The Good Driller Award

By JODY FREEMAN
NYT

Boston

THE oil spill in the Gulf of Mexico should make us reconsider how we regulate industries like drilling and mining that pose risks to people and the environment.

To that end, many argue that we need tougher safety standards, as well as higher liability caps and more severe civil and criminal penalties for polluters. Others believe that we need to reform our regulatory system: the Minerals Management Service is being restructured, and Congress may give the Environmental Protection Agency and the Coast Guard more robust regulatory power over offshore drilling. All agree that lax enforcement of regulations must stop.

Overlooked in this debate is the fact that regulators need carrots, not just sticks. That’s why we should start rewarding companies that have exemplary safety records, exceed pollution standards and produce exceptional disaster response plans. Such incentives should never replace fines and penalties, which can often take years to work their way through the courts, but they could be a helpful complement.

Here’s an example of how we might provide incentives for good behavior. Right now, royalty rates for offshore leases end up promoting dangerous deep-water drilling — the deeper you drill, the less you have to pay the government in royalties. Under the Deepwater Royalty Relief Act of 1995, Congress even waived royalties on millions of barrels of oil for certain deepwater leases from 1996 to 2000. This and other royalty relief programs have deprived the Treasury of billions of dollars in revenue, while rewarding the riskiest drilling in the deepest waters. Instead, royalty rates should be pegged to performance: those firms with excellent safety records should pay fewer royalties for offshore leases, and those with a history of accidents, safety lapses and penalties should pay more.

(More here.)

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