Price Tags Needed for Gulf of Mexico’s Ecology

Brandon Keim Wired Science 6 May 11;

Of all the inadequacies revealed by the Deepwater Horizon catastrophe, maybe none is as fundamental as the failure of companies, markets and government to put a price tag on natural assets.

From deep-sea fishing grounds to shallow-water nurseries to hurricane-blunting wetlands, multiple Gulf ecosystems have demonstrable utilitarian and economic value. Yet except for one think tank, nobody has tried to calculate that value.

As a result, the full economic costs and benefits of oil drilling were omitted — and still are — from consideration. Were that value considered, it would change the equations of business. The public might ask oil companies to cover their own risks, just as building contractors post bonds before starting renovations.

“There are precedents in other fields. In the construction industry and mining operations, assurance bonds are frequently used,” said economist Robert Costanza, director of the Institute for Sustainable Solutions at Portland State University. “What it does is force people to think about the liability that’s out there. Once they recognize that, they’ll say, ‘Whoah, the oil companies are externalizing all that risk, and not paying for it.”

Costanza’s specialty is so-called ecosystem services: quantifying the value of natural resources that, unlike mineral deposits or oil fields or timber harvests, are usually taken for granted. It’s a rich academic field, and countries like Costa Rica have used it to guide policy and balance the competing claims of farming and tourism. The European Union has even pledged to turn ecosystem service valuations into policy.

Ecosystem services were not, however, considered by anyone involved in Deepwater Horizon: not corrupt regulators who fast-tracked BP’s experimental deepwater drilling proposals, not negligent wellhead operators, not company officials, not the public. The cost of disaster was both uncalculated and deferred. Even as Deepwater Horizon became one of the nation’s greatest single environmental catastrophes, nobody could put a price tag on it.

A year later, the value of damaged natural assets is being calculated retrospectively and messily — the standard operating procedure for oil spills. People who can demonstrate immediate economic loss, such as fishermen or tour boat operators, can file claims or lawsuits. Environmental damage is determined by the Natural Resource Damage Assessment (.pdf), a sprawling, federally-run process established after the Exxon Valdez oil spill. Under NRDA, spill-caused ecological change is measured and oil companies required to pay for restoration.

NRDA has its strengths and weaknesses, say conservationists. It has a certain you-break-it, you-buy-it fairness, but the science is messy. In the Gulf, it will be hard if not impossible to measure deep-sea and long-term impacts. The process is also susceptible to political influence, and the government may agree to a settlement rather than pressing BP for full compensation.

Even if NRDA is done right, however, it’s not intended to be an ecosystem-valuation tool. It can name the price for restoring an acre of wetlands, but it can’t say how much those wetlands are worth. “You may find studies for particular resources, for particular functions, but I’m not aware of any model that tells you about the Gulf’s services and translates that into values,” said Tony Penn, an economist at the National Oceanic and Atmospheric Administration’s Damage Assessment Center.

According to Penn, NOAA doesn’t have the resources to support ecosystem service valuation. Without it, the public is left with a paradox: Gulf residents benefit economically from their ecology, but that ecology is exempt from official and corporate consideration. As pressure in Congress — which has completely ignored the National Oil Spill Commission’s post-Deepwater recommendations — mounts to expand deepwater drilling and make it even harder to regulate, the public again stands to inherit the risk by default.

“In many other parts of society, we require private interests to buy insurance to deal with the risks they impose on the public,” wrote Costanza and a group of economists and ecologists in a June 2010 article in Solutions. “The Deepwater Horizon incident, like the banking crisis, resulted from inadequate attention to the risks that the public was left to bear. Precautionary measures were known but not taken. Investments in safety devices, like the acoustic blowout-preventer, were not made. Corners were cut. Short-term private profits motivated taking high risks with public assets.”

That article was a followup to the researchers’ attempt to put a value on Mississippi Delta ecology. They pegged the annual worth of its services — fresh water, waste treatment, storm mitigation, carbon sequestration, fish and animal habitat — at between $12 billion and $47 billion. An acre of brackish wetland is worth at least $2,700 per year; an acre of forested wetland is worth at least $3200 per year; and so on.

Were the Mississippi Delta considered as a revenue-generating company, it would be valued at between $339 billion and $1.3 trillion. Most of that value was concentrated in wetlands areas near the Mississippi’s mouth, not far from where the Deepwater Horizon blowout occurred.

Costanza’s group recommended formal ecosystem service valuations for the Gulf. From this, the cost of worst-case-disasters could be calculated, and companies required to post “assurance bonds” large enough to cover those damages. The bond would be used to pay whatever damages did occur, and the remainder returned after a project’s completion. Environmental costs would be part of the original market equation, not an afterthought.

“If oil companies that want to drill have to post a bond large enough to cover the costs of their actions, it would provide the right incentives for them to do things differently,” said Costanza. “They would have to find a way to drill safely and convince us to lower the bond.”

Valuing ecosystem services would have another beneficial effect: forcing attention to important but generally low-profile issues, such as the Gulf of Mexico’s dead zone, which is caused by farm waste draining into the Mississippi watershed. Attempts to fix it are invariably met with opposition from the agriculture industry, which cites the financial costs of reform. The dead zone also has costs, but those aren’t calculated now, said Cynthia Sartou, executive director of the Gulf Restoration Network.

“It’s one of the biggest dead zones in the world, yet it doesn’t get a lot of attention,” said Sartou. “I’ve worked on marine issues for 15 years. If you can’t see it, if you can’t put an economic value on it, then politically it’s difficult to push an issue against any sort of controversy.”

“Make the market tell the truth,” said Costanza. “It’s not right now. The market is lying to us.”