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 * Failures in the Matrix That Caused the BP Gulf Disaster: The Failure of Regulatory Oversight **


 * Table of Contents: **

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= Opening Remarks =

With the rapid explosion in deepwater drilling observed in recent years, it is vital that the proper safeguards and methods of oversight are in place to ensure that oil is extracted in a manner which accounts for the safety of the environment as well as the operations themselves. In the case of the Deepwater Horizon, the United States government repeatedly failed to fulfill its obligation to uphold these roles in practice.

With this outcome fresh in the minds of officials worldwide, we consider the crippling flaws which were present within the regulatory regime prior to the spill, and speculate on pressure points within the matrix which may have permitted disaster to have been averted.



=** 1. What factor in the matrix that caused the BP disaster have you chosen to focus on? **=

I have chosen to focus on how conflicting incentives in the development of the regulatory structure for offshore drilling in the United States have undermined its ability to maintain oversight of these operations.

=** 2. What three quotes (from three different sources) help explain the causal factor you have identified? **=

1) “From birth, [|MMS] had a built-in incentive to promote offshore drilling in sharp tension with its mandate to ensure safe drilling and environmental protection” (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling Chapter 3 2011, 56).

2) “[|Minerals Management Service] officials, who can receive cash bonuses in the thousands of dollars based in large part on meeting federal deadlines for leasing offshore oil and gas exploration, frequently changed documents and bypassed legal requirements aimed at protecting the marine environment, the documents show” (Eilperin 2010, 1)

3) “[|The American Petroleum Institute], the industry's leading trade group, employs 48 lobbyists with previous federal experience, the analysis shows. They include former senator J. Bennett Johnston (D-La.), who helped deregulate the natural gas industry, and former congressmen Jim McCrery (R-La.) and Charlie Stenholm (D-Tex.), both of whom strongly backed oil interests while in Congress” (Eggen and Kindy 2010, 1).

=** 3. What people and organizations were key actors? What other stakeholders should be noted? **=

The Department of the Interior is the primary agency responsible for regulating offshore drilling, under such legislation as the Outer Continental Shelf Lands Act and the Federal Oil and Gas Royalty Management Act. Initially, these responsibilities had been delegated to the U.S. Geological Survey and the Bureau of Land Management, but in 1982 the [|Minerals Management Service] was created by James Watson to amalgamate the dual responsibilities of royalty collection and regulation within a single organization (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling Chapter 3 2011, 63-64). However, this agency has been wrought with weaknesses in budget and leadership, which have led to an emphasis on revenue generation over safety and environmental protection. As the central piece of the regulatory puzzle, the MMS failed to develop and uphold the kinds of standards which would have helped to prevent failures like that which occurred on the Deepwater Horizon, and its employees often fraternized with the very corporations they were supposed to oversee (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling Chapter 3 2011, 77).



On the other hand, with so much at stake financially, oil corporations have strong incentives to operate in a manner which enhances the bottom line at the detriment of safety. To protect their interests, they have mobilized over 600 registered lobbyists, and spent over $175 million in supporting them (Center for Responsive Politics 2010, 1). These corporations have worked to corrupt the leadership of agencies such as the [|MMS] by providing gifts and offering employment opportunities. Since the responsibility for ensuring operating standards had been delegated to the operators of projects, these officials hired contractors to write generic oil spill response plans which did not pertain to the specific wells (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling 2011 Chapter 3, 84). In the relationship between the regulator and the regulated, it is clear that the corporations had the upper hand throughout the process.

In addition to these principal actors, other government agencies are involved to lesser extents in the regulatory process. Until 2002, the U.S. Coast Guard was responsible for inspecting stationary drilling platforms (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling Chapter 3 2011, 75), while the [|Environmental Protection Agency] is responsible for enforcing the Clean Air Act outside of the Gulf of Mexico (Mastrangelo 2005, 10). Additionally, [|NOAA] has played a role at times in contributing scientific research relevant to environmental and habitat impacts, but the [|MMS] has also ignored their expertise in assessing proposed leases in some cases (Eilperin 2010, 3).

The last major stakeholder that should be noted is the series of communities located on the coast of the Gulf of Mexico. These are the groups which bear the brunt of spill incidents, whether through diminished tourism or a loss of fishing revenue. With their very livelihoods depending on the preservation of their natural environments, these communities, which receive a portion of the revenues from offshore drilling, have a significant role to play in pressuring the regulatory regime to enforce legislation.

=** 4. What further details from your sources convey the significance of the problem you have identified? Provide at least five details, with references. **=

1) BP’s Oil Spill Response Plan for the Gulf of Mexico consisted of material copied from NOAA websites, including reference to sea otters and walruses. The plan was approved by the [|Minerals Management Service] Gulf of Mexico Regional Office without additional analysis, and was not distributed to other federal agencies for review (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling 2011, 84).

2) [|The Minerals Management Service] failed to analyze the consequences of catastrophic spills, as was required under law. Additionally, it is alleged that it issued notices to companies in specific areas of the Gulf of Mexico exempting them from filing response plans for blowouts and other worst-case scenarios (Field 2010, 1).

