offshore drilling

What the Gulf Oil Spill Tells Us About Innovation

It will probably take some time to fully understand what went wrong in the Deepwater Horizon oil spill, and what ought to be done to make sure it doesn’t happen again. But at least one thing is already perfectly clear: recent technological advances in extracting oil in deep water offshore have been dramatic, whereas unfortunately the same cannot be said for technological advances in spill prevention and cleanup techniques.

Why is this the case?  Innovation is complicated, but we do know something about it.  In the private sector, the profit motive is a primary driver of innovation.  Because of the world’s seemingly insatiable demand for petroleum products (mainly gasoline and diesel), oil companies have invested hundreds of millions of dollars in offshore drilling technology (just one company, GE Oil & Gas, reported offshore oil and gas drilling-related R&D spending of $150 million from 2009-2011) in order to reap tens of billions in proceeds from fuel sales (for fiscal year 2009, MMS reported oil production worth $20.2 billion from the Gulf of Mexico federal outer continental shelf). According to the U.S. Energy Information Administration (EIA), oil production from federal offshore areas accounted for 29 percent of total domestic oil production in 2009. In 2009, ultra-deepwater offshore drilling (drilling in more than 5,000 feet of water) accounted for about a third of total federal offshore oil production, and ultra-deepwater production tripled from 2005 to 2009. Until recently there has been no comparable incentive for spill prevention and cleanup techniques:  the pre-Deepwater Horizon spill record had been excellent, lulling both regulators and oil companies into complacency. 

The free market by itself cannot motivate investment in spill prevention and cleanup technology, because spills themselves yield public damage, not private profits.  Our government, on behalf of the public interest, could have put rules in place that would have motivated the private sector to make such investments – such as requiring oil companies to actually demonstrate that spill prevention technology works as a condition for obtaining drilling rights. 

We have an analogous situation with respect to energy security and climate change.  The free market by itself is driving innovation, but in the wrong things: in energy investments that are warming the climate and making us ever more dependent on foreign oil.  We need our government to intervene on behalf of the public interest to motivate private investment and innovation in clean energy, through comprehensive energy and climate legislation. 

The catastrophe in the Gulf is still unfolding, and will ultimately provide many lessons relevant to our energy and environmental future.  But one lesson we can take to heart and act on right away is that there is a profound public interest in spurring innovation in clean and safe energy and that the private market on its own will not adequately provide it.  It is our job as the public to demand it, and it is our government’s job to use all the tools at its disposal – from regulations to incentives to penalties – to make it happen. 

Judi Greenwald is Vice President for Innovative Solutions

Finding the Sweet Spot for Offshore Drilling

The Obama Administration made some important announcements about offshore drilling last week. And in the near and medium term, we believe increasing U.S. oil production is compatible with successful efforts to significantly reduce U.S. greenhouse gas (GHG) emissions.

Offshore drilling has been much talked about lately. Expanding offshore drilling in the federal outer continental shelf (OCS) areas and increasing oil and gas revenue sharing for nearby coastal states is part of the package of climate and energy policies being negotiated by Senators Kerry, Graham, and Lieberman.

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