28 Nov 2017

Why didn't the Deepwater Horizon spill hurt BP?

Julia writes*

The Deepwater Horizon (DWH) blow-out and subsequent oil spill by the Macondo well in 2010 released up to 838 kilotonnes (kt) of crude oil to intermediate waters of the Gulf of Mexico (GoM). The released crude oil caused the loss of lives of 11 rig workers besides serious detrimental impacts on the environment and its inhabitants: From toxic sludge spread across thousands of square kilometers of water and coated shorelines implicating many seabirds and other marine organisms, DWH furthermore had catastrophic effects on deep-water ecosystems in the GoM, such as coral reefs, which impacts can still be measured today.

In spite of the severity of the Deepwater Horizon incident – seen as even worse than the Exxon Valdez Oil Spill – and its disastrous ecological impacts, why did BP, the operating oil company, get away so easily in terms of reputation? Immediately after the incident happened there was great public outcry and disapproval for BP but considerably quickly afterwards, this outcry vanished so “some argue that the resulting outcry does not reflect the extent of the catastrophe” [pdf]. BP’s stock price dramatically fell just after the disaster which, apart from the loss of the 11 rig workers, (destroyed physical property and also destroyed shareholder wealth. From April 19, 2010, to June 25, 2010, BP’s share price decreased by 55%—from $59.48 a share to $27 a share. However as seen in the figure at right, BP’s stock price was already on the rise shortly after the incident, albeit never reaching the pre-DWH value. Between the period of August 2010 to August 2014, shares have averaged $44 a share with this average being 27% below the peak that shares reached just before the incident. However, for a catastrophe of this magnitude and significance for humanity’s energy future, 27% does not seem so severe.

I explore why this incident was not more of a wake-up call to the public to abandon fossil fuels, in this case oil, and to move to renewable energy sources (RES). To understand the public’s behavior, who are ultimately the consumers, we have to look at two psychological concepts: avoidance coping (AC) and decision avoidance (DA). Furthermore, we have to consider the presence of (strong) visuals for the Deepwater Horizon Oil Spill which is considered unique because it was “the most visual of disasters” [pdf] in that it was broadcast around the world. People care more about events if they have a visual of the extent and severity of the issue, which relates to them and forces them to pay attention. If people can see the problem, they are more likely to care and are more likely to take up action, however, coping strategies are employed to avoid consequences for oneself.

The DWH incident is a good example as it was broadcasted in the mainstream media for several weeks and, thus, was very difficult for the public to avoid. It had a very strong visual that touched the public’s feelings. Why then was there no long-lasting dramatic impact on BP’s reputation?

This question can be answered by the concepts of avoidance coping and decision avoidance. AC refers to coping strategies that are aimed at “avoiding confrontation of the stressor or reducing emotional tension associated with the stressor”. The stressor here being the realization (after the DWH disaster) that fossil fuels are dangerous and hence, it is necessary to switch to renewable energy sources (RES). The switch to RES, however, requires effort (eg: time, money) and an individual’s part might conflict with his/her “values, goals and aspirations” such as having a big car that is ultimately a gas guzzler, and consequently, DA is employed, which refers to a pattern of behavior where individuals avoid responsibility of making decisions by either delaying or choosing the ‘no action-no change’ option.

Companies’ greenwashing efforts play directly into AC and DA as they offer ‘an easy way out’ for individuals by reducing the stressor’s impact and reducing the negative emotions felt by individuals (AC has been linked to emotion-focused approaches to decision making). According to Walker and Wan (2012) greenwashing refers to “a strategy that companies adopt to engage in symbolic communications of environmental issues without substantially addressing them in actions”.

Bottom line: The DWH disaster in connection to the concepts of AC and DA explains how, after disasters, even with loss of lives and strong visuals, after a while people turn back to their status quo. The public has reacted with a loud and strong outcry when confronted with the significant visuals of the Deepwater Horizon oil spill, yet most people employ AC and DA strategies to avoid the negative emotions associated with the stressor to keep the status quo of ‘no action-no change’: because life is easier without caring.

* Please help my environmental economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)


Brian Yu said...

Hi Julia,

I think your analysis that draws upon psychological concepts as a means of exploring the environment of oil spills is very interesting. It could be helpful for your analysis to further explore the case of the Exxon Valdez Oil Spill. It might be easier to quantify the potential benefits of oil production to the risk of oil spills if you have two case studies to work with. Comparing the stock price after oil spills of two companies might help broaden your analysis. The psychological concepts that describe the public's behavior add a valuable component to your analysis of social behavior, however I wonder if there is a way to quantify this analysis in a way that would make it less ambiguous/subjective.

-Brian Yu

Marty Sana said...

Hi Julia,

Thanks for you for your post, I really like your analysis using phsychological concepts to explain the public's reaction. For future research it could be very interesting to see how media coverage of BP or lack their of changed shortly after the spill was "resolved". Perhaps public opinion was also influenced by the way media. https://hbr.org/2014/02/study-green-advertising-helped-bp-recover-from-the-deepwater-horizon-spill this is a link to a page which discusses some of the effects of BP advertising pre and post spill. It dicusses a very interesting point on how areas where BP spent more on advertising had a much lower negative response to the spill. Perhaps this in combination with AC and DA allowed BP to bounce back even quicker.

Anonymous said...

Thank you for your input Marty. It seems very likely that this has helped BP regain much of its reputation because the media is for many people the only source of information and a slightly more positive representation might have been a successfull strategy for BP. (Julia)

Anonymous said...

Hey Brian, I think your idea to find a more unbiased means of measurement is justified, however, my the main point I tried to make here was the social behavior explained through psycologial concepts and the stock price argument (albeit being very subjective) was only a minor point. It does, however, seem necessary to compare stock price crashes of two different oil spills (possibly with two different companies) to get a less biased and subjective analysis. (Julia)

Anonymous said...

Hi Julia,

Thank you for your insights. While I generally agree with your psychological points, I think the biggest issue with the rebound in stock value has little to do with psychology. Currently there are no alternatives to liquid petroleum that are considered renewable at the same economic scale. While people probably agree disasters like DWH should never happen again, they are powerless to do anything about it because liquid petroleum is needed for just about everything in every day life. People need to fill up their gas tanks to drive vehicles, buy plastic material, etc. Therefore, it's obvious why BP's stock rebounded. Their product has such important economic value to our global society that no physical disaster could ever change our dependence on liquid petroleum.

David Zetland said...

She should probably compare BP prices to other oil companies prices to separate DWH from oil demand effects...

Post a Comment

Note: only a member of this blog may post a comment.