3) The former director of the [|MMS], Randall Luthi, was found to have made $580,000 in salary and bonuses in 2008 according to tax records. However, of that sum, less than $160,000 of it was from the [|MMS]. In 2010, in the weeks before the BP disaster, he left the [|MMS] to become president of the National Ocean Industries Association (Eggen and Kindy 2010, 2).

4) The 1978 amendments to the Outer Continental Shelf Lands Act exempted the Gulf of Mexico from the National Environmental Policy Act requirement that at least one Environmental Impact Statement be developed for projects in each specific geographic area (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling 2011, 80).

5) Although the [|Minerals Management Servic]e had believed that corporations could best evaluate their operations with a 2005 regulation (Eilperin 2010, 2), it is clear that they were not incentivized to do anything to remedy these concerns. Among the flaws in the blowout preventer that BP documents take note of are leaks in the hydraulic system, a dead battery in the control pod, and numerous other design flaws. In contrast, the [|MMS] claims that inspections of rigs had turned up only “a couple of minor issues,” and the blowout preventer had been modified in 2005 with the approval of the [|MMS] to stop it from activating in an emergency (Gulf Oil Rig Plagued 2010, 1-2). These outcomes demonstrate that the regulators contained neither the technical expertise, nor the ability to pressure corporations necessary to ensure that safety was maintained on deepwater rigs.

=** 5. What could have offset the causal factor you have identified? Provide at least one reference in responding. **=

It is likely that shifting the responsibility of compliance from the regulated back to the regulator may have helped to alleviate this casual factor to some extent. According to a //New York Times// article:

// “In effect, it appears that BP repeatedly chose risky procedures in order to reduce costs and save time and made minimal efforts to contain the added risk,” wrote // [|Henry A. Waxman] //, the committee chairman, and // [|Bart Stupak] // , chairman of its subcommittee on oversight and investigations” // (Lyall 2010, 3).

Although one may idealistically presume that corporations do have incentives to promote these standards of environmental protection and safety- namely because executives themselves may reside in these regions- it seems that the profit motive had overridden these other incentives prior to the BP disaster.

However, the implementation of such a directive was made exceedingly difficult by the stagnation of the budget of the [|MMS] in real terms as offshore drilling operations increased in scope and magnitude (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling 2011, 56), and was likely a contributing factor to the kinds of directives which led to a “hands off” approach to upholding these regulatory aims. In this sense, it is necessary to enact reforms at a deeper level than simply dictating policy to leadership. Attitudes within government must be fundamentally altered to generate a greater tolerance for these responsibilities, and following from such these agencies should be provided with a level of resources more befitting their tasks.



Without proper authority in the process of conducting inspections, it is clear that corporations will attempt to manipulate those tasked with their oversight. Since the failures of the [|Minerals Management Service] were in large part due to these breakdowns in leadership, it is likely that a more general fostering of a stronger role of government in ensuring commercial responsibility may promote these aims in practice. Drawing from the previous observation of the relevance of the profit motive, it may be beneficial to enact harsher penalties and fines for non-compliance which directly cut into corporation profits. Such policies may include the loss of tax concessions and strong pressures to change management on platforms in the event of persistent organizational cultures in opposition to safety.

=** 6. How has this analysis advanced your understanding of the 2010 BP disaster, and of oil politics more broadly **?=

In conducting this analysis, I have come to ascertain the complex relationships underlying the regulatory process for the oil industry. With substantial financial interests at stake, and limited resources available to the regulatory agencies, this dynamic represents a constant game of “tug of war” that often results in a neglect of safety and the environment. It is clear that stemming from lobbying and other political aims, the regulatory structure is often lacking in prestige within the government, which leads to cuts in budget and the blocking of attempted reforms which further undermine its role. With the immense power vested in oil corporations, it has become possible for them to sidestep national governments in the name of profit, and it is necessary that the latter reasserts itself in the coming years to prevent similar abuses.

In terms of the 2010 BP disaster, it has become apparent that it was not a single decision which led to the catastrophe, but instead a gradual accumulation of organizational and other failures which rendered the Minerals Management Service powerless to grind the process to a halt. Among these instances, the decrease in unannounced inspections resulting from a lack of funding (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling Chapter 3 2011, 75) likely made it far more difficult for the [|MMS] to stumble upon lackluster procedures and hierarchies which may have led to greater levels of risk on the Deepwater Horizon. In the event that one is aware of an inspection, they can “spruce up” the rig and deliberately hide these practices. Additionally, the inspectors themselves often turned a blind eye to their very purpose as a result of the lure of corporate gifts and other incentives. In terms of documentation, an Environmental Impact Statement was not generated for the Macondo well, and BP’s Oil Spill Response Plan, which was approved by the [|MMS], was generic and lacking in detail.



