When the Deepwater Horizon oil rig burst into flames in April, the beginning of this epic oil catastrophe in the Gulf of Mexico was by no means the Gulf Coast region’s first brush with the powerful oil and gas industries. Nor will the final solution to this BP gusher mark the end of the severe economic and environmental damage that will be felt by this region for years to come.
The BP oil catastrophe is not the first oil spill in the gulf—not by a long shot. An exploratory well blew up in 1979, dumping 140 million gallons of crude oil into the ocean. In 1990, 2000, and 2008, oil tankers spilled millions of gallons into gulf and lower Mississippi waters. And the U.S. Coast Guard estimates that after Hurricane Katrina in 2005, over 7 million gallons of oil were spilled from a variety of sources, including pipelines and storage tanks.
Not only the water but also the land in the five major gulf states of Texas, Louisiana, Mississippi, Alabama, and Florida, is affected by the region’s long-term relationship with oil. Researchers at Southern University, for example, find strong evidence that land erosion in the Louisiana coastal wetlands occurred parallel to oil and gas development in the region. And according to a recent White House report, the canals, pipelines, and other infrastructure the oil and gas industry constructed across Louisiana over the past eight decades resulted in the loss of over 2,000 square miles of coastal wetlands.
This very erosion—and the levees built to compensate for it—is widely considered to have been a major factor responsible for the massive flooding in New Orleans following Hurricane Katrina. Without question oil and gas exploration has left the gulf both environmentally and economically vulnerable.
What’s worse, there is an asymmetric relationship: The pain of each oil spill or related disaster is concentrated in the gulf, while the gains from oil exploration are funneled past the gulf to oil company shareholders, stock traders, and car drivers. The gulf states carry the costs and risks, while others reap the gains. As a Times-Picayune editorial put it just last week: “The nation benefits from the oil extracted by BP and others off our coast. But we are the state that bears the brunt of the oil industry’s collateral damage.”
That same editorial went on to demand an immediate share of the oil and gas royalties from new drilling in the gulf. But this solution brings with it a perverse incentive—the more new drilling, the more money going to the gulf states to reverse the impacts of drilling.
We at the Center for American Progress recommend a different approach. We believe a new nongovernment economic development fund would enable the Gulf Coast region to collect its fair share of historical gains by the oil and gas companies without depending on future profits from oil and gas royalties to fund its operation. This is a new idea—one that we have not yet fully fleshed out. But we do strongly recommend that this new Gulf Recovery Fund be financed primarily by the major oil and gas companies engaged in offshore drilling in the region.
Over the past 25 years, these companies have collected nearly $60 billion in profits, according to CAP estimates based on U.S. Energy Information Administration data on oil production, oil prices, and profit margins to producers. We recommend that these same companies place a small fraction of this amount—perhaps $3 billion, representing just 5 percent of those historical profits—into a long-term economic development account to be administered by the Gulf Recovery Fund. Private industry contributions could be matched by state or federal dollars or used to leverage further private investments.
The important thing is that these companies would be putting profits earned doing business in this region into a fund to secure the long-term health and growth of that same region. Just as the tobacco settlement of 1998 used some of the money from Big Tobacco to attack the long-term problem of youth smoking and smoking-related health problems, and to help tobacco farmers diversify into new crops, so would this new fund use resources from Big Oil to attack the long-term economic and environmental consequences of years of U.S. addiction to oil and gas extracted from the gulf.
The Gulf Recovery Fund would be a nonprofit corporation, administered by a nongovernmental, nonindustry chief executive with strong credibility in the region. It would bring together stakeholders from state and local government, academia, industry, and the communities along the gulf to develop a truly sustainable economic growth strategy for the region.
This strategy would absolutely not focus on the immediate and quantifiable economic and environmental damages caused by the current BP oil disaster, such as the loss of fishery business and the coastal cleanup. Paying for these damages is the sole responsibility of BP PLC, which is legally required to pay all quantifiable claims.
Instead, the Gulf Recovery Fund would focus on a long-term sustainable development plan for the region. Ideally, projects stretching over 2 years to 20 years would focus on wetland restoration alongside regional and local investments specifically aimed at weaning the region from its dependence on the fossil fuel industry for jobs and economic growth. These latter projects might include:
- Intercity transit systems
- Sustainable housing development, including potentially raising sections of coastal cities above flood plains
- Green building and retrofit projects
- Investments in the most promising local innovations, whether at the research, development, or deployment stage, of cleaner energy and fuel technologies
The Gulf Recovery Fund itself should be nongovernmental, but it would necessarily work closely with local, state, and federal government institutions also engaged in economic development planning for the region. This might be an opportune moment to combine some of these efforts in an organized intergovernmental compact or commission—call it the Gulf Recovery Compact—involving all five gulf state governors along with representatives from key federal agencies such as the Departments of Commerce, Housing and Urban Development, Agriculture, and Interior, the Federal Emergency Management Agency, and the Environmental Protection Agency.
This new Gulf Recovery Compact could serve a coordinating role for the myriad state and federal agencies working on some aspect of the longer-term gulf recovery. For instance, the compact could act as a hub of information for the region, aggregating available public data on regional industry and environmental trends, providing Global Information System mapping services for the region, and ultimately measuring the economic impact of the on-the-ground work proposed by the Gulf Recovery Fund.
The compact could also coordinate efforts of the new fund with existing federal plans, such as the White House’s Roadmap for Gulf Coast Ecosystem Restoration, and state or regional plans such as the many economic development proposals coming out of Hurricane Katrina. Together, the nonprofit Gulf Recovery Fund and the governmental compact would form a public-private partnership focused on moving the gulf region toward a new and more sustainable economic future.
Had such a partnership existed in the past, the gulf region would likely be in a stronger economic position today. It would have more resources to invest in infrastructure, education, and innovation. These are areas where many of the gulf states lag behind the rest of the country, and where more investments could make large contributions to future economic growth.
The condition of the gulf region today is the result of hundreds of business and economic development decisions made by the states, the federal government, and the oil and gas industries over many decades. It calls for a long-term solution that involves all those players alongside the communities that have been most affected by generations of compromises made in favor of short-term economic gain over long-term sustainable growth. It is time to face and address our addiction to oil.
Kate Gordon is Vice President for Energy Policy and Richard Caperton is a Policy Analyst at the Center for American Progress. Be sure to visit the Energy and Environment page of our website for updates on our proposed Gulf Recovery Fund.
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Richard W. Caperton
Managing Director, Energy