One cannot turn on the news today and not get pelted with an overload of Deep Horizon oil leakage updates and BP slamming.  The president is consulting with experts so he knows whose ass to kick on this whole ordeal.  So when it’s time to settle up with BP, what laws are in place to allow our government to hold BP accountable and ensure taxpayers aren’t stuck with the bill? You likely have heard about the current $75 million cap on liability for damages.  So how did that cap get into place, is it justified, and what can be done to rectify the situation?  The House Transportation and Infrastructure Committee held a hearing to examine these issues on June 9^th.

For starters, here’s a brief overview of the current law.  The Oil Pollution Act of 1990, or OPA90, was written in response to the Exxon Valdez Oil spill in 1989.  This bill requires the responsible company to pay all of the damages associated with cleanup and pay economic damages related to lost incomes of newly unemployed fishermen, decreased tourism and more.  The catch is that OPA90 has a liability limit for those economic damages of $75 million.  That amount is utterly dwarfed by estimates for the damages related to Deep Horizon ranging from a “modest” $1-$3 billion as quoted by Chairman James Oberstar (D-MN08) to more current projections of closer to $40 billion.  Clearly that $75 million cap will not do the trick when holding BP accountable on its promises to cover all costs related to the spill.  Aside from the cleanup responsibilities and responsibilities for economic damages (with the cap), the bill also has created an industry-financed $150 million trust fund for emergency spending.  Its purpose is to fund the Coast Guard to start containment and cleanup work before any company pays the government or starts working themselves.  Problem is, the Coast Guard is almost out of that money.

Some valuable ideas emerged from this hearing, although their fate remains unclear given the institutional obstacles in Congress.  A few possible actions the Congress could take are increasing the liability cap, removing the cap altogether, expanding the emergency trust fund and implementing tighter regulations on offshore drilling.  At the hearing, those supportive of action seemed content with expanding the emergency trust fund and raising the cap on liabilities, although there were differences over how much to raise the cap, how much to expand the trust fund and when to pay for it.  But seeing how most Americans want to see swift actions taken on this issue, these kinds of deals will most likely be worked out in the near future.  Indeed, Chairman Oberstar said he hopes to see a bill on the floor and passed before the 4^th of July recess.

One of the hearing’s witnesses, MIT economics professor Dr. Michael Greenstone, set forth a concise argument for why there should be no cap at all on damages.  The main problem with capping damages is its moral hazard effect, in other words that it creates an incentive to ignore safety protocol and cut corners in order to save money.  This is because a company knowing of a cap will not care if damages exceed the cap’s value.  In this case, BP will not care if damages are $75.1 million or $75 billion; with the cap they are only responsible for $75 million.  Not only does BP not care, insurance companies will only insure them up to that $75 million because the insurance company knows quite well that $75 million is all BP would be responsible for.  So in effect a cap gives a company incentive to act with excessive risk because they know that they will only be responsible for the cap’s value.

One of the arguments against removing the caps (or even raising them) that served as the g0-to point for Republicans including Ranking Member John Mica (R-FL07), was the unintended consequence of small and medium sized businesses would not be able to afford insurance with raised caps or no caps at all.  If the cap were raised significantly, the argument goes, companies would have to be able to pay higher premiums on more coverage, driving out smaller companies with less money.

However, regardless of the issue that barriers to entry in the oil-drilling business are already extremely high for all but the largest conglomerates, another major  problem with this argument exists. As Robert P. Hartwig of the Insurance Information Institute and others pointed out, insurance companies generally price premiums based not on company size but rather on risk.  It does not matter to an insurer if your company is worth $500,000 or $20 billion, the riskier the behavior the more their premiums will be.  So as long any company, small or large, takes the right levels of safety precaution then no company should have a problem getting insurance.  Looking at the issue a slightly different way, an efficient market for oil-drilling operations would price the full costs of unforeseen events to society into the cost of doing business. Therefore, if a company cannot afford insurance in the absence of a liability cap, drilling on oil well is not an economically viable endeavor and therefore should not be undertaken. Thus, the argument favored by most Republicans seemed oddly out of step with their traditional embrace of free market principles.

In summary, removing liability caps actually creates proper incentives for companies and insurers to act safely.  As Dr. Greenstone mentioned, the goals of off shore drillers and the public are not in line, and a cap on liability only increases this effect.  Without a cap, companies will be forced to place their drills in the safest areas with proper safety regulations in order to get insurance and/or avoid paying damages.

Congressman Rush Holt (D-NJ12) has introduced a Big Oil Bailout Prevention Act that would retroactively increase the cap limit from $75 million to $10 billion. In the hearing, Rep. Holt said he did not close the door on removing all cap limits, but he did not include it in the bill. That bill is matched by a similar proposal in the Senate by Sen. Robert Menendez (D-NJ), which has been brought to the Senate floor only to be blocked multiple times, first by Sen. Lisa Murkowski (R-AK) and then by Sen. James Inhofe (R-OK).

