April 04, 2013
This Is Not an Oil Spill
Source: Huffington Post
Legally speaking, diluted bitumen like the heavy crude that's overrun Mayflower, Arkansas, is not classified as 'oil'. And it's that very distinction that exempts Exxon from contributing to the government's oil spillage cleanup fund.
There aren't many more pictures, since access to the airspace over the spill of non-oil has been restricted. 
The ExxonMobil statement indicates that the oil is taxable, but not that it has been taxed -- an interesting disjuncture for an otherwise carefully worded statement. Another question is why ExxonMobil is paying for all costs, if indeed the oil spill is covered under the Oil Spill Liability Trust Fund (OSLTF) (oddly identified as the Oil Liability Trust Fund in the press release).
Posted by Menzie Chinn at April 4, 2013 05:49 PMdigg this | reddit
Technically speaking, it depends on what the definition of "is" is. "It" can be a rather slippery issue; rather slick at times.
Posted by: Bruce Carman at April 4, 2013 06:55 PM
oh, so that's why there is this ban of flying over the oil spill? No more pictures of what the XL Pipeline portends.
Posted by: Bernard at April 4, 2013 07:46 PM
that's reminiscent of what they did after the Exxon-Valdez ran aground; they tied up all the small aircraft around Prince William Sound so the international press wouldnt be able to photograph the mess...if people cant see the damage, it's abstract, and it cuts down on distressed reactions...
Posted by: rjs at April 5, 2013 01:59 AM
Should Exxon be responsible to pay the total cost of the oil spill or should we rely on the bureaucracy of the federal government? Would the cost to Exxon be more properly identified with the one who had liability if Exxon was paying $0.08 or if Exxon sholders the entire cost of the cleanup and any resulting lawsuits? Would Exxon be allowed to tap into taxpayer funds to pay for the spill if cost exceeded the funds available or would they have to shoulder the cost? Would the US government be liable to pay damage for the spill if they botch the clean up as Exxon would if they botch the clean up? Would Exxon executives find photo ops standing beside the spill like politicians would? In other words would the politicians be more motivated to clean up the spill as qickly as possible or wallow in media exposure? Would Exxon be motivated? Who would receive more money from Exxon, the government bureaucrats who suffer no damage or the victims who do?
So tell me, does it make more sense to nationalize and socialize the cost of the spill or to allow market forces to punish the offender and conpensate the victims?
Posted by: Ricardo at April 5, 2013 05:37 AM
Yes, an 30-yr old rule exempts pipelines moving diluted bitumen from paying an 8 cent per barrel tax into the Oil Spill Liability Trust Fund. Nonetheless, Exxon will be required to reimburse all spending from the OSLTF (which is used to pay for federal government spending related to the clean up). Not socializing the cost of the clean up.
Posted by: Michael Giberson at April 5, 2013 06:45 AM
Ricardo has offered a false dichotomy (again). We are not faced with a situation in which market forces will punish offenders or compensate victims. Thus we are not choosing between allowing markets to work and some other solution. We are faced with a choice between other various solutions. Courts can deal with externalities. Regulators can, too. I suppose vigilantes could do it. "The market" does not have a mechanism for correcting externalities.
That point about markets and externalities is, by the way, definitional. Asserting that markets will fix a situation like this is pure la-la land.
Posted by: kharris at April 5, 2013 06:54 AM
These are not oil spills, either:
Posted by: Steven Kopits at April 5, 2013 07:10 AM
Menzie: Are you aware of the myriad of toxic substances that typical freight trains carry? Caustic soda for one.
I ask because presumably the US state in its wisdom has some kind of clean up plans in place for all those other toxic substances. And I ask because if you were aware I doubt you would presented this post the way you did.
Posted by: westslope at April 5, 2013 08:31 AM
"That point about markets and externalities is, by the way, definitional. Asserting that markets will fix a situation like this is pure la-la land."
