Author estimates economic after-effects could be worse than that of the oil spill

On Monday in New Orleans, Dr. Joseph Mason of Louisiana State University presented a sobering assessment of the economic impact of a six-month drilling moratorium in the Gulf of Mexico. His report, commissioned by the American Energy Alliance (AEA), forecasts that over the coming year the moratorium would result in Gulf states losing 8,000 jobs, $500 million worth of wages, and economic activity would contract by $2.1 billion.

Joseph Mason
Dr. Joseph Mason introduces his study in New Orleans - sponsored by Save U.S. Energy Jobs, a project of the American Energy Alliance.

Dr. Mason, an associate professor of finance, did not mince his words and wants those responsible for the moratorium to realize that “you cannot escape the economic costs of the policy… The moratorium could be more costly than the oil spill itself… By stifling one of the area’s primary economic engines, the administration is crippling the local economy and risking long term consequences.”

He deliberately set up his research approach to be conservative rather than alarmist, in what he described as “very established methodology.” His estimates fell well under those released last week by Louisiana’s Office of the Governor. Bobby Jindal’s statement estimated 20,000 job losses and up to $1.6 billion in lost annual economic activity in Louisiana alone.

The research approach matched that often used by the U.S. Bureau of Economic Analysis and the Government Accountability Office, and it drew upon data from a wide variety of sources, including the Department of the Interior, the Department of Energy, the Census Bureau, and the Treasury Department. Dr. Mason also utilized data from industry representatives, regarding the jobs lost specifically on account of the moratorium.

When questioned regarding how much the compensation payments from BP would offset any downturn, Dr. Mason remained skeptical. “It could take years to be settled. These individuals, these communities, need help now. They need jobs now… Even the communities themselves need tax revenues. We can’t wait.”

Tax revenues may well become a growing consideration, as federal and state governments face sustained deficit challenges. This year the Louisiana state government, for example, dealt with a more than half-billion dollar deficit, and the outlook does not suggest improvement. According to Dr. Mason’s report, the federal government is set to lose more than $200 million in taxes and Gulf states are set to lose around $100 million.

Larry Everest, a member of the Committee to Stop the Gulf Oil Disaster, an organization opposed to all drilling in the Gulf, disputed the policy implication, not the numbers put forward by Dr. Mason. He is willing to acknowledge the job losses, and considers them evidence of “how deeply the U.S. economic system is structured around profit-driven extraction of fossil fuels.” He proposes “full compensation, retraining, and new employment, including public works, for all affected.”

He wonders, “how many more similar disasters will it take before we bring irreparable harm to the Gulf’s ecosystem? Evidently, profit-driven drilling has led to cutting corners on safety measures and environmental conservation… The Gulf belongs to all people, not just one business community or group of people who reside in one area.”

Laura Henderson, spokesperson for the AEA, counters that “there is no doubt that there is a way to get oil and gas out of the Gulf safely and create jobs as a result. This is an isolated incident, and what the administration has done is over-react to an obviously horrible crisis… We need to make sure it never happens again… but we can’t just shut down the entire industry. From everything we’ve discovered to date, it looks as though this was absolutely an anomaly.”

Contrary to common perception, she asserts, “what happened on that rig and the practices that BP was using are not the same as the rest of the industry… This is the first time we’ve ever seen this happen… and they were not following industry standards.”

With the original moratorium struck down in the courts and awaiting final dismissal, the second moratorium, issued on July 12th, remains in legal limbo. Ms. Henderson points out that “these companies don’t like uncertainty. [The moratorium] is not even official, and we’ve already seen rigs leave and jobs leave, and there’s no guarantee that those will ever come back.”

Fergus Hodgson is the capitol bureau reporter with the Pelican Institute for Public Policy. He can be contacted at fhodgson@pelicanpolicy.org, and one can follow him on twitter.