Petroleum Industry

Extraction and Disclosure

The U.S. Securities and Exchange Commission often behaves like a watchdog with no teeth, but it has just stood up to intense pressure from big business and finally approved two rules that will shine a light on dealings between some of the world’s largest corporations and the poor countries from which they extract vast amounts of natural resources.

One of the final rules will require companies engaged in resource extraction to report on all payments to foreign governments, such as taxes, royalties, fees and presumably bribes. The other will require companies to disclose their use of certain resources originating in the Democratic Republic of Congo, where warring groups that have committed frequent human rights violations finance themselves through the sale of what are known as conflict minerals, which can end up being used in the production of goods ranging from jewelry to iPhones.

These rules derive from some of the lesser known provisions of the 2010 Dodd-Frank financial reform legislation, which the corporate world has been seeking to undermine in the rulemaking process after losing in Congress. Business lobbyists have fought the same kind of rear-guard action against the disclosure requirements that they have mounted in opposition to the central portions of Dodd-Frank.

Comments submitted to the SEC by companies and trade associations were filled with the usual kneejerk criticisms of regulation and far-fetched claims about potential harm. The American Petroleum Institute warned that public disclosure of “unnecessarily detailed information” on foreign payments would place companies at a competitive disadvantage and “jeopardize the safety and security of our member companies’ operations and employees.”

Exxon Mobil seconded API’s positions but also threw in the preposterous argument that the disclosure rule could be harmful by “inundating and confusing investors with large volumes of data.” Chevron argued that the information should be submitted to the SEC on a confidential basis, and the agency would then make public only aggregate amounts by country. It also urged the SEC to limit reporting to payments of a “material” amount, which would have meant that only huge ones would be revealed.

It takes a lot of chutzpah on the part of Chevron and Exxon Mobil to resist greater transparency, given that predecessor companies of theirs were at the center of the scandals that first brought the issue of questionable foreign payments to national attention in the 1970s.

Congressional investigations of the Nixon Administration’s Watergate crimes also brought to light widespread corruption by major corporations in the form of illegal campaign contributions and payoffs to foreign government officials. Under pressure from the SEC, these companies investigated themselves and disclosed what they found.

Exxon (prior to its merger with Mobil) admitted to making more than $50 million in foreign payments that were illegal, secret or both. Gulf Oil (which later merged into what is now Chevron) admitted to more than $4 million in such payments, including $100,000 used to purchase a helicopter for one of the leaders of a military coup in Bolivia. Smaller oil companies also spread around the cash. Ashland Oil, for example, paid $150,000 to the president of Gabon to retain extraction rights.

Foreign payoffs were not unique to the oil industry. Aerospace giant Lockheed disclosed more than $200 million in questionable payments, while its competitor Northrop admitted to $30 million. The revelations extended to numerous other sectors as well.

These revelations seriously tarnished the image of big business and paved the way to the enactment of the Foreign Corrupt Practices Act. They were also a big part of the impetus for the modern corporate accountability movement, which has put expanded disclosure at the center of its reform agenda.

It is thus no surprise that corporate accountability and human rights groups—many of which participate in the Publish What You Pay coalition—promoted the inclusion of the disclosure provisions in Dodd-Frank and welcomed the SEC’s vote to move ahead with the rules. Yet there is frustration that on several points the agency caved in to industry pressure. Global Witness, for instance, said it was “extremely disappointed” that the final rule concerning conflict minerals gives larger companies two years and smaller ones four years to determine the origin of the minerals they use.

The SEC also acceded to the demands of giant retailers such as Wal-Mart and Target that they be exempt from conflict minerals reporting requirements relating to products sold as store brands but produced by outside contractors not operating under the retailer’s direct control.

Efforts by large companies to weaken the disclosure rules are yet another sign of how they resist serious regulation in favor of less onerous industry initiatives. Many of those arguing against the proposed SEC rules said they were unnecessary given the existence of the Extractive Industries Transparency Initiative. The EITI is laudable, but it is voluntary and less than fully rigorous.

Business never gives up on its effort to make us think that, despite the prevalence of corporate crime, it can police itself. It has never done so effectively and never will.

What the Shell?

ogoniland — United Nations Environment Program photo of oil contamination in Nigeria.

It seems that the multinational oil giants are taking turns having spills. After BP’s big mess in the Gulf of Mexico last year and Exxon Mobil’s accident in Montana this year, it is now Royal Dutch Shell that is spewing oil where it should not be going.

More than 50,000 gallons have leaked from a Shell pipeline off the coast of Scotland in the worst North Sea oil spill in more than a decade. Shell has had difficulty locating the source of the leak and identifying its cause.

