The Perfect Spill: Solutions for Averting the Next Deepwater Horizon
While I agree with the authors thesis in its entirety there are some cautionary issues. The use of environmental bonding typically does not work well. Work that my co-author Matt Andersen and I are completing on costs and bonding in Wyoming's oil and gas fields suggests that the way the federal government goes about about bonding makes the bond a sunk cost and not a "promise to pay". The only thing that keeps firms doing some reclamation is reputation damages. Bonds in the oil and gas field are usually not cash bonds. They are usually a surety insurance contract or a lien on equipment (think about the depreciation of the equipment). Moreover the Government allows large companies to post "blanket bonds" that cover the entire state, or nation (in the case of BP). The result is that the average bond value is about 20% of the actual cost of doing the reclamation. Federal Agencies do not have the staff to monitor the 68,000 wells so even if reclamation is "done" there is a distinct possibility that the area is under-reclaimed: "Declare victory and leave".
Our preliminary work so far also suggests that one has to be careful you are not forcing a choice between the bond release and the cost of capital in the industry relative to other areas of investment. If we want companies to develop those fields we need to be careful about the opportunity cost of capital. That said though the lesson we've come away with so far is that we need real cash bonds, and bonds invested in financial instruments to account for the time value of money. The bonds need to be valued at the level the authors are proposing, but we also need a more community based approach at monitoring. The Federal Govt cannot do a sufficient job at monitoring environmental safety and success of these developments.
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Exploring solutions presented in our special July/August issue on Appalachia
Getting to 350: Building Strategies for 21st Century Aspirations
Bowdoin College's Phil Camill offers a fresh perspective to the issues surrounding environmental change.
Designing the Future of the Earth Co-operatively.
United Nations Climate Change Conference (Dec 7-18, 2009)
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