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The opinions expressed on this page are mine alone. Any similarities to the views of my employer are completely coincidental.

Friday, 11 June 2010

BP and Negative Externalities

When I was young and even more foolish than I am now I had a car accident that could easily have killed me. Driving rather fast in the outside lane of the the M40 one of my rear tyres blew out. The car turned through 180 degrees, crossed two lanes of traffic and slammed into the safety barrier. The car was a right-off and I walked away without a scratch. Just one of those forks in the road which in restrospect make you think about how very different your life - or lack of life - could have been.
A few weeks later I received a letter from the Highways Agency, or whatever it was in those days, containing an invoice for the several hundred pounds it would cost to repair the guard rail. I sent it to my insurer who paid the bill and that was the end of it.
The damage to the safety barrier was the result of a genuine accident, but that didn't mean that I should pass the cost of repairing it to the general tax-payer. My actions imposed a cost on other people - the guard rail was not fit for purpose until repaired - and it was entirely reasonable that I should foot the bill through my increased insurance premiums.
So now I ask why should anyone take seriously the emerging whinge about the treatment of BP by Obama? Why should the shareholders expect to benefit enormously from the upside of their ownership and be protected from the downside. Isn't it reasonable that the polluter should pay and that the price of the commodity they produce should reflect the full economic cost of its production? That full economic cost  includes the cost of compensating those whose livelihoods and well-being have been negatively affected by BP's activities.
My pension fund stands to suffer just like many others from BPs misfortune. But that's not a good reason for allowing them to avoid paying for the massive negative externalities they have created. If it costs a year's profits so be it. The value of shares can go up or down.
In case you need some light relief this BP Spills Coffee skit is quite amusing.

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