“You have been invited to the Facebook event, ‘NO BP GAS UNTIL THE LEAK IS STOPPED.’” This strident call for action reached me in early June, when the British Petroleum oil spill had become daily fodder for political commentary and fervent activism. Outraged social networkers have flocked to the event, reaching a total of 110,275 confirmed attendees. Another 23, 519 have indicated possible attendance, and the event awaits a response from yet another 211,221 Facebook users.
If we extrapolate from these numbers, BP stands to lose millions of dollars from loss of confidence alone. And this loss is only a fraction of the total economic cost of the spill, once clean-up costs, legal fees, income compensation and long-term industry and environmental impact are taken into account.
Let’s start with the thousands of Facebook users who have publicly declared their intention to stop pumping gasoline from BP stations. We make the conservative assumptions that the leak will be plugged by Labor Day; that each boycotter would have spent $30 a week on BP gasoline; and that for every confirmed Facebook boycotter, another four individuals will independently avoid buying gas from BP. The leak will have continued for a total of 138 days, multiplied by 551,375 boycotters withholding $4.29 of revenue per day. BP just lost $326,425,028 in potential revenue.
This is only the beginning of BP’s financial woes. Even if consumers continue to buy BP gasoline at their usual frequency, BP would still be responsible for the enormous costs of cleaning up a growing and increasingly fragmented plume of undersea oil. Credit Suisse estimates that BP will spend $23 billion to remove the oil from the ocean and repair coastline damage.
Beyond straightforward cleanup costs, BP is further responsible for billions of dollars in lost productivity in the industries affected by the spill. Tourism and fishing have been hardest hit; few travelers are interested in beachside resorts when their seaside views are marred by waves of oil, and fishermen lose the foundation of their income when their catch is killed or driven away by pollution. BP has already spent $46 million in compensation for boat captains, deckhands, and others whose livelihood has been affected by the spill, yet those who have received checks represent at most half of the potentially eligible claimants. In another damage estimate, Credit Suisse calculated the total losses to the fishing and tourism industries at $14 billion.
In ordinary circumstances, BP would not be responsible for this entire sum. A law enacted in the wake of the Exxon Valdez spill capped an oil company’s payout at $75 million, above and beyond the costs of direct cleanup. However, given the widespread damage inflicted by the spill, Congress has suggested lifting the cap to $10 billion, and this sum could increase further should the U.S. government choose to prosecute BP in a criminal court for neglect to comply with safety standards. The sum of BP’s cleanup costs, industry compensation, legal fees and diminished consumer confidence could total $40 billion.
BP’s losses will have repercussions throughout the oil industry and in the U.S. economy at large. The Department of the Interior declared a six-month moratorium on deepwater oil drilling, which will reduce revenue for all oil companies and cause the industry to shed jobs. This decrease in economic activity will ripple outward as industries dependent on oil drilling are forced to slow their own operations. Gas prices are likely to spike, increasing costs for businesses across the economy.
Even if BP is forced to pay the entire sum of calculable economic damage, these economic ripples will not subside. At best, the costs will merely be transferred from the fishermen and resort owners to BP’s balance sheet, forcing it into a severe decline or bankruptcy. At worst, damage calculations will be unable to account for the full effect of a dispersing plume of oil, and coastal industry along the entire eastern seaboard will continue to feel the effects of the spill long after BP has sent its last check.
Given the fragile and interconnected nature of environmental services, it is nearly impossible to estimate the cost of environmental damage until humans are forced to mitigate it directly. Thus, any calculation of the oil spill’s cost must be considered a rough guess, likely to underestimate its economic implications. The BP oil spill has been called the largest environmental disaster in U.S. history—our economy will hardly be able to escape unharmed.
Robbie Brown and Michael Cooper. “BP Pays Out Claims, but Satisfaction Is Not Included.” New York Times 6 June 2010.
