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The Big Spill: Update and Outlook

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Currently in the United States, two major environmental events are simultaneously playing out. The first is the fate of the Kerry-Lieberman climate bill that was, up until very recently, believed to be dead in the water. The second is the BP oil spill, that is, well…deadening the water.

As oil continues to leak in the ocean, the question becomes whether the largest spill in history will be the impetus to revive the otherwise grim status of climate and energy reforms, aimed at reducing dependence on oil and coal.

The Bill and the Spill: an Update

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Flawed from the start, the Kerry-Lieberman clean energy and jobs bill is currently facing its worst bout of speculation. Just days after its official introduction last month, the one Republican senator involved in crafting the bill, Lindsey Graham (SC), withdrew his support. Graham said he was bailing out after majority leader Harry Reid stated that immigration reform would come before climate on the Senate agenda.

Since May, the Kerry-Lieberman bill has been delayed. Furthermore, because the next Congress is likely to have more Republicans, and because the House’s approval of the Waxman-Markey energy bill will expire after the election, the House would have to write and pass a whole new bill.

With Graham renouncing his support, a new proposal to deal with energy and global warming came this month from Senator Richard Lugar, a moderate Republican from Indiana. The new bill – dubbed the Lugar Practical Energy and Climate Plan – seeks to cut energy usage and greenhouse gas emissions without creating a new market in carbon credits or taking a bite out of the economy. Still Kerry remains patient, insisting that “it’s practically a rite of passage. No serious legislation ever makes it very far in Congress before it’s declared dead – at least once, sometimes two or three times.”

Outside of Washington and on to the Gulf, a containment cap installed on the blown-out well is capturing roughly 500,000 gallons out of the approximately 600,000 to 1.2 million gallons believed to be spewing from the well, per day. The progress in containing the underwater spew has been offset by a Coast Guard warning that the Gulf slick has broken up into hundreds of patches of oil that may inflict years of damage.

This week, the federal government confirmed the existence of deep-sea plumes, layers of dissolved oil compounds from the leak. The plumes are spreading as far as 42 miles from the oil well. BP and government cleanup crews are moving carefully to avoid a dangerous pressure buildup and to prevent the formation of the icy crystals that thwarted a previous effort to contain the leak. Any captured oil is being pumped to a ship on the surface.

Since the Deepwater explosion on April 22nd, BP’s market value has been halved, spurred in part by lawmakers calling for the company to cut its dividend until the disaster is cleaned up. To date, analysts estimate that the liability will cost BP upwards of $40 billion (a figure many are unsympathetic towards. BP generated almost $8 billion in cash last quarter alone).

Two Disasters = One Success?

“The end of oil” rhetoric has been tossed around for decades, waxing and waning in accordance with political agendas, scarcity, pricing and catastrophe.

Though prone to exaggeration and inaccuracies, the BP spill has become the newest and perhaps most potent catalyst for increasing clean energy investment. With oil lapping U.S. shores, BPs reputation continues to plummet and the public is becoming increasingly hungry for bold action that looks towards the long term. The timing of the Deepwater explosion, right on the heels of a wavering climate bill, is conspicuous and may provide the best shot at mustering support for speculative environmental legislation.

In fact, the climate bill re-branding has begun. Using the platform that Kerry/Lieberman/Graham created, the Senate will begin working on a revamped “BP spill bill” one that includes both tougher regulation of the oil industry and the climate and energy provisions outlined last month by John Kerry and Joe Lieberman. Majority Leader Harry Reid has signaled his intent to move a comprehensive energy bill in July, that would also address the unfolding disaster in the Gulf of Mexico. In the coming weeks, the Energy and Natural Resources Committee is expected to consider oil-spill specific legislation, with a likely focus on tighter regulations.

It’s not clear at this point which bills might make it into a revised climate package but early opinions suggest that a new bill will eliminate the liability limit for offshore oil disasters (currently set at $75 million). It is also expected that BP will be required to put roughly $5 billion into an escrow fund to ensure prompt payments for clean up and compensation. Finally, the “spill bill” may adopt the recommendations for offshore oil well safety in the Interior Departments “Increased Safety Measures for Energy Development on the Outer Continental Shelf” report, including better back-up systems and more complete inspections.

It’s Complicated

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In Tom Bower’s most recent book, simply titled,“Oil,” he accurately summarizes the complexity of the oil and gas industry:

“Unlike oil’s first century, over the last 20 years, no single nation, government, cartel or corporation has controlled its fate. Markets have determined prices and investment; but there has been a twist. Because oil-producing countries retain up to 90% of the profits, the Western oil companies have the delicate task of persuading rightly self-interested governments to share their wealth and sell access to their reserves.”

The BP oil spill was years in the making, involving a long list of global players. Worse, the catastrophe is unlikely to be the last of its kind.

The inherent intricacies of the oil industry, as Bower highlights, mean that drawing a straight “if-than” line from a disastrous oil spill to an urgent tax increase in the form of cap-and-trade legislation is overly simplified.

If there’s an easy conclusion however, it’s that the oil and gas labyrinth – including its disasters – serves as a reminder that progress towards a clean energy economy is worth the slow belaboring. While it is too early to determine whether national climate legislation will pass, waiting until we’ve changed the subject and forgotten the impact of the Gulf disaster will sacrifice momentum.