So, the economic costs of an oil spill or other similar predictable disaster are outside the economy, so all the economic costs are external to the economy??
I bet you consider the entropy which causes your car to deteriorate and that car dealers tell you justifies their cutting the price of your car the moment you drive off the lot to be external to the economy where your car price is set?
The natural, physical world is external to the economy only because economists do not want to have their theories include costs that will occur.
Depreciation is not something that economists like, so they theorize that capital gains value over time, and that is an unforeseen externality that causes capital losses in real estate and patents alike.
In this case, economists reject entropy and believe the quality of a pipeline increases with age to justify higher prices for the pipeline because they like capital gains and hate spending on maintenance.
Posted by: mulp at April 5, 2013 11:22 AM
westslope: Well, even if I hadn't spent a year in the government (where one learns a lot about a lot of things), I've seen enough disaster movies to know what travels in freight trains (the last one I saw was so-so). (And yes, I'm aware of the recent spill of oil from a train.)
Interesting report by GAO here. The point is there are problems transporting a lot of any toxic material by any of these modes; when one has a choice, might one consider not transporting the material? Or if one does, making very sure that if there is a spill of any type, the externalities are properly internalized?
Posted by: Menzie Chinn at April 5, 2013 02:17 PM
There's a lot more to the story
Posted by: James at April 5, 2013 08:40 PM
James I'm not sure that ExxonMobil's PR statement helped its case. As the PR statement implicitly concedes, if the oil in the Arkansas spill had been diluted bitumen, then ExxonMobil would not have been liable to the trust fund tax. In fact, the ExxonMobil statement (indirectly) admits that the costs of bitumen spills are not internalized in the selling price of the oil because bitumen is exempt from the clean-up tax. The fact that ExxonMobil claims the oil from this Arkansas spill is subject to the tax is not an argument against the concern that bitumen oil is exempt. And that's the crux of the liability argument. So is ExxonMobil now arguing that the trust fund tax should be amended to include bitumen spills??? If so, then I missed it in the ExxonMobil statement.
One of the environmental concerns with the XL pipeline is that bitumen spills are, for all practical purposes, impossible to clean-up. The Arkansas spill, as bad as it is, represents a relatively easy clean-up job if we're to believe the ExxonMobil statement that the Arkansas spill is just conventional heavy oil from Canada. So I don't find the ExxonMobil statement reassuring. Basically they are saying, "Hey...we know it's bad, but thank God it wasn't bitumen because then it would have been godawful bad!"
Posted by: 2slugbaits at April 6, 2013 07:10 AM
I hope that those totally against all forms of transport of crude are prepared to completely stop using any form of gasoline powered transport.
Remember that these substances are transported for one reason and one reason alone (and Economists of all people should know this) - to get the product to market - to the consumer (in this case a refinery but that refinery will be selling product to distributors and eventually consumers).
If there was NO market then Oil Companies would no longer need to transport oil and Governments would no longer need to grant them permits to do so, in short there would no longer be any risk of a spill!
If you drive a car then you are partly to blame for the damage that your greed and laziness has caused. You had a choice to walk or cycle but instead you chose a car or a bus or an aeroplane and somehow that fuel had to get to where it was needed by YOU.
Posted by: Jeremy at April 6, 2013 08:01 AM
Jeremy This is ignorant ersatz economics posing as profound economics. No one is saying that we shouldn't transport liquids and gases via pipelines. Anyone with a middle school understanding of geometry knows that pipelines enjoy increasing returns to scale. The economic argument is that all of the costs are not internalized in the market price. As kharris correctly pointed out, by definition external costs are not in the market price. Since the market price understates the true cost of transporting oil, motorists over-consume gasoline.
Posted by: 2slugbaits at April 6, 2013 10:56 AM
kharris speaks like one baptised into the church of perpetual government infallibility. His blind faith in the infallibility of the government is stronger than that of the Catholic church with the pope. The Catholics at least believe there is no infallibility if the the teaching contradicts Sacred Tradition or Scripture. The church of perpetual government infallibility allows government to violate anything - the constitution, laws, or precedent - just as long as government is expanded.