Just as the Exxon Mobil accident could be seen as a warning about the perils of the giant Keystone XL pipeline project extending from Canada to Texas, so can the Shell accident be viewed as a reminder about the dangers of another petroleum initiative: the proposal by Royal Dutch Shell’s U.S. subsidiary, Shell Oil, to begin drilling exploratory wells in the Chukchi Sea off the northern coast of Alaska. The North Sea accident occurred only days after the U.S. Interior Department gave Shell conditional approval for the Alaska project.

The gods seem to strike back each time the Obama Administration decides to give a green light to offshore oil activity. BP’s gulf disaster happened only days after Obama opened vast coastal areas to new drilling.

There are countless environmental reasons why Shell’s Alaska initiative is a bad idea. It should also be blocked for another reason: Shell cannot be trusted.

For the past three decades or more, Shell has been involved in a long series of accidents, spills and other mishaps at many of its offshore and onshore facilities around the world. It also has a checkered history with regard to human rights and was implicated in a scandal about false reporting about its oil reserves. Here are some of the more notorious features of the company’s track record, which I compiled for a profile on the Crocodyl wiki:

A 1988 explosion at a Shell refinery in Louisiana killed seven workers, whose families sued the company and collected more than $40 million in damages.
In 1989 Shell paid $19 million to settle federal charges relating to a spill at its refinery in Martinez, California that the company did not disclose for four weeks.
In 1995 Shell agreed to pay $3 million to settle a lawsuit brought by the California Public Interest Research Group charging that the company had dumped illegal amounts of selenium into San Francisco Bay and the Sacramento-San Joaquin River Delta.
In 1995 Royal Dutch Shell was also the target of a boycott and other protests in Europe over a plan by the company and its joint venture partner Exxon to sink an obsolete offshore oil storage facility known as Brent Spar in the North Sea rather than dismantling it. Environmental groups, led by Greenpeace, warned that the structure, which contained oil sludge, heavy metals and some low-grade radioactive waste, could damage the food chain for fish in the area. The company gave in the pressure and brought the Brent Spar to shore.
In 1998 Shell Oil agreed to pay $1.5 million to settle federal charges that its refinery in Roxanna, Illinois was responsible for illegal discharges of pollutants into the Mississippi River.
In 2001 Shell Oil and three other major petroleum companies settled a lawsuit filed in California by agreeing to clean up some 700 sites in the state that had been contaminated by the gasoline additive MTBE.
In 2005 Shell was fined £900,000 in connection with the 2003 deaths of two workers on a North Sea oil platform as the result of a major gas leak.
In the late 2000s, Royal Dutch Shell found itself facing increasing criticism for its huge liquefied natural gas project on the island of Sakhalin in the Russian Far East. Pacific Environment, a San Francisco-based advocacy group, collaborated with Russian activists to form Sakhalin Environment Watch, which challenged the offshore Sakhalin project because it threatened the survival of the world’s most endangered species of whales—Western Pacific Grays. In 2008 the British newspaper The Observer reported that it had obtained dozens of internal e-mails showing that Shell officials in London sought to influence the conclusions of a purportedly independent environmental review of the Sakhalin project.
Shell has also been heavily involved in the environmentally disastrous tar sands industry in Canada.

Shell’s tarnished human rights record dates back to the 1980s, when it was targeted for its investments in apartheid-era South Africa. In the early 1990s Shell began to face protests over its oil operations in Nigeria. In 1994 the Movement for the Survival of the Ogoni People, then led by Ken Saro-Wiwa, began blockading contractors working on Shell’s facilities to bring attention to the large number of pipeline ruptures, gas flaring and other forms of contamination that were occurring in the Ogoniland region. The group described Shell’s operations as “environmental terrorism.”

The Nigerian government, a partner with Shell in the operations, responded to the protests with a wave of repression, including the arrest of Saro-Wiwa, who was hanged in 1995. Shell denied it was involved, but critics pointed to the role played by the company in supporting the military dictatorship. A lawsuit charging Royal Dutch Shell with human rights violations in Nigeria was later filed in U.S. federal court under the Alien Tort Claims Act. In 2009, just before a trial was set to begin, the company announced that as a “humanitarian gesture” it would pay $15.5 million to the plaintiffs to settle the case.

A report recently released by the United Nations Environment Program estimates that a clean-up of oil industry contamination in Ogoniland will cost at least $1 billion and take up to 30 years.

On its corporate website, Shell insists that “we are qualified to do the job right — to explore for offshore oil and gas in Alaska in a very safe and careful way.” On the Other Earth, perhaps. But not on this one.