Beyond the regulators, legislation such as the OCSLA specifically exempted the Gulf of Mexico from the requirement of EIS, and gave the Secretary of the Interior significant discretion to choose the emphasis to place on environmental concerns (National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling Chapter 3 2011, 80). At each of these steps of the process, flaws in the design of the rig and the preparedness of those involved may have been discovered. In this case, it is possible that increased pressures on the principal stakeholders to invest in studying and remedying these concerns may have helped to avert or lessen the effects of a catastrophic spill.

=** 7. What lessons can be drawn for disaster prevention in the future? **=

In considering the failures of the regulatory regime, there are four key lessons that can be drawn from the case of the BP spill to better enable these agencies to tackle oversight problems in the future:

// 1) //// **It is essential to provide self-consistent responsibilities within the mandates of regulatory agencies:** //

Granting the [|Minerals Management Service] a dual mandate of revenue generation and oversight created severe conflicts of interest and various false incentives which impeded its ability to uphold the latter goal. As a result of shortfalls in its budget, the agency was pressured to push through profitable leasing projects in an effort to fund its regulatory tasks. Additionally, the high amounts of money at stake in the royalty process led to breakdowns in the integrity of leaders, which bred corruption and shifted the burden of responsibility from the [|MMS] to the operators of offshore drilling projects, who had little incentive to invest in these considerations.

In the future, it will be crucial that these tasks are separated across independent agencies. In doing such, they will not only be isolated from the types of pressures observed, but also will no longer possess the tools necessary to commit abuses. In the case of the [|MMS], this process has already begun to unfold, and three separate agencies have been created to encompass the tasks of leasing, regulation, and revenue collection.

//2)// //**Regulatory agencies must be subject to a greater level of oversight to ensure that they are consistently upholding their mandates:**//

It is clear that in the case of the BP spill, the failures of the [|Minerals Management Service] were not mostly unearthed until they had already led to a catastrophic collapse of the regime. To ensure that these circumstances do not take hold and enable future disasters, it is necessary to keep a better eye on the practices of these officials. There are numerous ways in which this task can be completed: independent internal audits, external audits by non-partisan government agencies such as the [|GAO] or [|CBO], and by subjecting these organizations to public review. In particular, the latter of these is the most intriguing, and likely would involve requirements for the posting of documents on the internet, and that regulatory agencies hold conferences which are attended by various external researchers and government scientists.

//3)// //**Cross-agency collaborations may help to fill voids in organizational expertise that plagued the Minerals Management Service prior to the BP disaster:**//

It is clear from the case of the [|MMS] that regulatory regimes at times may lack both the resources and organizational culture to foster expert analysis and competing perspectives. Inspectors were not certified in modern drilling technology, and regulations and guidelines were not definitively fleshed out in document form.

To fill these gaps in organizational expertise, it may be beneficial to turn to other government agencies which have strengths in these areas. In the case of offshore drilling, organizations with a more scientific perspective such as [|NOAA] could be relied on to assist in conducting Environmental Impact Statements and assessments of the impacts of large scale spills in the Gulf of Mexico. At present, competition between agencies renders this a difficult process, but perhaps a reorganization of the regulatory structure which merges their responsibilities may place them closer to one another.

//4)// //**It is vital that regulatory agencies be better insulated from external, political pressures which affect their ability to conduct their operations:**//

As the BP disaster demonstrated, regulatory agencies can be influenced by those that they are tasked with overseeing. To prevent these pressures, it is necessary to isolate leadership within these organizations from the political process. This may involve removing the right of presidential administrations to appoint agency heads, or by lengthening the terms of appointment. Additionally, providing better compensation for these leaders may help to dissuade them from the lure of private employment and the receiving of gifts in exchange for favors.

Beyond the leadership, it is necessary to limit the influence of the lobbying process at its core. This involves placing limits on obvious conflicts of interest; among them “revolving door” appointments, large campaign contributions by corporations, and the participation of legislators and judges with vested financial interest in these operations. With how politicized government is today, these attempts at reform will likely be met with stiff opposition, but they are at the heart of enabling regulatory agencies to conduct their roles without incident.

=** Closing Remarks **=

It is clear in the study of disasters throughout history that these catastrophes rarely result from a single failure or fatal decision. Although the [|Minerals Management Service] was placed in a difficult position from a regulatory standpoint, it is the officials of the agency who still chose to engage in practices which were questionable and at times unethical. Oil companies such as BP, despite the clear incentives in place to ignore safety, still made the decision to ignore key concerns on the rig which ultimately contributed to the spill. Legislators, although enacting protections on the surface, continued to provide exemptions which compromised the very systems of inspection that these bills had mandated.

In the aftermath of catastrophe, it is paramount that the principal actors take responsibility for the failures which compromised the safeguards that were in place. As has been the case many times in the past, if the weeds of oversight are not extracted from their very roots, the reforms necessary to prevent a future calamity will remain on the back burner. Although separating the [|MMS] into three separate agencies is a beginning to this process (Straub 2010, 1), it is essential that larger scale changes are considered which address the concerns voiced herein.

=** Works Cited **=

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 * (Note: Bold denotes a source from a group member)**