The Economic Cost And Controversy Surrounding BP’s Response To The Deepwater Horizon Oil Spill

Background Information on BP’s Response to the Oil Spill

The economic cost of the BP’S response to the Deepwater Horizon Oil Spill is continuously addressed as a controversial concept that has brought about several arguments. BP also released its group income statement for the fourth quarterly of 2010 on February 1, 2011. Consequently, is a reflection of a pre-tax charge of US$ 40.9 billion which is connected to the Deepwater Horizon Spill that comprises US$17.7 billion of the charges incurred (Kujawinski et al. 2011). All the costs related to the incident have been classified as non-operational things hence are to be deducted from taxable income. Subsequently, this also comprises of US$ 20 billion escrow amount that the firm agreed to the idea to establish over the next 3.5 years by the sales of the assets of US (Camilli et al 2010).  The primary responsibility of the escrow account is to legitimately satisfy claims that are adjudicated by the Independent Gulf Coast Claim Facility (GCCF) and the cost related to natural resources damages.

Most notably, BP has committed to fund $500 million for a ten-year research program aiming at analyzing the potential effects of the Gulf of Mexico Oil Spill, shoreline ecosystems and its associated response on the existing marine. Also, the firm has seen the need to finance the $360-million cost attributed by berns in the Louisiana barrier Island project.

The cost however, is not a reflection of any amount to do with fines and penalties apart from those which arise from proven strict liability which is under the Clean Water Act. One relevant argument that BP has used through the years is that it relatively not possible to reliably estimate either the quantity or timing of the extra amount (McNutt et al. 2012). Simply put, the uncertainty in regards to the total charges that the company will have to pay implies that the expenditure set aside for the escrow account cannot represent a liability cap. Accordingly, the BP suggests that the final coverage will be embedded on several factors an inclusive of the date that flow of hydrocarbons from the MC252 well which is permanently stopped. Other factors include the amount of oil released and the time consumed by clean-up activities and the nature, number and amounts of the claims that are ultimately on the rise (Michel et al. 2013).

Consequently, there is the need to examine a fundamental concept that touches on a comparison of the value of loss and the replacement of the cost approach. The spill is known to have affected not less than twenty subsections of valuable ecosystems services located in and  around the areas of the Gulf of Mexico. Subsequently, this comprises on non-marketed ones such as climate regulation, hurricane protection attributed to coastal wetlands and the values of culture, aesthetic and recreation (Allan, Smith and Anderson 2012). Recently reviewed research points out that the total value of the ecosystems for the Mississippi River Delta to be on an exclusive range of US$12-47 in billions on an average of a year. On the other hand, the value of what is considered lost ecosystem services amounts to around $1.2-$23.5 billion in every year into the future which is until the ecological recovery. The government, however, has found it challenging to measure lost ecosystems goods and services. Stakeholders have been known to highly contest the used methodologies and the end results of such studies (Kessler et al. 2011). Agencies have now exclusively focused on a more realistic route of assessing the related damages as an alternative strategy. An example includes the resource replacement cost approach which comprehensively deals with the goals to restore the lost financial and ecological wealth through re-establishment. Simply put, this is through soliciting restoration bids and using the fiscal cost as the focus in damage negotiations.

Cost of the Spill and Its Classification as Non-Operational

Also, they avoid the measurement of lost social wealth which is associated with costs and uncertainties. The important thing is to understand and acknowledge that not all biophysical damages are obvious or is predictable. Boyd (2010, p. 19) argues that there is a high chance that physical damages are underestimated when given a chance to demonstrate casually related effects. It is also identical that the economic difficulty with this sought of approach is that the expenditure are relatively different from the benefits. Consequently, more focus on restoration costs as the tool measure for damages can lead to both over and under anticipation which is exclusively embedded in the relationship of the restoration cost to the social cost of the damages considered physical.

The neutral position in this case is that when the levels of measure of ecosystem services reached a more mature phase, trustees and plaintiffs will automatically have a more powerful tool at their disposal used in assessing the marine liability credited to damages (Kostka et al. 2011). Technically, given the current state of affairs in terms of scientific and economic knowledge, the scale is likely to be resolved through political bargaining rather than the technical calculation (Edwards et al. 2011).  The same explains why BP has not adequately disclosed details about the ecosystems and also the related social damages as well as calculation methodologies of the pretax charge of US$40.9 billion that exist. Conversely, such information is relevant in several dimensions: Access the general performance of the pertinence of global amounts charged, a comprehensive example that relates to the same is the existence of negative externalities that are still accounted for. The other one is to exclusively comprehend the intensity of the restoration efforts that are to be undertaken in regards to the lost ecosystem assets and principles or at times which has been momentarily impaired (Kimes et al. 2013).  If the stakeholders involved can comprehensively synthesize the financial advantages of deducting from the taxable income the non-operating charge, BP has limited disclosure and hence cannot provide stakeholders with the picture of the financial as well as the social and environmental implications of the Deepwater Horizon Oil spill. In relation, the BP has made tremendous strides through the help of the central government and should be credited for that it has done. Also, it is exclusively paramount for the paper to take into perspective the need for more dependable ecological accounting and reporting (Crone and Tolstoy 2010). The case of the spill is apt to influence more severe regulations of gas and oil activities not only in the United States but across the globe (Dubinsky et al. 2013). This mainly pertains to the environmental health, safety protection control and oversight of the drilling operations.

BP’s Commitment to Research and Restoration Efforts

The agenda of BP is to strongly build the case used in integrating biodiversity and the ecosystem services metrics into what is considered as the ecological risk management procedure and the information systems of all the organizations which operate using perilous assets. Corporate environmental performance has been acknowledged as key in need for more reliable environmental accounting and reporting practices (McCrea-Strub et al. 2011). Example includes South Africa, with the drive aiming at integrated reporting in S.A; JSE listed the corporations that may provide the needed opening. Also, there is the responsibility of placing together social, financial and environmental information which is weighed as both fiscal or monetary and non-monetary, side by side and also a meaningful format. Subsequently, this also enables the responsible disclosure of the integrated performance to stakeholders (Hu et al. 2011). As a mandatory strategy, systematic disclosure of the information in annual reports should be standardized and effectively encouraged so as to enhance: The social and also the ecological externalities of what is considered as the reporting entity, consequently, this dimension examines the recurring impacts or exceptional accidents.

Also, the contemporary status and the new trends in ecosystems in which the reporting entities operates, the method exclusively used to design ecosystem and biodiversity services offset measures and subsequently, this is in regards to Environmental Impact Assessments. The final relevant step is to take note of a summarized table showcasing all environmental revenues charges and also the liabilities

Conclusion

Given the image that is continuously deteriorating of firms regarding Biodiversity Footprints, the primary goal would be regaining stakeholder trust; this specifically would be more efficient in mining and also the retailing industries 

References

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Challenges in Estimating the Total Cost of the Spill

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