Regulation vs. torts

Responding to libertarian commenters, Paul Krugman argues that torts are not nearly as effective as environmental regulations in practice.

Commenters say, but isn’t that an equally strong reason to believe that regulation won’t work either?

Well, here’s the thing: regulation demonstrably does work where tort law doesn’t. Consider the environmental issue: in reality, the perpetrators of oil spills never pay most of the cost; but in reality, environmental regulation has led to much cleaner air and water. (Look up the history of Los Angeles smog or the fate of Lake Erie if you don’t believe me.)

Tyler Cowen dissects Krugman's argument in his typical incisive and dispassionate style, scoring points (except I don't think he's keeping score) like:

There is in fact an agency regulating off-shore drilling and in the case under question it totally failed. How can Lake Erie, an orthogonally related success, be cited but this very directly relevant failure not be mentioned?

As usual, Cowen comes across as eminently sensible and I find it hard to disagree with much that he says. Am I just too rushed, and/or not trying hard enough?

Peak phosphorus: look underwater?

Speaking of Peak Phosphorus, one of Tyler Cowen’s “Julian Simon savvy” commenters (who “descended from farmers”) is also not impressed.

Oh, and peak phosphate? Please. There are deposits on the contintental shelves sufficient for 1,000 years or more. Some are in quite shallow water. The Onslow Bay formation in North Carolina contains about 5x the current proven world reserves, all lying in water less than 20 feet deep.

I have heard about these types of underwater phosphate deposits but don’t know enough about them to verify their size, or how much it costs to extract them (or if anyone is actually extracting at commercial scale yet). Perhaps they will become the oil sands of phosphates: almost unlimited resources but at a fairly high position on the cost curve. In theory this would function as a long-term price ceiling on phosphates (although not short-term, as 2008’s oil price run-up showed us).

Peak phosphorus? Meh...

Two FP Passport writers have a dire take on the world's supply of phosphates:

Our dwindling supply of phosphorus, a primary component underlying the growth of global agricultural production, threatens to disrupt food security across the planet during the coming century. This is the gravest natural resource shortage you've never heard of.

Yes, phosphorus is an essential agricultural nutrient, and yes mined phosphates are critical for phosphate fertilizer, and yes 90% of proven reserves are in five countries, and yes the U.S. is an importer (despite being one of those five countries), and yes the current mines are running out of the easiest reserves to mine. And yes there is the requisite group of scientists forecasting that we won't have enough in 30-40 years. Where I struggle with this Peak Oil type of static reasoning is that it doesn't take into account the dynamic economic dimension. Prices may (probably will) rise, but this will encourage more exploration, more marginal mines to be brought back online, and even more marginal reserves in current mines being produced. I can assure you from first-hand experience that even profitable phosphate mines have ample physical reserves they don't declare for economic reasons, and that when the world price rises, a lot more of your physical reserves become commercially viable.

While I disagree with their alarmism, I do find their ultimate appeal compelling.

We need to dramatically reduce the demand for phosphate rock by eliminating our wasteful practices. This will require a combination of low-tech and high-tech solutions, including efforts to prevent soil erosion, development of more-targeted methods of fertilizer application, and the creation of new, phosphorus-efficient crops, which produce a larger yield per phosphorus unit applied. Fortunately, unlike fossil fuels, phosphorus can be used over and over -- this is what occurs in natural ecosystems, where it is recycled innumerable times from its first mobilization from the Earth's crust to its eventual deposition into lake and ocean sediments.

(And right, I forgot that higher prices will incentivize, among other things, higher efficiency in use.)

Dead zones vs. oil spills

While ethanol producers have been quick to spin the Deepwater Horizon tragedy toward their own advantage, NRDC's Nathanael Greene has a quick rebuttal:

The nitrogen runoff from corn grown all along the Mississippi causes a huge dead zone in the Gulf every summer. As this map shows, the dead zone at least as large as the oil spill and it takes a huge toll on the marine life and region's economy every summer. With about a third of the corn crop going to make corn ethanol, it should be clear that more corn ethanol is not a real solution.

He's referring to this image from the NYT, which makes a side-by-side visual comparison easy; in fact, the hypoxic zone looks considerably larger than the oil spill to date.

A hypoxic zone is in some ways not as destructive as an oil spill - it will not cripple fragile marshland ecosystems, for example - but the impact on marine life alone is no doubt harmful for the coastal fishing industry that could be (and once was?).

It is not news that corn ethanol is hardly an environmental angel, but it is worth keeping in the public conscience as the Deepwater Horizon leak continues unabated and the inevitable public backlash builds in strength.

Chances of history: Deepwater Horizon and Texas City

With the Deepwater Horizon spill worsening further, and "ultimate relief" likely three months away, it's not surprising that people have started to throw bricks at the involved parties with articles like "BP Fought Safety Measures at Deepwater Oil Rigs." This will no doubt continue (Halliburton and Transocean have also already been called for a Congressional pillorying), and wherever the lion's share of the blame is ultimately laid, no one will come out looking good.

I find the parallel to the Texas City refinery blast fascinating. There also, BP was accused of prioritizing cost savings over safety, and the tragic accident ultimately derailed the aspirations of John Manzoni, then head of BP downstream, to succeed John Browne as CEO of BP. Until then the heir apparent. Manzoni fell from grace with the Texas City incident and the lesser-known head of BP's upstream business, Tony Hayward, assumed the spotlight, and ultimately Browne's job.

Imagine the parallel universe in which Deepwater Horizon blew up in 2005, and Texas City not until 2010. Does Manzoni become CEO? Does BP not back away from "Beyond Petroleum" as much as it has during Hayward's tenure? Does this have knock-on effects beyond the super-major and throughout the entire global energy business?

I don't have any answers, but the questions fascinate me, as does the idea that such a complex and enormous beast like global energy markets can turn simply on chance and personality.

On a distantly related tack, Michael Roberts takes this opportunity to look at what might be called the political economy of small-probability catastrophic events.