Gulf Coast Braces for Economic Disasater In Wake of BP Oil Spill
The industries that drive the Gulf Coast economy—fishing, tourism, and gaming—are bracing for the impact of the catastrophic British Petroleum oil spill, as businesses across the region face the prospect of billions in damage that could last for years to come.
The Gulf Coast seafood industry alone is a $2.4 billion annual business. Four of the top seven fishing ports in the country are in the Gulf of Mexico. The beaches and wildlife areas support a $20 billion tourism industry.
BP, which was leasing the Deepwater Horizon rig that continues to gush tens of thousands of gallons of oil each day, will have to pay out of its own pocket to clean up the spill. But it might not have to pay for the economic losses the spill inflicts on the Gulf Coast. Lawyers have already lined up to extract retribution from the company; one firm in Houston filed a suit claiming that the fishing industry alone stands to lose $2.5 billion. And lawmakers in Washington working to hold BP accountable for the costs are working off of damage estimates as high as $12 billion.
Despite the certainty of economic consequences, current federal law actually caps BP's liability for economic damages at $75 million. Sen. Bob Menendez (D-NJ), along with Sen. Frank Lautenberg (D-NJ) and Sen. Ben Nelson (D-FL), introduced a bill that would raise the cap to $10 billion.
It's a problem similar to what we've seen on Wall Street in recent years. If companies do not face serious penalties for wreaking serious economic havoc, they have little incentive to alter their behavior.
"We're glad that the costs for the oil clean up will be covered, but that's little consolation to the small businesses, fisheries and local governments that will be left to clean up the economic mess that somebody else caused," Menendez said in a press release. "There is no such thing as a 'too big to spill' oil well, which is why we need this economic protection in place."
The epic oil spill is only the latest disaster to rip through the Gulf Coast economy. David Butler, an associate professor at the University of Southern Mississippi, has been studying the effects of the 2005 hurricane season on the region and says that coastline counties still have not reached their pre-Katrina employment levels. The recession hit this area hard, too. "This is a bad sign for Mississippi," he says. "We're one of the slower states when it comes to recovering from the recession, and this could prolong the employment battle that we're having."
While economists are still trying to place a hard figure on the cost of the cleanup, many industries are already feeling the pinch. The Louisiana seafood industry has ceased operations in areas that provide close to 25 percent of their yearly harvest. "So much of Louisiana revolves around Louisiana seafood," says Ashley Roth, a spokesperson for the Louisiana Seafood Promotion and Marketing Board. "More than 27,000 jobs are in the seafood and fishing industry, so we know the impact on the industry will be huge. We just don't know what exactly it might be."
The same worries are seeping east as the oil drifts toward the Mississippi, Alabama and Florida coasts. "Obviously our seafood industry is facing what could be a catastrophic impact on them if the oil settles down here," says Scott King of the Gulf Coast Business Council.
And commercial fishing isn't the only industry that stands to lose big from BP's blunder. In 2006, the Louisiana Department of Wildlife and Fisheries estimated the total economic effect of fish, wildlife and boating resources at $6.75 billion. Major tourism attractions like recreational fishing and boating, hunting and wildlife photography are already slowing down.
"There's extreme concern from the department's standpoint because the marshes and the fishing grounds that could be affected are extremely valuable to the state's economy," says Bo Boehringer, a spokesperson for the Department of Wildlife and Fisheries. "There's a ripple effect from those to harvest to process to the restaurants that use them in the state and beyond."
Even in places where the oil hasn't yet hit, travelers are reconsidering their plans, and Gulf Coast beach tourism could suffer for months to come. "What is hurting our coastal businesses is the widespread speculation that the worst has happened and the coast's businesses are closed," says Sally Williams of the Mississippi Development Authority. People are already canceling hotel reservations for fear of oil-drenched beaches and buying up seafood in anticipation of coming shortages.
In Mississippi, the Gulf Coast accounts for 30 percent of the entire state's tourism industry, according to King, and drives about 25,000 jobs. In towns like Biloxi, casinos are a big draw, but the sheen of oil could dampen that business, too.
"When people come down here to game, they might stay inside a casino," King says. "But if they regard the coast as some oil-ravaged wasteland, they might not come to begin with."
Even in the unlikely event of a swift and effective cleanup, the damage could last for years. Fishermen are not just losing money on the days they spend without work. Without fishing income, they'll be unable to recoup the investment they've already committed to refurbish their boats for the season. Oyster fishermen would normally be starting to seed their beds for future oyster crops, which take a couple of years to mature. Without access to fishing areas, even those shut down for precautionary measures, the fishermen could lose the chance to start growing the oysters that should be harvested in two years’ time.
"If the oil impacts the growing areas, then you may have damage to the standing crop, and future crops," says John Tesvich, chairman of the Louisiana Oyster Taskforce. "There’s a potential for that, but it’s still too early to tell."
Even under rosy scenarios in which the prospect of permanent ecological damage—and therefore permanent economic damage—is discounted, the Gulf Coast will take years to recover.
BP has suffered some consequences: its stock price dropped, and cleaning up the spill will cost billions. But its core business—selling oil—has not been brought to a standstill in the way that the work of hundreds of small fisheries in the Gulf Coast have been. The price of oil has remained steady, and BP has rigs all over the world to keep supplying its product.
The Louisiana government is hedging its bets on who will help its businesses deal with this disaster. Gov. Bobby Jindal's office has already filed a request with the Department of Commerce to declare a "commercial fisheries failure," which would trigger federal assistance for the fishing industry—an ironic about-face from a conservative Republican who criticized federal relief provided by President Barack Obama's economic stimulus bill. Kris Van Orsdel, an official at the Louisiana Recovery authority who's working on the issue, says there’s no way of knowing what sort of funding Washington would provide but that the governor's office wanted to begin the process as soon as possible.
"While BP is stating that they're on the hook for this, we just want to make sure that we're covering all our bases," he says.