Perilous Pipelines

exxonpapertowels — ExxonMobil's paper towel mobilization

At the height of the controversy last year over the BP oil spill in the Gulf of Mexico, top executives from four competing oil giants appeared before Congress and distanced themselves from their British rival.

“We would not have drilled the well the way they did,” smugly stated ExxonMobil CEO Rex Tillerson. “It certainly appears that not all the standards that we would recommend or that we would employ were in place,” chimed in Chevron chairman John Watson.

Now that ExxonMobil is at the center of an oil pipeline spill into Montana’s flooded Yellowstone River, Tillerson should be feeling somewhat less self-satisfied. And the rest of us have another reminder that poor safety practices in the petroleum industry are far from an anomaly.

It is also a reminder that companies professing concern about the environment can end up being major offenders. In 2008 the ExxonMobil refinery in Billings served by the Silvertip pipeline that just burst received certification from the Wildlife Habit Council for its efforts to conserve ecosystems and protect wildlife in and around company operations. Some of that wildlife is now covered in crude oil.

When people hear about oil spills, they tend to think of the large offshore incidents such as the BP mess in the gulf and ExxonMobil’s 1989 disaster in Alaska’s Prince William Sound. Equally dismal is the history of onshore spills caused by ruptures in the vast network of pipelines that carry crude oil from drilling sites to refineries.

A year ago this time, the news media were transmitting images very similar the ones now coming out of Montana. In July 2010 a burst pipeline released more than 800,000 gallons of oil into the Kalamazoo River in southern Michigan.

The company involved in the Michigan accident–Enbridge Inc., operator of the world’s largest crude oil pipeline system–had been warned by federal regulators that it was not properly monitoring corrosion on the pipeline. Over the past decade, Enbridge’s pipelines have been involved in a long list of ruptures and leaks in places such as Minnesota, North Dakota, Wisconsin and Alberta.

Enbridge, which is based in Canada, has annual revenues of more than $15 billion, has not felt much pain from the fines imposed by the U.S. regulators at the Pipeline and Hazardous Materials Safety Administration, which are often below $100,000. However, in response to a November 2007 explosion in Clearbrook, Minnesota that took two lives, Enbridge was fined $2.4 million.

What’s even more troubling than Enbridge’s past record is that the company is seeking to greatly expand its network, with a special focus on the environmentally disastrous tar sand fields of northern Alberta. Bringing the filthy oil output of the tar sands down to the United States is also the objective of the huge Keystone XL pipeline that would pass through eastern Montana (and the Yellowstone River) on its way to Texas.

Moreover, it would traverse the Ogallala Aquifer, which, NRDC points out, serves as the primary source of drinking water for millions of Americans and provides 30 percent of the nation’s ground water used for irrigation. Keystone XL, an expansion of an existing pipeline that opened last year, is awaiting federal approval. Earlier this year the existing pipeline was shut down for about a week after a series of a dozen leaks at pumping stations.

For companies such as TransCanada, Enbridge and ExxonMobil, the sky’s the limit when it comes to what they are willing to spend on projects such as Keystone XL (its price tag is $7 billion). Yet when it comes to cleaning up their messes, things suddenly become austere. The main tools that ExxonMobil’s crews in Montana seem to be employing are glorified paper towels. If the fines for violations were more substantial, the pipeline companies might take safety more seriously.

Capping the Oil Profits Gusher

You know the gas price problem is getting bad when even leading Republicans need to make noise about petroleum industry tax breaks.

John Boehner caused a stir the other day when he seemed to be telling an interviewer from ABC News that he was in favor of cutting federal subsidies for the oil giants. “It’s certainly something we should be looking at,” he said.

My initial reaction was that a Boehner look-alike working with the Yes Men had made the remarkable statement. Alas, it turned out to be a tease or a case of temporary sanity, for Boehner’s people later clarified that the Speaker was not actually calling for reductions in the giveaways. Perhaps he meant to say that we should examine the subsidies to be sure they are high enough.

Before Boehner’s true position became clear, President Obama seized on the moment to remind Congress about the Administration’s proposal to do away with “unwarranted” oil industry tax breaks. Such a move would be welcome but far from adequate.

Consider the size of those tax breaks. The Administration’s 2012 budget estimates that the repeal of eight oil & gas tax preferences would save all of $3.5 billion in 2012. The amount would rise to $5.4 billion in 2013 and then fall to $4.6 billion by 2016. The total increase in federal revenues over five years would be only $23 billion.

Compare these amounts to the profits being reported by the U.S.-based oil supermajors. For 2010, Exxon Mobil alone posted total profits of $30 billion, up 58 percent from the year before. Chevron’s net income was $19 billion and that of ConocoPhillips $11 billion. This year those amounts are expected to soar again.