On Tuesday June 1^st, the Brookings Institution held a seminar discussing one the fastest growing problems in American politics today. The American public, in particular 86% of it according to a recent study, feels that their government is not functioning for them, that it is “broken.”  By broken, the speakers meant that Americans feel as if their voice is not heard in government while lobbyists, special interest and big time donors have all the power.  Also by broken they implied that there is a growing generalized distrust of government amongst the public and vice versa.  During this seminar the audience heard from a bevy of speakers including White House ethics consultant Norm Eisen, professors, and advocacy and non-profit group leaders.  Although at times the seminar seemed to lack a consistent message, it was encouraging to hear many powerful minds discuss one of the more unflattering problems facing this country today.

The first panel focused on election reforms that could possibly help cure this problem.  By reforming elections, a positive change will (hopefully) come about in the method and frequency in which Americans exercise their political voices.  Various reforms were discussed such as campaign finance reform, reaffirming an explicit right to vote in the Constitution and voter registration issues.  Nick Nyhart, President/CEO of Public Campaign, advocated for large sweeping change to the campaign finance system.  He said that large changes can better harness the anger in public to make it easier to get mass support for reform ideas.  He wants to see private donations be matched by public funding by four times the amount of private donations.  If a candidate accepts public money then he/she would be subjected to a limit of how much spending they can use during a campaign.  Although this is a popular notion within the public one should note that it may be hard to achieve this type of reform because the people that get elected are not going to be very willing to change the rules that got them to their powerful positions.  He did mention a bill along the lines of public campaign financing, the Fair Elections Now Act, that has been co-sponsored by over 150 House members and over 20 Senators.

Campaign finance reform was not the only reform discussed. Eddie Hailes, Managing Director for the Advancement Project would like to see felons who have paid the dues to society have the right to vote and also see an explicit right to vote in the Constitution.  Out of the 109 developed democracies in the world, the US is one of just 11 that do not guarantee an explicit constitutional right to vote.  In addition, Jon Greenbaum, Legal Director for the Lawyers’ Committee for Civil Rights, discussed ways to ease voter registration laws.  Voter registration rules are one of the key determinants of voter turnout; the easier it is to register to vote, the higher the turnout.  He advocated for all states to use election-day registration as nine states already do.  He also advocated for permanent in-state registration, so if one moves within a state they do not have to register to vote after their move. With further discussion and public action these thoughts can be transformed into actual results.  Hopefully, with these and other reforms, the public will start to feel as if their voice and vote mean something and as turnout grows, mutual trust between citizens and their elected officials can be reestablished.

The second panel was supposed to focus on governance reform, procedural rules Congress and the President must follow.  For the most part, however, the panel discussed ways in which the public should change and/or get involved.  One idea was to set up non-partisan funded public discourse arenas to bring about constructive discussion about the happenings in our government.  This is a great idea, to get the public involved in politics and get to a point where disagreement does not yield distrust.  But, the only real governance reform discussed there seemed to be about transparency laws.  Gary Bass, Executive Director of OMB Watch, called for laws that would require Congress to not only show where they Congress is spending tax dollars but also what they are being spent.  For example, listing $1 million given to a university is not sufficiency for Mr. Bass.  The specific programs that the money is being spent should also be provided to the public (for example $500,000 for a research program on comparing democracies in Europe and $500,000 for a project studying half lives or radioactive elements).  Mr. Bass called “information the lifeblood of democracy” and “transparency the heart of democracy”.  Calling for actual legislation requiring transparency might have been the only actual government rule change called for by the second panel which was to focus on governance reform.  Nevertheless, this call for transparency could indeed instill more trust in the public by helping to coax more honesty or at least less secrecy out of our elected officials.  Again this seminar provided no way of actually achieving this call for more transparency.  It is not worthless though, thinking about these reforms is the first step to achieving them.

The ideas offered in this forum are very interesting thoughts, and necessary in moving toward a more just society, but sadly there were no real details on how to achieve these goals.  To borrow from writer John Burroughs “The smallest deed is better than the greatest intention.”  These intentions are great but hopefully somewhere in the near future, seminars and speeches like these will provide some concrete means to achieve these goals of election reform.

Fact is, without massive and mobilized public support for election and governance reforms it will be impossible to change this government.  The elected officials will not be willing to change the rules that got them to their powerful jobs unless they face the threat of being voted out of office if they fail to act.  There may have been some disappointments from the Brookings Institute seminar, “Is Government Broken,” like a lack of discussion on ending or reforming the filibuster, but it did do one thing.  It discussed a major structural problem in American politics and starting a robust discussion is the first step in order to reform our broken government.

