Sunday, May 23, 2010

Too Big To Fail Means Too Big

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Andrew Lakoff

Our Energy Production System: Too Big to Fail

The eerie timing of the Deepwater Horizon disaster, just a month after the Obama administration announced plans to expand offshore drilling, has been widely noted. But a second coincidence is equally striking. The Congress is currently debating legislation developed in response to another man-made disaster: the financial meltdown of 2008. As attention turns to the regulatory reforms necessary to avoid the next environmental catastrophe, what can we learn from the debate over financial reform?

As in other disasters, the initial response to the financial meltdown was to find the guilty parties. And there were many candidates: the collapse of an inflated housing market, irresponsible lending practices, the negligence of governmental regulators, nefarious investment schemes. The search for such culprits helps only in demanding redress, but also in narrating the significance of the event. However, such a narrow purview distracts attention from a bigger issue: the characteristics of the overall system that made it vulnerable to these specific failures.

In the case of the financial disaster, legislators have finally turned to this latter question. One of the prominent features of the financial reform bill currently under consideration is a focus on "systemic risk." In the context of finance, this term refers to the idea that our collective well-being depends on a complex and fragile system that is potentially vulnerable to catastrophic failure.

The concept of systemic risk points to the regulatory problem posed by the existence of firms whose failure could provoke a collapse of the entire system: firms that are "too big to fail." It is now recognized that the problem of systemic risk requires new forms of government regulation. The goal of such regulation is to provide the financial system with resilience against unexpected shocks so that catastrophic failures such as the 2008 meltdown are not repeated.

What would it mean to apply this lesson to energy and environmental regulation in the wake of the Gulf spill? So far, most attention has been focused on the search for specific culprits. Questions are asked mainly about proximate causes of the disaster: Did the cementing techniques used by Halliburton lead to the initial explosion? Did Transocean fail to install the necessary blowout prevention equipment? Did government regulators neglect to insist on further back up systems for shutting off the flow of oil? Was BP underprepared for a disaster of this magnitude?

The search for a specific culprit in this environmental catastrophe is necessary insofar as it helps us pinpoint who is responsible for the costs of immediate clean up and for the remediation of direct damages. However, it should not be the sole object of inquiry as we reflect on what the spill means for the future of energy production in the US. The danger is that we will focus only on the correction of narrow regulatory lapses and on technological fixes that will allow the expansion of offshore drilling plans to go forward.

Rather, the same broad lessons that were learned from the financial meltdown should be applied to this environmental disaster. New regulatory mechanisms and public investments should focus on the mitigation of systemic risks - that is, on forms of energy production that pose the danger of catastrophic failure to the broader ecological - and economic - system.

In the Gulf Coast, we are learning that the ecosystems in which energy production takes place are complex, interdependent and vulnerable to catastrophic shock. Brown pelicans, sea turtles, bluefin tuna and other endangered species depend on a functioning Gulf ecosystem. The marshlands, coral reefs, and sea-grass meadows that support coastal life are imperiled by ecological shocks such as major oil spills. And the livelihoods of fisherman and resort operators in turn are threatened by the disaster. Offshore drilling in the Gulf is best understood as a systemic risk to these fragile ecologies and local economies.

Our response to disasters is too often limited in extent and duration. Typically the onset of an emergency situation makes it possible to galvanize resources and provide immediate relief, whereas earlier proposals for preventive measures could not muster support. During a disaster, there is a search for the proximate cause in order to attribute blame and seek redress, while the deeper structural causes remain unaddressed. And then, with time, the sense of urgency to deal with the crisis fades, and it becomes more difficult to implement reforms that would reduce vulnerability to future catastrophe.

As we continue to watch the disaster in the Gulf unfold, and seek out its culprits, it is worth attending to the bigger questions the event provokes about the vulnerabilities of our ecosystems, and about the systemic risks posed by our methods of energy production. The energy bill Congress is about to debate is a perfect opportunity to address these risks and vulnerabilities. Building a concern with mitigating systemic risk into the energy bill means investing in resilient forms of energy production, and avoiding sources of energy - such as offshore drilling and nuclear power - that may seem viable in the short term but that threaten environmental catastrophe in the long term.

Andrew Lakoff is associate professor of anthropology, sociology and communication at the University of Southern California, and the editor of Disaster and the Politics of Intervention (SSRC/ Columbia University Press, 2010).
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