If the entire loss of tax breaks were to be shouldered by these three companies alone, their combined profits would sink by only a couple of percentage points.

Rather than simply eliminating some subsidies, now is the time to revive the push for a windfall profits tax. That will not be music to the ears of Obama, who had made the idea a centerpiece of his 2008 presidential campaign, only to drop it shortly after being elected. That plan was expected to collect $65 billion over five years—much more than the savings from eliminating current tax breaks—and the proceeds were meant to help people pay for higher energy costs, not to make a small dent in the national debt.

Corporate apologists say that the federal government has no reason to complain about galloping oil industry profits because it collects more in tax revenues. Unfortunately, that federal share has been shrinking. In 2008 Exxon Mobil paid about $3 billion to Uncle Sam on pretax U.S. earnings of $10.1 billion, or about 30 percent. Last year Exxon’s domestic federal tax rate was only 16 percent. The rates paid by Chevron and ConocoPhillips also fell sharply. Moreover, Exxon and Chevron pay meager amounts of state income tax.

Rather than mitigating the profits windfall, the tax system—as manipulated by the oil giants—is exacerbating the problem.

It’s difficult to believe, but an oil industry windfall profits tax was once part of the mainstream policy agenda, even in the Republican Party. In his 1975 State of the Union Address, President Ford promoted the idea to compensate for the elimination of controls on domestic oil prices. In 1980 Congress enacted such a tax (actually an excise tax on crude oil) that remained in place for eight years.

Conventional wisdom these days is that aggressive tax policies—not to mention price controls—are counter-productive. Yet even Big Oil seems somewhat uncomfortable about its good fortune.

The American Petroleum Institute issued a press release the other day that used an unusual argument to try to blunt popular anger over the industry’s embarrassment of riches. API touted a new study purporting to show that oil and gas stock holdings have been providing a big boost to public pension funds.

Those would be the same public pension funds that are said to be desperately underfunded because of shortfalls in, among other things, corporate tax payments by the likes of the oil giants. Rather than depending on a bit of indirect capital appreciation, we would be much better off if the petroleum industry paid higher federal and state tax rates, especially when oil prices—and thus profits—are going through the roof.

The Dark Side of Family Business

Americans love entrepreneurship, and no form of it is more celebrated than the family business. Most of us distrust big banks and giant corporations, but who doesn’t have warm feelings about mom and pop companies or family farms? These are the types of firms that politicians of all stripes want to shower with tax breaks and other forms of government assistance.

The problem is that family enterprises, like pet alligators, may start out as small and cuddly but can grow into large and dangerous monsters. We’ve seen two examples of this recently in connection with the family-owned oil company Koch Industries and the egg empire controlled by the DeCoster Family.

Koch Industries and its principals David and Charles Koch are the subject of a detailed article in The New Yorker by Jane Mayer. Much of the information in the piece has previously come out in blogs, websites and muckraking reports by environment groups, but she does a good job of consolidating those revelations and presenting them in a prestigious outlet.

Mayer describes how the Kochs, who are worth billions, have for decades used their fortune to bankroll a substantial portion of rightwing activism and are currently the big money behind groups such as Americans for Prosperity that are helping coordinate the purportedly grassroots Tea Party movement. What makes the Kochs especially insidious is that they use the guise of philanthropy to fund organizations promoting policy positions – environmental deregulation and global warming denial – that directly serve the Koch corporate interests, which include some of the country’s most polluting and greenhouse-gas-generating operations. The Kochs also contribute heavily to mainstream philanthropic causes such as the Metropolitan Opera and the Sloan-Kettering Cancer Center to win influential allies and gain respectability.

The DeCosters, whose egg business is at the center of the current salmonella outbreak, are not in the same social circles as the Kochs, but they have an even more egregious record of business misconduct. Hiding behind deceptively modest company names such as Wright County Egg, the family, led by Jack DeCoster, has risen to the top of the egg business while running afoul of a wide range of state and federal regulations.

As journalists such as Alec MacGillis of the Washington Post have recounted, the DeCosters have paid millions of dollars in fines for violating environmental regulations (manure spills), workplace health and safety rules (workers forced to handle manure and dead chickens with their bare hands), immigration laws (widespread employment of undocumented workers), animal protection regulations (hens twirled by their necks, kicked into manure pits to drown and subjected to other forms of cruelty), wage and hour standards (failure to pay overtime), and sex discrimination laws (female workers from Mexico molested by supervisors).