1) Bills only getter better when they don’t make things worse from the beginning:

All the cases I can find of weak reforms that grew stronger over time avoided one flaw that is prominent in Kerry-Lieberman. No matter how weak they were, they contained no features that made parts of the problems they were trying to solve worse. The 1957 Civil Rights act did not increase Jim Crow in limited areas to buy off racist Senators. The original Social Security act did not repeal any existing pensions, nor weaken any existing protections for workers or old people.

And APA makes things worse:

The nominal target has already been more than halfway met just by emissions reductions from the current recession and existing “command & control” legislation. Most of the remaining target could be met by offsets, legal counterfeit do-it-yourself emission permits. So at best the bill would produce few, if any, real cuts – nowhere near the reduction claimed in the nominal cap. Worse, many types of offsets could end increasing emissions even before they served as permission to continue burning coal.

For example, we may see ethanol (which has higher greenhouse gas emissions per mile than gasoline) credited as a carbon offset. Or we may see types of forestry which might release centuries of banked carbon from trees and soil credited as carbon reductions. The protection of offset additionality is phrased in stern generalities with specifics left to regulators. So we don’t really know what would or would not be allowed. In an age of regulatory capture, that is not good news.

Even worse, the KL bill repeals the EPA’s authority to regulate greenhouse gases. The usual reply from KL supporters: “That old thing? We weren’t using it anyway. And that broom is missing a few too many bristles to sweep clean.” That misses two points. However weak or strong that authority is, it is the only leverage to get climate legislation through a 60-vote Senate. Pass weak legislation that eliminates the EPA, and what will you use as leverage to strengthen it? Especially after you start seeing big agriculture and forestry garnering massive profits from the counterfeit permit industry (otherwise know as offsets). And while EPA authority does not include the ability to reduce emissions in as optimum a path a we would like, the EPA certainly has authority to reduce emissions by more than the KL bill does.

I’d suggest the issue EPA reductions vs. KL really hinges on how far into the future you’re talking about. Since KL is so weak in terms of what counts as an emission reduction and how little reductions we get in the next ten years even modestly successful reductions created by EPA regulation, would result in a lower emissions path by 2020. But going further the dynamics would probably start to shift in favor of APA.

I say probably because the offset market could expand enough to nullify even the harder limits and the EPA path doesn’t involve cutting off any additional programs. Most people think the offset market couldn’t get that big/ineffective and in political environment where it did EPA regulation would have similar problems.

It’s hard to see either path making a strong case for improving the future, passing a bad bill would reduce the urgency for action, but another failed bill hurts the cause. The scenario I most want to avoid is a wide acceptance within the environmental community of a bad bill that doesn’t pass, laying the ground work for an even worse bill in the future.

-Chris

Barack Obama has manically embraced “discredited conservative ideas” and “helped enormously in extended the hegemonic continuity of [the] Nixon-Reagan Era

That said, the alternative proposition expressed by NY times columnist David Leonhardt that the Obama achievements “rivals any other since the New Deal in scope or ambition”, isn’t really the that powerful a rejoinder. Here’s the full first paragraph of Leonhardt column:

With the Senate’s passage of financial regulation, Congress and the White House have completed 16 months of activity that rival any other since the New Deal in scope or ambition. Like the Reagan Revolution or Lyndon Johnson’s Great Society, the new progressive period has the makings of a generational shift in how Washington operates.

Which is to say that the Obama administration achievements are comparable to the domestic achievements of Reagan or LBJ. Not that they exceed them or are on par with FDR’s achievements. Nixon actually had a pretty robust domestic policy legacy, although it’s a bit of orphan because of it’s mixed ideological direction and Nixon’s personal legacy.

Obviously the important thing will be if the bills make the world a better place. The early results for stimulus bill are lacking. The economy needed more and it just didn’t happen. In size and scope the health care and financial reform bills are historically large. So what, will they work? For health care it’s pretty clear the expansion of coverage will last and improve lives of millions of Americans. But I wouldn’t pretend to know if financial reform will look like an achievement in ten or twenty years. It’s size and scope could just as easily be measures of failure as success.

-Chris

It’s worth noting that all the groups involved have shown they understand the scientific urgency of an aggressive clean-energy plan.

Maybe off the record that’s true, but on the policy level there are real differences between what they’re saying. You’ve three camps:

1) The 450ppm is OK crowd,
2) 350.org saying the present levels are dangerous
3) James Lovelock and other pessimists saying we’re all doomed.

The 450ppm camp pretty much fell apart, in that most of them will basically say that 350 might well be the right goal. Saying anything else would seriously undermine their leadership position even more after all the flack they’ve taken from the little green groups calling their legislative agenda a big polluter give away. But it doesn’t really translate into a change in their agenda, it’s still based around the old idea that we’re in the safe zone and can safely keep going up. The emissions targets just aren’t strong enough to believe that the the plan isn’t to let CO2 reach 450ppm and only lower it slowly from there. The was the official plan 3-4 years ago and nothing has changed.

