More GoM fallout predictions

The political and regulatory fallout from the Gulf of Mexico oil leak is yet to be worked out, but there are already signs signs that it will be substantial.

Economist Matthew Kahn, who has previously written about the effects of several other environmental disasters such as Exxon-Valdez and Bhopal on regulations, floats several possibilities for this one:

1. The “Spill Baby Spill” crowd will use the law of small numbers to highlight the safety consequences of domestic oil production and hint that California’s coast will be more likely to suffer if domestic efforts increase there.

2. The nascent electric car industry will lobby for subsidies to accelerate the transition to their use in replacing gasoline vehicles.

3. Will a pro-gas tax contingent in the Congress emerge as they argue that this policy will collect revenue, battle climate change, accelerate the transition to electric vehicles and reduce our desire for off shore oil? Will any Republicans join this coalition?

4. What will the “Drill Baby Drill” crowd push for? Will they point to a “Smart Pump” that can minimize the environmental damage of offshore drilling?

After other disasters, he notes, dramatic regulations were introduced.

Meanwhile as FT Alphaville noted, several analysts believe the hit on BP’s share price is overdone (more in the Long Room). These estimates are mostly looking at the costs associated with Exxon-Valdez spill, and adjust for inflation some of specifics of the Deepwater Horizon spill, such as the local industries that could be affected.

At the other end of the scale is David Kotok of Cumberland Advisors, who postulated a sort of macro-economic armageddon could result.

IHS Global Insight, meanwhile, last night wrote in a preliminary economic assessment that it believed the damage would probably be limited to the local area, seafood markets, and tourism — if the slick reached the entire Gulf coast, including the Florida panhandle. They conclude:

Bottom line: while the impact of the oil spill on some local industries in the Gulf (most notably fishing) could be large, the national impacts still look to be fairly small. A lot will depend on how quickly the spill is contained.

Related links:

Will the GoM leak hurt climate bill’s chances? Maybe - FT Energy Source

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