The following op-ed by Professor Jody Freeman LL.M. ’91 S.J.D. ’95 appeared in the July 1, 2010, edition of the New York Times. Freeman was the counselor for energy and climate change in the White House from January 2009 to this past March.
by Jody Freeman
The oil spill in the Gulf of Mexico should make us reconsider how we regulate industries like drilling and mining that pose risks to people and the environment.
To that end, many argue that we need tougher safety standards, as well as higher liability caps and more severe civil and criminal penalties for polluters. Others believe that we need to reform our regulatory system: the Minerals Management Service is being restructured, and Congress may give the Environmental Protection Agency and the Coast Guard more robust regulatory power over offshore drilling. All agree that lax enforcement of regulations must stop.
Overlooked in this debate is the fact that regulators need carrots, not just sticks. That’s why we should start rewarding companies that have exemplary safety records, exceed pollution standards and produce exceptional disaster response plans. Such incentives should never replace fines and penalties, which can often take years to work their way through the courts, but they could be a helpful complement.
Here’s an example of how we might provide incentives for good behavior. Right now, royalty rates for offshore leases end up promoting dangerous deep-water drilling — the deeper you drill, the less you have to pay the government in royalties. Under the Deepwater Royalty Relief Act of 1995, Congress even waived royalties on millions of barrels of oil for certain deepwater leases from 1996 to 2000. This and other royalty relief programs have deprived the Treasury of billions of dollars in revenue, while rewarding the riskiest drilling in the deepest waters. Instead, royalty rates should be pegged to performance: those firms with excellent safety records should pay fewer royalties for offshore leases, and those with a history of accidents, safety lapses and penalties should pay more.
Likewise, we should speed up the permit process as an incentive for companies that go beyond the legal minimum requirements, pay for backup safety systems and provide superior worker training for spill response. Providing such rewards would encourage continuous improvement in technology and disaster planning. Industry leaders would be recognized for outpacing their competitors.
The Environmental Protection Agency tried this kind of approach during the Clinton administration, back when Carol Browner, now the White House energy and climate adviser, was the administrator. Companies that found innovative ways of going above and beyond baseline air and water pollution limits got rewarded with faster permitting. The program, called Project XL, was largely viewed as a success, but it ended in 2002.
In addition to devising new incentives, the government should make better use of information already at its disposal. After Union Carbide’s release of toxic gases in 1984 killed thousands in Bhopal, India, Congress passed a law requiring a wide variety of industrial companies that produce significant volumes of toxic chemicals to publish an annual inventory of the dangerous substances they emit. This database, which is maintained by the E.P.A., is easily available to the public.
But we should consider taking this a step further. Why not warn consumers, when they fill up at a BP station, of the company’s annual safety record, in terms of lives lost and penalties paid? A little shaming might go a long way for a company that cares about its public image.
We will be dependent on oil and coal for our energy use for some time, even if we begin now, as President Obama has urged, to move aggressively to cleaner energy. But as long as we continue to drill for oil and mine for coal, we must do everything we can to make those industries safer. That includes not just tough, well-enforced regulations, economic liabilities and criminal penalties for companies that prove too dangerous, but also positive incentives and public rewards for those that put safety first.