The Keith Hennessey part of the new William Kristol-Keith Hennessey think tank Economic Policies for the 21st Century supports the following new rules for offshore drilling:
- Require that all deepwater wells have a relief well in place before production begins.
- Mandate requirements for double piping and a list of other industry engineering best practices. The prior best practice for engineering safety becomes the legally mandated minimum.
- Mandate that each deepwater drilling operation be insured for at least $20 B of environmental damage before production can begin. Insurers will therefore require further engineering stringency to protect themselves.
- Raise the legal liability cap for any drilling platform to $50 B, just to be safe.
- All new wells must meet all of the above requirements, and all existing wells must cease production until they meet them. (The details here might need some work.)
Some of my comments about Richard Epstein's op-ed piece from yesterday also apply here. Other points: Would the $20 billion be indexed for inflation? Would there be capital or liquidity requirements for the insurers selling the insurance? Why have a liability cap at all? Would it be indexed for inflation? Would it apply in cases of intentionally skirting the safety requirements? Once the "best practice for engineering safety" is written into law, doesn't that make it more difficult for a firm to innovate in safety? How will the safety requirements be enforced, and what will the penalties be for violating them? What's to stop the companies from bribing the safety inspectors, the way a crane company bribed the chief crane safety inspector of New York City's buildings department?
Mr., Hennessey's argument is that a narrow focus on deepwater drilling safety is a better approach than trying to rewrite the rules of the entire energy economy. But there's a third choice, and that's resisting a centralized regulation approach, whether the focus is narrow, as in the case of deepwater drilling safety, or broad, as in the case of the entire energy economy.