrived since the event and has had to hire thousands of new employees to keep up with their work.

The company owns a fleet of vessels that suck up oil from shallow waters and oil boom, which is equipment that can bring oil out of contaminated deeper waters. The company also has special teams that can process oil from boats that were out in oil invested waters, so they do not contaminate any of the clean water around the docks. Waste management companies were also hired to help remove the contaminated water and sand away from the area.

Companies that produce chemicals that aid in breaking up oil particles in water have also benefitted, due to their large increase in sales. Many of these companies do not typically have much business, as they are not needed too frequently. However, the BP spill has brought them more business than they have ever had in the past, and many of the companies cannot keep up. In addition to many of these companies having to hire new employees, companies that manufacture equipment that the cleanup crews need to work have also had to increase their sizes to match the orders they have received (Gandel 27). 3. How the Oil Spill Impacted the Nation

Most of the issues that the BP oil spill caused only affected the economies at the local levels. However, the oil spill did affect our national government as it brought up the question of who should bear the financial blame if another disaster of this magnitude happened in the future and how much damage should they be required to cover. After the Exxon Valdez oil spill, Congress passed the Oil Pollution Act, which made “offshore oil drillers liable for seventy-five million dollars in economic damages after a spill” (Harder 1) occurs, unless criminal negligence was proven (Taibbi 48). In the case of BP, criminal negligence was proven, causing them to be completely economically responsible for any damage that the oil spill caused.

Many believe that the seventy-five million dollar cap should be removed all together, but oil lawmakers believe that would force smaller companies out of the oil industry, as they could not bear the cost of the insurance (Harder 17). The problem with the cap is that if an accident causes damages of over seventy five million dollars, the burden will be placed on the taxpayers. That hardly seems fair, seeing as it would be the drilling companies fault, not the taxpayers. The stockholders should voluntarily bear the risk associated with the likelihood that an event will occur. Raising the liability limit to ten million dollars seems to be the best solution, but Congress has yet to pass legislation finalizing that change. The raised liability cap would ensure that in all future accidents, the drilling firm would be liable for the damages that it caused.

The Deepwater Oil Spill proved to be one of the worst environmental accidents in history and its effects will be felt for quite some time. Many economic issues have spurred directly as a result of the Deepwater Horizon oil spill. Industries such as fishing, real estate, offshore drilling, and tourism have all been tremendously affected and it is unknown if they will ever fully recover to pre-spill levels. The spill also proved to be beneficial for some environmental service firms, whose revenues have gone through the roof as a result of their new business brought on by the spill.

The Gulf Coast’s economy was completely devastated, and BP is economically responsible for the damage in its entirety. BP established the Gulf Coast Claim’s Fund in June of 2010, which set aside twenty billion dollars that could only be used to pay for natural resource damages, individual compensation, and various response costs. While there is no way that this can cover the full damages that their company caused to the region, it will surely help the local economies stay steady. Many economical lessons have been learned as a result of this spill, and hopefully if another disaster of this magnitude happens in the future, the economies will be more prepared in handling what the disaster brings.

Works CitedGandel, Stephen. “Cleaning Up On the Spill.” Time 176.3 (2010): 24-27. Academic Search Premier. Web. 28 March 2013.Guarino, Mark. “As Oil Spill Ends, are Gulf Coast Economic Woes Just Beginning?” ChristianMonitor 09 August 2012: N.Pag. Academic Search Premier. Web. 28 March 2013. Harder, Amy. “Congress Still Grappling with Oil Spill Liability.” National Journal (2011): 17. Academic Search Premier. Web. 28 March 2013.

Taibbi, Matt. “BP’s Shock Waves.” Rolling Stone 1114 (2010): 46-49. Academic Search Premier. Web. 28. March 2013.Terrance Quinn, et. Al. “Impact of The Deepwater Horizon Well Blowout On the Economics ofUS Gulf Fisheries.” Canadian Journal of Fisheries & Aquatic Sciences 69.3 (2012): 499-510. Web. 29 Mar. 2013.