Their lawlessness dates back decades. A November 11, 1979 article in the Washington Post about Jack DeCoster’s plan to expand from his original base in Maine to the Eastern Shore of Maryland states that he was leaving behind “disputes over child labor, union organizing drives and citations for safety violations.” In 1988 the Maryland operation was barred from selling its eggs in New York State after an outbreak of salmonella. In 1996 the Occupational Safety and Health Administration fined the DeCosters $3.6 million for making its employees toil in filth. Then-Labor Secretary Robert Reich said conditions were “as dangerous and oppressive as any sweatshop we have seen.”

The DeCosters were notorious enough to be featured in a 1999 report by the Sierra Club called Corporate Hogs at the Public Trough. The title referred to the fact that concentrated animal feeding operations (CAFOs) such as those operated by the DeCosters were receiving substantial federal subsidies despite their dismal regulatory track record.

Articles about Jack DeCoster invariably describe him as self-made and hard-working. “Jack doesn’t fish, he doesn’t hunt, he doesn’t go to nightclubs,” a farmer in Maine told the New York Times in 1996. “He does business — 18 hours a day.” He was recently described as a “born-again Baptist who has contributed significant amounts of money to rebuild churches in Maine and in Iowa.”

Like the Kochs, DeCoster apparently thinks that some philanthropic gestures will wipe away a multitude of business transgressions. Yet no amount of charitable giving can change the fact that these men grew rich by disregarding the well-being of workers, consumers and the earth. Such are the family values of these family businessmen.

Stealth Disclosure

The Congressional practice of quietly attaching an unrelated provision to a larger piece of legislation at the last minute has all too often been used to benefit powerful corporate interests. In two recent cases, however, the stealth amendment process has resulted in changes that will make it easier to monitor questionable business practices by energy companies and federal contractors.

Extractive industries are complaining about language (Section 1504) slipped into the new financial reform bill that will require them to report on royalties and other payments to governments. The aim is to make it harder for those corporations to conceal bribes and other illegal transfers used to obtain petroleum or mining concessions and that often prop up corrupt regimes such as the one in Equatorial Guinea. The provision, based on a bill that had been introduced by Senators Benjamin Cardin of Maryland and Richard Lugar of Indiana, applies to publicly traded oil, gas and mining companies whose shares trade in the United States.

The law is a victory for groups such as Publish What You Pay, which has long campaigned to increase the transparency of energy corporation dealings with governments around the world. The campaign has already succeeded in getting some firms to disclose the information voluntarily, but it will be much better to have it mandated and overseen by the Securities and Exchange Commission, which will write rules covering the inclusion of the information in financial statements.

That’s why trade associations such as the American Petroleum Institute and companies such as Exxon Mobil are grousing about the law. An API spokesperson told the Wall Street Journal that Russian and Chinese oil companies not subject to the requirement “could use the data to outfox U.S. companies in deals.”

Dubious complaints are also being heard from Beltway Bandit mouthpieces in response to a swift move by Sen. Bernie Sanders of Vermont to insert a provision in the recently passed supplemental appropriations bill giving the public access to a database about contractor performance – which in many cases means contractor misconduct.

The database is the Federal Awardee Performance and Integrity Information System (FAPIIS), which was mandated as a result of 2008 legislation enacted thanks to the efforts of groups such as the Project On Government Oversight (POGO), which has its own Federal Contractor Misconduct Database covering the 100 companies doing the most business with Uncle Sam. FAPIIS is supposed to make it easier for federal agencies to review the track record of a much wider range of companies bidding on new contracts worth $500,000 or more. In addition to contract performance information collected from various federal sources, FASPIIS includes data submitted by companies with more than $10 million in contracts or grants on any criminal, civil or administrative proceedings brought against them during the previous three years.

FAPIIS was an important step forward, but it was able to get through Congress only after its sponsors agreed to restrict access to the database. POGO tested the provision by filing a FOIA request with the Pentagon for its FAPIIS information but was shot down.

A short time later, however, it came to light that the Sanders amendment survived in the supplemental spending bill President Obama signed on July 29. The provision will give the public access to FAPIIS information about contractor track records, but unfortunately it excludes past contract performance reviews by federal agencies.

Already, the Professional Services Council, the leading trade association of federal contractors, is warning that making parts of FAPIIS public “could create a politically motivated blacklist of vendors.” The PSC seems to believe that the public should not have the ability to pressure the federal government to stop doing business with crooked companies.

Speaking of blacklists, the FAPIIS change comes on the heels of an announcement by the Obama Administration that it is creating a master Do Not Pay database covering individuals and businesses that should not be receiving payments from federal agencies. At a time of growing hysteria about the federal deficit, it is good to see that attention is being paid to ways of cutting costs that are truly wasteful.

