29 Jan 2015

Underinsuring and overusing

I'm combing two slightly related ideas in this post.

On the one hand, we read that Exxon has been fined $1 million for spilling 1,500 barrels of oil back in 2011. They also paid $136 million to clean up the oil and $2 million in compensation to victims. I'd have fined them $10 million at least, to reverse the "profit maximizing" behavior that led them to keep pumping in a flooded area (the competition shut down their pipelines), but I doubt whether any fine would have been necessary had they been carrying the "performance insurance" I designed [pdf] to put the insurance company on the line for losses -- and thus on the job to check poor behavior in the field.*

On the other hand, we read of a "report" that says [pdf] the Colorado River Basin (CRB) will suffer a 60+ percent decline in economic activity if no water arrives to the CRB. This study is flawed. First, it is hard to see how this decline would occur when the CRB supplies only 40 percent of the water used for ag and municipal uses. Second, it is even harder to believe that ENTIRE sectors would shut down, when (a) some water is still available and (b) it is possible to do a lot of business with less water -- even farming. I'm guessing that the authors may disagree with me on this, but so would their clients "Protect the Flows, a coalition of businesses that seek to maintain a healthy and flowing Colorado River system." Teachers should use this report as an example of propaganda (jobs created? really?)

Bottom Line: Businesses need water to operate, but that doesn't excuse them from damaging or depleting sources. Businesses should pay for the use and protection of water -- especially if they want to use it in the future!

H/T to MH

* Wow. Here's a nice paper [PDF] showing that oil firms produced less and shut down (two results of less "cowboy behavior") when forced to buy insurance against spills