You may recall the Deepwater Horizon spill, that sent some five million barrels of oil into the Gulf of Mexico between April and July of 2010.  At the time, we posted about it extensively, and linked up an  Econbrowser post that estimated that within two weeks the stock market had already dinged BP to the tune of $20 billion:

The adjusted closing price of BP on May 4, 2010 was $51.20 whereas had the oil spill not happened I’ve estimated the price would have been $58.11. This amounts to a net loss of $6.91 per share. BP has 3.13 billion shares outstanding amounting to a net loss in $21.62 billion.

That estimate turned out to be almost exactly what BP seems to have committed to its oil spill trust fund:

BP, in agreement with the US government, set up a $20-billion trust to provide confidence that funds would be available. The trust fund was established to satisfy claims adjudicated by the Gulf Coast Claims Facility (GCCF), final judgments in litigation and litigation settlements, state and local response costs and claims, and natural resource damages and related costs.

In 2011, BP contributed a total of $10.1 billion to the fund, including our second year commitment of $5 billion to the trust and the cash settlements received from MOEX USA Corporation (MOEX), Weatherford US., LP (Weatherford), and Anadarko Petroleum Company (Anadarko). This brings the total amount contributed to the trust to $15.1 billion. The remaining committed contributions totalling $4.9 billion are scheduled to be made in 2012 which includes the $250 million settlement with Cameron. The trust disbursed $3.7 billion in 2011 and the total paid out since its establishment amounted to $6.7 billion by the end of 2011.

However, the stock price did not stop at $50, but continued a free fall down to about $35, a price so low that there was speculation that BP stock was undervalued and ripe for takeover. (more…)

As far as I know, the climate is still changing, so nothing to update there.  According to economists Matthew Kahn and Matthew Kotchen, however, we don’t seem to care as much about it (if “googling” is a good proxy for “caring”, that is).  Ed Glaeser discusses this and some more of Kahn’s research in today’s NYT Economix blog post.  One of the provocative points is the claim that climate change is a done deal, and that the big coming challenge is to adapt.

One person swimming against the apathy tide is the self-proclaimed skeptical environmentalist, Bjørn Lomborg.  For years, Lomborg has been publishing pieces questioning the scale and scope of environmental problems.  He has now reversed course and is calling for massive investments to tackle the problem.  From my quick read, the tackling seems to be on the emissions side, as opposed to adaptation.

Anyone who has sat through my carbon capture and sequestration talk certainly knows I’m with the adaptation folks on this one.  I simply am not convinced that the world can cut emissions enough to stabilize atmospheric concentrations, even under the most wildly-optimistic scenarios.

For a bit more meat on the climate change discussion, check out a recent symposium in the Journal of Economic Perspectives.  Here’s a table of estimated net benefits across 13 studies.

Notice the overall impacts in terms of GDP per year seem to be on the order of -1% per year, though the estimate from the review author’s article (Richard Tol) shows net gains.  You might also take note as to which countries are likely to win and lose in these estimates, and take that into account next time countries sit down to hammer out an agreement.

Should be an interesting century.

Almost unnoticed, this week marks a terrible week for advocates of market solutions to environmental problems, including various cap-and-trade systems. The Wall Street Journal reports that new federal air pollution rules have resulted in the tanking of the sulfur dioxide market, rendering extant permits worthless.

Often referred to as “the grand policy experiment,” (also here), the SO2 market was considered a success, and thought of as a model for potential global system to reduce greenhouse gases.  As with so many cases in economics, a credible commitment matters.  The Journal sums it up nicely:

The market’s collapse shows how vulnerable market-based approaches to reducing air pollution are to government actions. That could scare off investors, who won’t commit to a market where the rules can change at any minute.

Indeed.

One of the great benefits of using market instruments to address environmental problems is that they can substantial lower the costs.  The law of demand says that as price goes up, people buy less.  As a result of the collapses of this market, we will likely pay more to get less in terms of environmental quality.  This may well undermine efforts to implement market solutions elsewhere.  If investors are convinced the regulatory environment is unstable or uncertain, they are unlikely to make large capital investments, and are more likely to take stopgap measures.