Economic Effects of Oil Spills

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Economic Effects of Oil Spills & Fluctuating Gas Prices in the United States of America Strayer University Spring Semester 2010 “Every area in the country is subject to some kind of disaster – flood, hurricane, earthquake, to name a few. Even man-made disasters – oil spill, civil unrest, fire – can devastate the surrounding neighborhood and economy. Even though an area has never been damaged before, there is no guarantee that it will not happen tomorrow. ” ~Carol Chastang Oil spills not only affect the world environmentally but also economically.

The economic impacts are directly or indirectly related to the environmental impacts of oil spills. But, the economic impacts of oil spills are not much talked about as the environmental impacts are. Gasoline prices in the United States for citizens at some point in our recent history have been up to almost five dollars per gallon. The change in gas prices may bring about a change in the risks people are willing to take both on the stock market and in their day-to-day spending.

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Still, there are people who claim that the current oil prices are not yet close to impacting the United States’ economy, while there are those who promise there will eventually be noticeable strain. This paper will discuss the economic effects of both oil spills and fluctuating gas prices in the United States. On April 20, 2010 an explosion occurred aboard the Deepwater Horizon, an off shore BP oil rig about 52 miles southeast of Venice, LA. This explosion caused the deaths of 11 platform workers and injuries of 17 others.

In addition a massive ongoing oil spill that is estimated to have released about 20,000 to 40,000 barrels of oil per day in the Gulf Coasts waters. The exact spill flow rate is uncertain – in part because BP has refused to allow independent scientists to perform accurate measurements – and is a matter of ongoing debate. The resulting oil slick covers a surface area of at least 2,500 square miles (6,500 km2), with the exact size and location of the slick fluctuating from day to day depending on weather conditions. Scientists have also reported immense underwater plumes of oil not visible at the surface.

Experts fear that the spill will result in an environmental disaster, with extensive impact already on marine and wildlife habitats. The spill has also damaged the Gulf of Mexico fishing and tourism industries. There have been a variety of ongoing efforts to stem the flow of oil at the wellhead. Crews have been working to protect hundreds of miles of beaches, wetlands and estuaries along the northern Gulf coast, using skimmer ships, floating containment booms, anchored barriers, and sand-filled barricades along shorelines. The U. S.

Government has named BP as the responsible party in the incident, and officials have said the company will be held accountable for all cleanup costs resulting from the oil spill. (CNN, 2010) It will be a while before the full economic impact of this particular oil spill is measured; however the spill as estimated is having effects on many different industries. (See Chart, page 6) Generally speaking, the most direct economic impact of oil spills is the loss of oil. The losses incurred depend on the size of the spill; the bigger the spill, the higher the economic impact.

Oil spill cleanup costs too increase with the size of the spill. Most of the people along coastal areas depend on tourism for income. The restrictions imposed on recreational activities, such as diving, bathing, and boating in the polluted area affect tourism. As a result, they suffer huge economic losses. Until and unless oil spill cleanup is done, these continue to suffer. Fishing industry is another prominent sector that bears the brunt of oil spills. Contamination or death of commercial marine animals and plants result in economic loss for the fishermen.

Oil spill cleanup actions usually take a very long time. The fishing and shellfish area are closed during these periods. This interrupts the fishing activities, resulting in further loss to the fishermen. Fishing boats and equipment get damaged when they come in contact with the spilled oil. With such obvious economic impacts, it is our responsibility to protect our environment from such disasters. Preventing oil spills and using environmentally-friendly oil spill cleaners, rather than other toxic products will help a great deal in minimizing the impact of an oil spill.

The environmental effects of The BP oil spill as measured thus far are already more dynamic than anything ever seen before in US history. Economically, the oil spill has already taken a tremendous toll on BP and the United States and will continue to do so as relief efforts for oil cleanup and environmental restoration continues. Not only has the BP oil spill affected the region’s environment and inhabitants, but it has largely influenced the American economy in the Gulf region and will continue to do so for many years.

The United States now has to deal with the consequences of a disaster caused by a company that supplies something that keeps the nation, and world, turning. Table 1 – Economic Effects of BP Gulf Oil Spill Over the past few years gas prices seem to always be in the news. In one week they are extremely high and the next they are extremely low. This volatility in gas prices is not a positive trend four our country as we are trying to increase stability and then in turn increase our economic growth. Unfortunately, these bouncing prices leaving the U. S. behind other countries as our growth rate is 2 – 2. % and not the 5% expected globally. According to CNN. com, article update October 25, 2009 gas prices declined again for the 38th day and at in average national price of $2. 73 a gallon, this is the lowest prices it’s been since October 2007. This decline comes as hurricane season comes to an end and oil prices drop over concerns of that a prolonged economic slump would curb a demand for energy. (www. cnn. com) In addition, according to U. S. Department of Transportation, Americans drove 15 billion miles fewer in August 2008, and then they did the year before.

DOT says it’s the largest ever year-to-year decline recorded in a single month. Over the past 10 months, Americans have driven 78 billion fewer miles than they did in the same 10 months the previous year (www. cnn. com) this is sure proof of what economist would call a “demand destruction”. As the price of gasoline continues to decrease, the focus on fuel efficiency will also decrease. In March gasoline prices rose 10. 6% making it more expensive to commute to and from work. This expense eats up any increases in income that may have been experienced during the past month.

Furthermore, it costs companies more to transport their products, send mail, and get supplies. This increase in cost in transportation and resources will again be sent back to the consumer who experiences further income loss for basic necessities. Thus a substantial and sustain increase in oil prices has a compounding effect on society and the economy. Heating costs are higher, food costs which use gasoline in tractors are higher, product costs are higher, the cost of war which uses lots of fuel goes up, less jobs are produced and things cost more money across the board.

The good news is that when checking on the price of food and clothing (basic necessities) it was found that clothing costs reduced slightly while food rose only slightly. In other words, the higher cost of fuel is not reflected in other product which means it is not yet damping the economy. It can be said, however, that the rise in fuel cost is one of the major contributors to the rising of inflation and loss of realized income. The faster the country can develop alternative sources of fuel that are both sustainable and cost effective the less reliance on oil.

The less reliance on oil the less likely the price of oil will bounce around and affect the economy. A more stable economy means a better chance of sustained growth in GNP, jobs and investments. Table 2 – Cost of Fluctuating Gas Prices in Pennsylvania over the last 36 months. References Ali, Murad. (2010). BP Gulf Oil Spill. Retrieved on May 27, 2010 from. BP Gulf Oil Spill – Impact America’s Environment and Economy http://news. suite101. com/article. cfm/bp-gulf-oil-spill–impact-on-americas-environment-and-economy#ixzz0qflToztM

Author Unknown, (2008) Gas Prices Fell Again. Retrieved October 25, 2008, from http://money. cnn. com/2008/10/26/news/economy/gas_prices/index. htm? postversion=2008102616 Unknown, Author. (2009). Economic Impact of Oil Spills. Retrieved on May 3, 2010 from http://www. articlesbase. com/environment-articles/the-economic-impact-of-oil-spills-1492690. html#ixzz0qYj414Co Ferrell, Linda; Ferrell, O. C; Hirt, Geoffrey (2008). Business: A Changing World, 6th Edition, 10, 12, 24.

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