Course:ECON371/UBCO2011WT1/GROUP5/Article5

• Econ 371 Winter 2011 Main Page

Summary

The US government needs to administer the offshore drilling projects more carefully in Cuba to ensure no oil spill would leak onto the coast.Because of the embargo US has placed on Cuba, US has to find the rights to drill in Cuban waters. The Obama administration talked its way around the Cuban government with the Spanish oil company, Repsol, to get the rights to drill in Cuban waters in January. Repsol ensures that the new standards and safety will ensure a spill, like last year's one on the Gulf of Mexico, won't happen again. While discussing the insured safety, the US government has to think about the level of precautionary measures they have to take when a spill does occur since they don't know the safety regulations Cuban has on drilling.

Analysis

The American embargo against Cuba is severely limiting its ability to monitor Cuban's offshore oil drilling projects, directed by Repsol. The reason the US is worried about Cuban offshore drilling is because a spill in Cuban waters could severely affect the US coast as well. Because relations between the US and Cuba are so bad and negative, Cuba is not expected to try keep the US happy or cooperate with them. This means that the US has no way of knowing any information about the Repsol platform and its operations except by voluntary Cuban information. As the article states; "We can't obviously direct Cuba to impose our standards." From the reading, the US assumes that Cuban standards for the environment are not as high as theirs. Out of self-interest, they want control; not because of possible impacts on Cuba, but on their own shores. The problem is that because the US has no real information on the Marginal Abatement Cost, Marginal Damage, or any of the rest, they have no way of knowing what the risks are and how seriously to take them and go about them. There is a few ways the US should/can go about this to gain what they want:

First, the US could lift the embargo. This would create a vast amount of economic possibilities for the US with Cuba. The current embargo restricts all trade with the nation until it moves towards a more democratic society with greater human rights. The cause is good, but so far the embargo has shown no real signs of success. Therefore, the US should look into a different approach that would still allow them to benefit from economic relations with Cuba. Then, they could talk about Cuban standards and a potential spill's impact on the US and Cuba might consider its trading partner's point of view.

Another thing the US could do is enter negotiations with Cuban leaders about this offshore drilling project alone and ignore all other problems between the two nations. This would mean a set back for the US by accepting that they do depend on Cuba in some ways, however small they may be, so that Cuba will even think about chatting with them. If the right approach is taken, Cuba may respond and explain their offshore drilling procedures.

Or, the US could coerce the company overseeing this project, Repsol, to secretly let them in on information about the operation. This would be what unfortunately usually happens amongst hostile powers.

The problem with pollution is that it does not recognize borders. There is no way to contain it in one specific country. Within countries, environmental policies are provincial and federal jurisdiction and nations figure out the most efficient way of attaining their own standards within their own boundaries. However, as there is no international law concerning pollution, and no international government to monitor it, it really comes down to nations working together to deal with pollution crossing borders. Unfortunately in the case of the US and Cuba, these also barely exist.

Conclusion

The article points out the fact that the US would want to restrict the Cuban to continue with offshore drilling, because the pollution could severely affect the US coast. The two countries are not talking the problem out and they obviously have different standards on environmental quality. The major question based on this article is that, in what ways could the US and Cuba come to a common view of offshore drilling activities in the future? We have a few suggestions for the US as mentioned in the analysis: 1. the US could lift the embargo, 2. the two countries can enter into a negotiation and talk it out, and 3. the US could force the company to oversee the project.

An extended question from the article is that, should there be international regulations or policies to help control of the unboundedness of pollution? If there are laws concerning the affect of the pollution, will the negotiation between the US and Cuba be settled?

Prof's Comments

Pretty good. The idea of negotiation is essentially application of the Coase Theorem. One key point, discussed in chapter 20, is that there is no international government. When environmental issues cross borders, one cannot appeal to a central regulator. The US is trying to use special leverage against companies that also do business in the US, but that is only a partial solution.

8.5/10