Private Profit, Public Risk

Strong regulations and proper enforcement can prevent disasters from happening. The cost of regulatory compliance should be born by the companies engaging in these activities and not by the public.
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Within two years, the Enbridge tar sands pipeline has managed to release more than 850,000 gallons of oil in two different spills. The first spill in Southwestern Michigan released over 800,000 gallons of oil and cost more than $800 million to clean up. The second spill released 50,000 gallons in Adams County, Wisc., smaller than the first spill but still requiring two homes to evacuate. These spills cause great economic and environmental harm to affected communities, but barely create an inconvenience for Enbridge, which posted quarterly earnings over $300 million in the last quarter.

The Wisconsin pipeline spill is just the latest in a series of environmentally damaging accidents that end up causing significant loss to local communities but barely make any impact on company earnings. BP's profits rose 17 percent to $7.1 billion in the first quarter of 2011, less than six months after the Deep Horizon disaster, even though clean-up efforts continue two years later. Between 1999 and 2010, there were 804 spills from Enbridge pipelines, releasing five million gallons of oil, yet the company continually posts big earnings.

At the same time, Enbridge engages in a pattern of cutting corners on safety measures. A formal investigation into the 2010 leak found that the company was negligent both in proper equipment upkeep and in dealing with the leak once it occurred. The report states, "[T]he rupture and prolonged release were made possible by pervasive organizational failures at Enbridge Incorporated," which included allowing well-documented crack defects to exist in corroded areas until the pipeline failed and inadequate training of personnel, which allowed the rupture to remain undetected for 17 hours.

This pattern shows the fundamental problem with the argument that corporations can police themselves: It is still cheaper to pay for the occasional fine and clean up than pay for the continued maintenance and upkeep of equipment that would prevent spills. Corporations protect their profits while the public shoulders the risk and cost of their actions. Enbridge was fined $3.7 million by pipeline regulators -- the largest fine they had ever given, yet it was equal only to roughly 1 percent of the company's last quarterly earnings. At that level, fines are just a nuisance and not a deterrent for future bad behavior. Without having to internalize the costs imposed on the public by their behavior, corporations have no financial incentive to prevent environmental harms.

But it's not just corporations that are at fault. The Enbridge investigation also found that weak regulations and poor oversight contributed to the problem. Not only were the pipeline regulations inadequate, they were poorly enforced, which directly contributed to the accident. Yet, even though regulations provide strong health and safety protections, they are continually under attack. The Obama administration launched "Advise the Advisor," which asks people to submit what regulations they think should be eliminated. How many environmental and health regulations do you think will be submitted? On top of this, the House GOP introduced HR 4078, which would suspend all regulations until the unemployment rate fell below 6 percent.

The fact is the benefit of regulations far outweigh the costs. A recent OMB study found that between 2001 and 2011, the benefits of federal regulation ranged from $171 to $700 billion, while the costs range between $43.3 billion and $67.3 billion. Moreover, regulations have a benefit that is difficult to quantify. We know how to price the cost of cleaning up oil, but we are still far from being able to value the benefit of water sheds and natural resources that are not tainted with oil.

Strong regulations and proper enforcement can prevent these disasters from happening. The cost of regulatory compliance should be born by the companies engaging in these activities and not by the public. It should be public profit, private risk, not the other way around.

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