Obama’s Oil Magic

BP has been selling off small pieces of itself to help pay for its liability costs in the Gulf of Mexico. Here’s another way it can economize: eliminate its public relations staffers and outside consultants such as the well-connected Podesta Group. The oil giant doesn’t need them any longer, now that the Obama Administration has taken over responsibility for burnishing the image of the beleaguered oil giant.

BP’s new mouthpieces include Carol Browner, whose official title is Director of the White House Office of Energy and Climate Change Policy, and Jane Lubchenco, head of the National Oceanic and Atmospheric Administration. Browner has taken to the airwaves to deliver the mind-boggling message that the BP mess — which had just been declared by federal scientists to be the largest oil spill in history — has largely disappeared: “The vast majority of the oil is gone,” she told NBC’s Matt Lauer. “It was captured. It was skimmed. It was burned. It was contained. Mother Nature did her part.”

Lubchenco presided over the preparation of a five-page report claiming that one-quarter of the 200 million gallons of crude released from BP’s Macondo well “naturally evaporated or dissolved”; another quarter was dispersed “naturally” or chemically; and a third quarter was either directly recovered, burned off or skimmed from the surface, leaving a “residual” of 26 percent, among which is whatever BP collects from the shore.

In other words: Abracadabra, the oil is gone.

If BP had tried this kind of magic trick, it would have been laughed off the stage. The administration, exploiting the legitimacy of NOAA and Browner, a former head of the Environmental Protection Agency, is being taken (somewhat) seriously. In doing so, it is acting as a sort of front group for BP, giving more credence to the company’s claims of having carried out an effective clean-up operation. The remarkable claims about evaporation and dissolution could also help to reduce BP’s ultimate liability costs.

At the same time, the White House is clearly trying to protect itself. The NOAA report can be seen as a justification for the administration’s capitulation to BP on the issue of chemical dispersants. Only a few days before the announcement of the NOAA calculations, the House Select Committee on Energy Independence and Global Warming had released documents showing that the Coast Guard had repeatedly approved BP requests to apply large quantities of Corexit, despite EPA’s claim to have ordered the company to restrict its use of the controversial chemicals.

It is difficult to avoid the impression that BP and the administration have conspired to disguise the full extent of the disaster through the use of the dispersant, which reduces the amount of sludge arriving on shore but is having as yet unknown effects on the ecology of the gulf. The White House is so compromised in this situation that it seems unable to recognize the dissonance between the President’s statement that this is the “worst environmental disaster America has ever faced” and the new message, which is essentially “don’t worry, be happy.”

The positive spin is giving ammunition to figures such as Rush Limbaugh, who have been claiming for some time that the impact of the BP spill has been exaggerated. By encouraging these disaster deniers, the administration is undermining the rationale for continuing the deepwater drilling moratorium and even for the transformation of the former Minerals Management Service into a real regulatory watchdog.

If spills — including gigantic ones such as BP’s — can be brought under control so easily with dispersants and Mother Nature, why bother to restrict offshore drilling? After an incident that should have discredited that activity once and for all, the Obama Administration has in effect paved the way for a return to “Drill, Baby, Drill.” Quite a magic trick.

The New Petro-Villain

The BP oil disaster in the Gulf of Mexico is 100 days old, and now another company is competing for the spotlight as a major petro-villain.

The upstart is Enbridge Energy Partners L.P. — a U.S.-based subsidiary of the Canadian pipeline giant Enbridge Inc. — which is responsible for the recent accident in Michigan that has filled the Kalamazoo River with some 800,000 gallons of oil and shown that crude does not need to be offshore to cause serious environmental damage. The incident occurred only months after the company was warned that it was not properly monitoring corrosion.

Enbridge is no stranger to controversy, both because of its own performance problems, including a series of earlier spills, and its role in facilitating the distribution of oil produced in environmentally destructive situations such as the Alberta tar sands. This dubious track record is worth a closer look.

