Negative and Positive Externalities of the Gulf Oil Spill
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Negative and Positive Externalities of the Gulf Oil Spill

In every crisis, there is always an opportunity for someone. This is the case of the oil spill in the Gulf of Mexico. In reality, the general perception that the oil spill is something that must be disdained could be a biased position as many sectors of society have seen some gains. The gulf oil spill, in fact, has both negative and positive externalities. Read on why this is so.

As the old adage goes " In every crisis, there's always an opportunity for someone."  This is quite true in the notorious case of extensive oil spill in the Gulf of Mexico. A lot of effort was made to plug the oil leak albeit unsuccessfully. Various strategies were employed to contain the leak thereby address the problem at source then clean up the spill. These efforts require people, machines, technology, money, time, among others to sustain. There are threats to wildlife due to water pollution and to people's livelihood dependent on the products of the sea.

But there are benefits to be gained from such event. How could this be? The truth is, some sectors also benefited from the oil spill in terms of employment opportunities and work generated to clean up the oil spill. While the harmful effects to wildlife are negative externalities this is counterbalanced by the positive benefits derived by people in terms of additional income from work generated, i. e., by the clean up activity which is considered a positive externality in economic terms. 

What is an externality?

An externality is the cost or benefit incurred by a party who did not agree to the action causing the cost or benefit or is outside of the transaction between two parties. A benefit is called a positive externality and a cost is a negative externality.

In a competitive market, prices do not show the full costs or benefits or producing or consuming a product or service. Producers may not bear all the costs of their economic activity while the consumers may not reap all the benefits of the economic activity.

For example, in the production of oil in the Gulf of Mexico, the costs or negative externalities of the people living in and around the Gulf of Mexico due to oil production are in terms of water pollution that impact on their livelihood such as fishing and tourism as well as water pollution effects to wildlife. The oil spill, however, also has positive externalities in terms of work generated and opportunities offered by the clean up activities. The overall cost and benefit to society of the oil drilling and production activity by BP is the sum of the benefits and costs associated with it.

To illustrate further, the following list enumerates the negative and positive externalities of the oil spill in the Gulf of Mexico.

Negative Externalities of the Oil Spill

  • millions of dollars lost due to production of shrimps, fish and other fish products by the fishers
  • lost income derived from the billion dollar tourism industry of Louisiana if the gulf oil spill continues
  • cost of wildlife and wildlife breeding grounds lost due to the oil spill
  • increased cost of oil prices due to the moratorium on deep water drilling operations
  • lost jobs due to the suspension of deep water drilling operations
  • health costs of cleanup workers in the frontline
  • cost of air pollution that will pose respiratory related ailments

Positive Externalities of the Oil Spill

  • millions of feet of boomers were employed to prevent oil from spreading uncontrollably. Boomer production means increased income for the manufacturers of this material.
  • millions of dollars were spent on dispersants that benefitted the producers of this chemical
  • thousands of kiddie scoopers were sold at $2 each benefiting the manufacturers
  • there is an increased demand for respirators. This means increased income to producers of this device.
  • 30,000 cleanup workers were hired
  • 200 portable toilets were rented at $200,000 a month increasing income of providers more than three times
  • small four-bedroom houses near the location of the oil spill were rented at $45,000 per month at the lowest
  • hotels in the gulf area are fully booked for six months which means increased income
  • $360 million for a project to build six sand berms meant to protect Louisiana's wetlands from spreading oil
  • income derived from production of technologies to cap like robots and capping domes, etc.

The above is not an exhaustive list. A great deal of money is involved just to bring back (or at least try to reduce the impact) the state of the environment before the oil spill. BP has already spent $1.6 billion in cleanup operations and committed a $20 billion fund to President Obama to cover the costs related to the Gulf spill. Experts at Standard Chartered Plc estimate, however, that the whole thing would cost BP $40 billion for cleanup and liabilities.

Despite the benefits associated with the oil spill, many Americans say they are willing to trade all these things to get back to April 19, the day before the oil spill. The Gulf oil spill incident just shows how valuable the environment is in terms of the its direct and indirect uses as well as non-use values that are not normally given monetary value and sold in the market. Among these non-use values are intangible values like the value placed on the continued existence of wildlife habitat, bequest value of the natural endowments of the coastal areas surrounding the Gulf, among others. All of these use and non-use values are called collectively as the total economic value of the natural environment. The latter values are usually captured using people's willingness to pay for enjoyment of such attribute of the environment.

The conclusion of the matter is that however unfortunate the gulf oil spill may be, it also opened new opportunities that can keep the economy going. It just takes an open mind and pragmatic thinking to widen one's perception and take things in a broader light.

References

Associated Press Report on Gulf Oil Spill Costs

Don Miller on Cost of Gulf Oil Spill

Matt Gutman's report on the 'spillionaires'

Voice of Russia on Oil Prices Going Up

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Comments (10)

I find it somewhat offensive that anyone can see this as a positive. If disasters are deemed good for the economy well we have a rather sick society. Killing off the people and environment so another group can come in and save the day does not really give a positive. The truth is many disasters are intentionally created this one I suspect is the same. But who benefits really, they do the ones creating it, everyone else suffers. You also failed to mention the more deadly danger in the benzenre now floating all through the atmosphere, not to mention innocent lives and the wildlife who seems not to have any say at all. This is no different to those collapsing the economy yet taking over 66 trillion from the American people alone. This is $660,000 per person in the US. So please look at the whole picture there is no positives at all in this, unless you are like the parasites running the show at present. Did you know that all involved in this sold there shares before it blew!

It is very difficult to see anything positive in all this. But I do appreciate you trying to play devil's advocate.

Thanks Leslie. I understand there are other negative and positive externalities associated with the gulf oil spill. This is why I wrote only "some" of those that I managed to search in the internet.

Thanks Susan. I was prompted to write the article upon seeing Matt Gutman's report about the so-called 'Spillionaires' or those that benefited from products sold or services provided to help clean up the spill. You can find the link in one of my references.

While the overall effect has been negative, the positive benefits cannot be wished away. One man's poison is another person's food. Were it not so, we would have to condemn all hospitals, ambulance services, fire services etc. Thus I commend you for highlighting the positive side. I also realize that highlighting the positive side does not mean endorsement of oil spills. Write on! Not everyone can see the broad picture, but someone has to present it for the sake of factual analysis and presentation.

interesting article Patrick, sadly there are people who would be happy to make money out of anything

A fascinating and original way of approaching this topic.

If BP is going to pay out 20 billion dollars to take care of its mess, other people will receive a total of 20 billion dollars. So long as the people receive it deserve it, either because of harm suffered or services rendered, no one has any right to take offense. Scammers are another matter, of course, but the folks whose business has to fold and the folks working to clean up the mess deserve whatever benefit they get from BP. As Patrick said, no one is happy getting the money. Everyone prefers that BP had been more careful in the first place.

The question of externality here is not always a practical one. Thomas Sowell described it best with his hypothetical argument of creating jobs by criminals breaking windows in a store. The glass makers and window installers have jobs, and the store doesn’t lose any money because their insurance company covers the loss. Only the evil insurance company loses money, but then raises the premium on the store owner.

a very timely post here Patrick, thumbs up!

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