The 350.org folks start from the position that the science says danger is at the door step. Thus we need stronger emissions targets, more money, more effort and less compromise. Politically we need more effort around long-term movement building and to just forget about the current legislation. Use every tool, read pressuring for the strongest possible action by the EPA, in the short term.

James Lovelock is basically saying that only the unequivocally politically impossible action will avert climate change and even that probably wont be enough. He basically endorses the 350.org agenda, plus drastic life boat policies. I once wondered if he’d tell Obama to consider invading Greenland or telling young people with children to move to Canada.

Surely a lot of the differences causing the split are political, personal, and philosophical, but there’s science behind the policy and it’s not the same science.

-Chris

2. Susan Collins and Ben Nelson on board, but progressives blocking passage
Republican Susan Collins, and uber-ConservaDem Ben Nelson came out in favor of cloture today.

If all other Democrats held together, this would mean there are enough votes for cloture to succeed. However, many progressives–Cantwell (reinstating Glass–Steagal), Dorgan (ending naked credit default swaps), Harkin (capping ATM fees at $0.50), Merkley (reinstating Volcker rule), Levin (same as Merkley) and others–remain angry that their strengthening amendments have not received votes, and as such are not promising to support cloture. In fact, Cantwell just said she does not support cloture, as of right now.

Progressive anger over this turned into chaos–or as close as the Senate ever gets to chaos–on the floor last night. Tom Harkin openly angry at Harry Reid, Senators huddled every which way to strategize, strange procedural moves were employed (see bullet point below for the prime example), and more. Ryan Grim and David Dayen have good rundowns of the events.

Everything related to HRC took forever and never seemed to include any surprises on either the House and Senate floor. Pretty much every vote turned out as predicted, the changes happened in the in between periods. The little bits of drama were in the various of periods of wringing out votes. Don’t know if all the drama will make for a better bill, but it’s a lot more interesting then the endless debates about pulling together. Maybe it’s just the absence of Joe Lieberman’s oxygen depleting presence as a central figure in the debate.

I thought this was an interesting post by Brad Delong on the Costs and Benefits of climate action.

First a review Cass Sunstein and how he might begin to calculate when to act on climate change.

After all, if money depreciates at say, 3 percent a year, then spending $1 million today is the equivalent of spending only about $860,000 of today’s dollars five years from now. Over very long periods, like those involved in climate change, the discount rates that are applied to short-term problems like budgets build toward absurdity: using one common method, spending $1 million today to forestall climate change would be the equivalent of spending $2,300 in 2100. Calculations like this seem to argue against doing anything now. The problem, Sunstein says, is that we might do irreversible damage to the planet while blithely waiting for the price of action to drop just enough…. As an academic, Sunstein seemed to side with economists like William Nordhaus at Yale, who set the discount rate at about 5 percent, which would counsel patience. “It’s not clear what direction the risk of error cuts in,” he told me. “If we err, 7 percent could be bad,” he said, but “if we err, 1 percent could be bad also.” A low a discount rate might protect the environment by spurring us to sacrifice now — while damaging the economy, increasing poverty and putting more people out of work. The difficulty is that the experts are lined up “out the door and down the block on both sides of this issue,”

Brad Delong retorts:

Here we have yet another example of why law professors should simply not be allowed to practice law and economics or moral philosophy without a license–and of how Cass Sunstein has never bothered to do the work necessary to acquire a license to practice law and economics.

First, “irreversible damage”: we are doing irreversible damage to the environment every day in that every day human activity brings more species closer to extinction, and natural or artificial selection would never be able to resurrect them no matter how much money we would spend trying to do so. The question that must be asked: is how much we care–how damaging is the “irreversible damage,” and what other goods are we willing to forego in order to avoid it? What Sunstein implies–that “irreversible damage” is something that must be avoided and that trumps cost-benefit calculations–is simply incoherent, and does nothing other than perform the function of getting him onto Obama administration message without admitting that he does not understand why the cost-benefit analysis tools he loves so much are leading him to what is for an Obama administration official an off-message conclusion.

Delong goes on to suggest Sunstein is using the wrong type of discount rate since we’re discussing human lives and welfare. I don’t know why Sunstein thinks it’s “It’s not clear what direction the risk of error cuts in”.

Using either the pessimistic or optimistic scenarios at some point reach feedback loops where it’s either impossible or much more expensive stabilize the climate. Further the do something now approach proposed by the Obama Administration is really a do something over the next 30 years and probably longer approach and it’s back loaded towards doing more 2020-2040.

Pretty much all the scientific questions about energy research and development and ecology point towards some strategy, starting sooner then later. Economics doesn’t exist in bubble, if you’re positing we can wait and wait and wait you’re not looking at the whole picture.