What The BP Oil Spill Has To Do With Your Finances

Allison Kade
Posted

oil slickNews outlets are reporting that the catastrophic oil spill off the Gulf of Mexico might (possibly) have been prevented by a last-resort shut-off switch that’s used in other countries like Norway and Brazil. Installing an acoustic trigger as a way to prevent a terrible oil spill would have cost about $500,000; though the U.S. considered mandating these emergency switches, oil companies argued that the costs were too great and the benefits too hazy.

Too late now.

Instead of paying $500,000 in preventive care, BP is now forking over $6 million per day to repair the oil spill.

Putting aside the environmental cost of this spill (one could argue that the damage to the ecosystem can’t be monetized), we’re nonetheless faced with a precarious cost-benefit risk equation. Although this spill is a disaster of a tremendous scale, each of us must weigh a similar balance on a regular basis.

While BP decides whether saving $500,000 is worth the risk of $6 million per day, we regularly decide whether saving $150 on a renter’s insurance deductible would be worth many thousands of dollars in property and hotel costs, if something happened to our home. Those without health insurance must determine whether the (often admittedly expensive) deductibles and user contributions are worth emergency medical costs that could be as high as millions of dollars.

Risk is important, too. If we didn’t take any risk in our investment portfolio, we wouldn’t be making the most of our money.

Given my interest in the environment, I’m tempted to say that BP should have spent the money on an acoustic trigger. In my mind, the payoff (money compared to an ecosystem) is simply not commensurate. But, even when I take off my oh-so-stylish eco hat and replace it with my personal finance one, the risk and reward calculation seems vastly out of whack to me.

What do you think? Should BP have installed the acoustic trigger? When does it make sense not to insure against a risk?

  • thurid

    There is no evidence that an acoustic trigger would have done anything in this case. These triggers are a third level backup that can be used if other automatic devices don't work. Since the robot subs sent directly to the valve at the sea bottom were unable to close the valve it is very unlikely that a remote automatic device would have done anything. The likelihood is that the valve itself is damaged.

    • sallysuewho

      Thurid – There is also no evidence that an acoustic trigger would not have worked. The shut off valves didn't work, the robot subs didn't work..seems to me that the third level backup, in this case an acoustic trigger, might have worked. And honestly, would it have sent BP to the poor house to put the extra safety precaution in place? Also, shouldn't these triggers now me mandatory

  • yalenova

    Really great and simple tip this one. I feel like with a lot of these things it’s a very simple thing to do its just difficult emotionally.

    • The LearnVest Staff

      Thanks, Yalenova!

      Allison

  • sallysuewho

    Thurid – There is also no evidence that an acoustic trigger would not have worked. The shut off valves didn't work, the robot subs didn't work..seems to me that the third level backup, in this case an acoustic trigger, might have worked. And honestly, would it have sent BP to the poor house to put the extra safety precaution in place? Also, shouldn't these triggers now me mandatory

  • yalenova

    Really great and simple tip this one. I feel like with a lot of these things it’s a very simple thing to do its just difficult emotionally.