The market is place where traders can trade freely. kharris believes that politicians and bureaucrats know better what you want than your right to free trade, to choose to buy or sell or do neither. Government forces you to buy, it forces you to sell and it does not allow you to choose to do neither because the government is infallible and knows who you really want. You are too stupid to choose for yourself.
Posted by: Ricardo at April 6, 2013 01:17 PM
" No one is saying that we shouldn't transport liquids and gases via pipelines. "
Good. Glad we got that straight. If XOM is taking care to clean up the spill, as it would appear by all statements to that effect and physical evidence to back it up.....then what is the big deal about "internalization of cost" as presumably this was very costly for XOM and the internal market reaction of XOM to this unplanned cost will no doubt be to make sure it does not happen again.
Why do so many people assume that businesses are NOT aligned with the external market - i.e. everyone else? In what world does an oil spill make good business sense? In what world is an oil spill NOT something that should be minimized by an Oil Company?
Posted by: Anonymous at April 7, 2013 07:08 PM
Anonymous: right, the market is fully self-regulating. Have another Ikea meatball, washed down with a bottle of plonk sold under a false label, brush your teeth with melamine, in a house built with radioactive drywall, butyl plumbing, surrounded by lead-laden topsoil, with a lawn/garden watered by rocket-fuel laced well water while you read the latest about lingering effects of the Valdez spill.
Pull the other one, it's got bells on.
Posted by: Anonymous at April 7, 2013 11:04 PM
"Pull the other one, it's got bells on."
Perhaps you never worked for a business. You would be surprised to find that the majority of businesses try to do the right thing.
Posted by: Jeremy at April 9, 2013 06:33 AM
1)I got my SS card when I was 6 and was wiring electrical control panels at that age (back when you got it for your first job, before the time when your parents got it to prove your tax-deductibility at age 2). Given the nature of what I have worked at, I've been involved in work in numerous commercial and industrial activities (field cropping, cotton gins, dairies, wells, canals and ditches and pipelines, water treatment, wastewater treatment, dewatering, manure management, septic systems, road building, port development, airpark development, residential development, machine shops, cabinet shops, polymer blending, injection molding, blowmolding, cement plants, preformed concrete mfg, refineries, oilfields, oil platforms, mines (of various descriptions including copper, rare earths, coal, and gold), smelters, printing, brewing, bottling, baking, food processing, restaurants, etc...). It's amazing how much you see in certain professional, consulting, and service occupations. Everybody has an electrical system, and when that system becomes central to something they are doing, the electrical contractor, engineer, or consultant gets lots of access and details.
2)Businesses don't "try" to do anything. They are an artificial construct. People who work for and own businesses take certain actions on behalf of the business. Most (but not all) people, all else being equal, 'try' to do the right thing. People are not omniscient or omnipotent, however, most of us are cursed with a limited understanding of our own fallibility. Thus, they 'try' to do the right thing and fail at some compulsory duty (which usually is not either unpreventable or unforseeable and is a result of improper weight given to compliance). Or faced with a choice between compliance with some minor duty of which they are unaware or do not understand the significance, and some elective activity with clear risks and rewards (such as keeping their boss off their back, or avoiding costs, or progress toward a business goal) they choose non-compliance over compliance. Then they rationalize their choice so that they are still 'good guys.' While that describes the majority, there are also substantial numbers of folks whose own entitlement allows them to see most rules as nonsense when those rules get in the way of their preferred course of action. This is not rare.
3)In the real world we see numerous ill consequences of non-compliance by business entities, whatever high-minded ideals they espouse in the service of profit. Empirically, whatever incentive they may have for right action has often not translated to results. Anybody who thinks that 'business' never or rarely does the wrong thing, has probably never worked in business.
Posted by: benamery21 at April 10, 2013 02:21 PM