The Perils of Implicit Regulatory Privatization: Lessons from the BP Oil Spill

Rebecca Bratspies, Professor of Law, CUNY School of Law

By Catherine Wilmarth

Everyone knows that the BP oil spill was an environmental and social disaster, but Professor Rebecca Bratspies encouraged us to focus on one large problem that came to light after the spill: the dangers of implicit regulatory privatization. Self-regulation is the operating mode of the drilling industry. Oil companies set their own standards and measure their own compliance with those standards.

So how did the oil spill happen? One narrative tells us that BP is a sole bad actor who made poor private choices and always selected the least expensive, easiest path; a singular disaster in an otherwise functioning economy. Another tells us that the entire offshore drilling program is profoundly dysfunctional due to the political climate, the inadequate statutory authority, the corrupt agency culture, and the lack of agency resources.

There is a plethora of evidence that BP was a bad actor: their emergency response plans were lacking, they have astounding numbers of safety violations, and they have a history of other oil spill incidents. But these two narratives are not mutually exclusive. The status just before the incident of political culture, statute, and the Minerals Management Service (MMS), the agency responsible for regulation of the oil industry, proved that the entire offshore drilling program was in a distressing state. In early 2010 there was great political pressure to increase offshore oil and gas drilling in response to rising gas prices and other factors. Existing statutory authority decried the need to balance the impacts of drilling with the desire and need for exploration, but gave no detailed direction as to how to find the perfect balance between the two. Legal frameworks also included unrealistic deadlines, and the MMS itself often accepted gifts from numerous oil corporations and allowed oil employees to ghostwrite inspection and maintenance document drafts. In sum, MMS faced increasing demand for regulation while receiving decreasing resources.

Contrasted against the express delegation of duties to private actors, the shortcomings in the MMS forced implicit delegation of the development and execution of standards into the hands of private industry. The American Petroleum Institute (API), a private trade organization allied with the interests of private companies, often suggested the standards that should be applied. And on its face, this may seem sensible: the industry is the most knowledgeable in what is realistic and possible, and government agencies may not have the resources to develop truly meaningful regulations. However, the standards that the API came up with for the oil industry frequently did not require the best available technology, did not reflect best industry practice, did not incentivize smart and responsible development, and focused solely on the economic factors instead of the social and environmental concerns that should also have been important in the development of regulations.

Procedural flaws exist when private standards take precedence over government standards. The development of these rules should be legitimate: they should be made intelligently, with sensitivity to the needs of affected actors, and spearheaded by a trusted authority.  The API’s standards did not consider the inputs of affected communities, the interested public, or those opposed to the industry’s actions. These rules flowed mainly from industry perspectives, and this guaranteed that important viewpoints and issues fell through the cracks. The usual statutory tools that we turn to for government transparency such as the Freedom of Information Act, Sunshine Laws, and the Administrative Procedure Act do not apply to standards developed inside a private industry.

When we allow industries to create and enforce their own regulatory frameworks and simply gloss them over with the sheen of government approval, we lose both the input of important concerned actors and also the encouragement of economically, socially, and environmentally responsible development.