In January 2001 a seam failure on a pipeline near Enbridge’s Hardisty Terminal in Alberta spilled more than 1 million gallons of oil.
In July 2002 a 34-inch-diameter pipeline owned by Enbridge Energy Partners ruptured in northern Minnesota, contaminating five acres of wetland with about 250,000 gallons of crude oil.
In January 2003 about 189,000 gallons of crude oil spilled into the Nemadji River from the Enbridge Energy Terminal in Superior, Wisconsin. Fortunately, the river was frozen at the time, so damage was limited.
In 2004 the federal Pipeline and Hazardous Materials Safety Administration (PHMSA) proposed a fine of $11,500 against Enbridge Energy for safety violations found during inspections of pipelines in Illinois, Indiana and Michigan. The penalty was later reduced to $5,000. In a parallel case involving Enbridge Pipelines operations in Minnesota, an initial penalty of $30,000 was revised to $25,000.
In January 2007 an Enbridge pipeline in Wisconsin spilled more than 50,000 gallons of crude oil onto a farmer’s field in Clark County. The following month another Enbridge spill in Wisconsin released 176,000 gallons of crude in Rusk County.
In November 2007 two workers were killed in an explosion that occurred at an Enbridge pipeline in Clearbrook, Minnesota. The PHMSA proposed a fine of $2.4 million for safety violations connected to the incident, but the case has not been resolved.
In 2008 the Wisconsin Department of Natural Resources charged Enbridge Energy with more than 100 environmental violations relating to the construction of a 320-mile pipeline across much of the state. The agency said that Enbridge workers illegally cleared and disrupted wooded wetlands and were responsible for other actions that resulted in discharging sediment into waterways. In January 2009 the company settled the charges by agreeing to pay $1.1 million in penalties.
In 2009 the PHMSA fined Enbridge Pipelines LLC-North Dakota $105,000 for a 2007 accident that released more than 9,000 gallons of crude oil.
In March 2010 the PHMSA proposed a fine of $28,800 against Enbridge Pipelines LLC for safety violations in Oklahoma; the case is not yet resolved.

Apart from its safety record, Enbridge is targeted by environmentalists for its role in transporting crude oil from the controversial tar sand operations of northeastern Alberta, which are regarded as one of the largest contributors to global warming as well as a major source of air and water pollution and forest destruction. Enbridge’s predecessor companies had some involvement in the tar sands as early as the 1970s. That role expanded greatly in the late 1990s, when Enbridge completed construction of an $800 million expansion of its pipeline system to bring tar sands oil to Eastern Canada and the U.S. Midwest. The pipeline initially served Suncor Energy, a spinoff of U.S.-based Sunoco that is now Canada’s largest petroleum company.

In recent years Enbridge has spent billions of dollars to expand its oil pipeline capacity, much of it dedicated to the tar sands industry. Enbridge is set to provide another boon to the tar sands producers with the opening later this year of its Alberta Clipper pipeline, which will carry more of the dirty crude to Superior, Wisconsin. It is also proceeding with its Northern Gateway Project, which involves the construction of parallel pipelines from the tar sands region to the western shore of British Columbia. Enbridge is partnering with PetroChina on that project.

Enbridge is also headed for more controversy in light of its announcement in March 2010 that it would develop a natural gas pipeline serving areas of Pennsylvania and nearby states where Marcellus Shale drilling is taking place. Those drilling activities have been the subject of numerous reports of drinking water contamination.

Like BP, Enbridge depicts itself as a strong proponent of corporate social responsibility. Also like BP, Enbridge illustrates how those noble sentiments are meaningless in the face of repeated acts of negligence and recklessness.

The Right Way to Cut Federal Spending

Resembling a scene from Alfred Hitchcock’s The Birds, deficit hawks are taking over Washington. They held up an extension of unemployment benefits and are poised to attack Social Security, Medicare and other supposedly out-of-control forms of federal spending. At a time when government outlays, at least those of the safety net variety, should be expanding to address the ongoing economic crisis, Republicans and many Democrats alike have bought into the dubious idea that now is a time for fiscal austerity.

Apart from the battle over entitlements, there is more sensible effort under way to cut spending that benefits those who need it the least: large corporations. One welcome side effect of the Gulf of Mexico oil disaster is that increased attention is being paid to the ways that federal policies reward the likes of BP, Exxon Mobil, Chevron, Shell and ConocoPhillips. On the Fourth of July, the New York Times devoted part of its front page to a story on this largesse, writing: “oil production is among the most heavily subsidized businesses, with tax breaks at virtually every stage of the exploration and extraction process.”

According to a detailed analysis prepared by the Texas Comptroller of Public Accounts in 2008, total federal subsidies to the oil and gas industry in 2006 were about $3.5 billion. The Times article puts the current cost at about $4 billion. A recent Citizens for Tax Justice report points out that these tax breaks do little to benefit the public and serve mainly to fatten profits and enrich investors.

Efforts to eliminate these subsidies—including one pursued last month by Vermont Sen. Bernie Sanders—have generally come to naught, given the petroleum industry’s formidable influence in Congress. One of the more persistent initiatives is Green Scissors, a 15-year-old project that targets subsidies not only to the energy sector but also to agribusiness, mining and highways — challenging them on environmental as well as fiscal grounds. The Green Scissors 2010 report – just issued by Friends of the Earth, Taxpayers for Common Sense, Environment America and Public Citizen – tallies more than $31 billion in oil and gas subsidies that could be cut over the next five years. The total Green Scissors hit-list amounts to more than $200 billion for that period, with much of the remainder coming from subsidies to other energy sectors such as coal, nuclear and biofuels.

Attacking these costly and harmful subsidies is a noble endeavor, but it may be more effective not to take on the entire energy industry at once. Another significant feature of the Gulf of Mexico disaster is the breakdown of corporate solidarity. BP’s major rivals have taken pains to distance themselves from the British company, implicitly depicting it as a renegade on safety matters. Four of them just formed a rapid-response force to deal with future spills without involving BP in the planning.

In this context, it might make sense to focus on making certain companies, beginning with BP, ineligible for all or part of the federal energy subsidy banquet. Until now, the tax breaks and other benefits have been treated as entitlements, there for the taking by any company involved in certain activities.

Why not modify the Internal Revenue Code so that the subsidies are not available to companies with a poor safety or environmental record, especially those like BP that have paid criminal fines for violations in those areas? The federal government has an Excluded Parties List (albeit underused) for contractors that have been barred from doing business with Uncle Sam. Shouldn’t there be a similar list for subsidy recipients?

Even better would be the creation of good-behavior criteria for receiving those subsidies in the first place. If corporations were required to have a record free of significant violations of regulations relating to the environment, occupational safety and health, employment practices, antitrust, etc., then there would probably be a lot fewer recipients and it might be easier to do away with these giveaways once and for all.

A Business Backlash?

By all rights, the laissez-faire crowd should be silent these days. Recent months have been marked by one example after another of the perils of deregulation and the folly of trusting large corporations to do the right thing. From Toyota to Goldman Sachs to Massey Energy to BP, 2010 has been the year of big business irresponsibility.

As in 2002 (after the accounting scandals involving Enron, WorldCom et al.) and 2008 (the meltdown of Wall Street), we’re now at one of those moments, following an outbreak of corporate misconduct, in which public sentiment about business is up for grabs, as is public policy.

The business camp is already working hard to regain support, in ways ranging from BP’s seemingly benign vow to “make things right” to Rep. Joe Barton’s shameless “shakedown” outburst designed to turn the Obama Administration into the villain. Here are some other signs that corporations and their defenders are already going back on the offensive:

A federal judge with personal investments in the petroleum industry struck down the Obama Administration’s moratorium on deepwater drilling, despite evidence brought to light by Congressional investigators that the practice is much more dangerous than we had been led to believe and none of the oil giants have adequate accident response plans. The challenge to the moratorium had been brought by smaller oil service firms, but the judge’s decision was hailed by majors such as Chevron and Royal Dutch Shell.
Massey Energy, apparently hoping for a like-minded judge, has filed suit against the federal Mine Safety and Health Administration in a brazen effort to pin the blame on regulators for the April explosion at the Upper Big Branch mine in West Virginia that killed 29 workers.
Verizon Communications CEO Ivan Seidenberg, the current head of the Business Roundtable, recently gave a speech in which he challenged regulatory initiatives in the telecom and financial sectors, criticized efforts to limit tax avoidance by multinational companies, and declared: “It’s time for us all to raise our game and embrace the power of the private sector that will create real value and real growth for our country.”

If business advocates are emboldened to speak out so soon, that suggests that corporations have not been reprimanded adequately for their misconduct. The criticism expressed by the Obama Administration and Congressional Democrats has had a ritualistic quality about it—a Kabuki dance of disapproval that may not result in any real change.

Even the $20 billion BP escrow fund feels inadequate, given the fact that there is no end in sight to the disaster. Although BP’s shareholders are agonizing over the suspension of the dividend payment, the company itself does not seem very put out by the creation of the fund, especially since it is being allowed to spread out the cost over several years.

The ability of BP to buy its way out of the crisis contributes to the sense that large corporations can do the most outrageous things and emerge relatively unscathed. It is unlikely that the forthcoming criminal case against the company will cause much more discomfort. The company has already been through that process with previous disasters involving oil spills in Alaska and a deadly refinery explosion in Texas. It paid the resulting penalties with no problem, and the fact that it was put on probation has had little practical effect.

What’s needed is a more dramatic response to corporate negligence. It might be the arrest of a top executive or an announcement that the federal government will no longer do business with companies with serious regulatory violations or an antitrust initiative to try to break up large firms which think that their size somehow makes them above the law. Only then might corporations think twice about lashing back and returning to business as usual.