Oil and Environmental Damage

Fander Falconí

The recent upholding of the ruling against Chevron Corporation by the Provincial Court of Justice of Sucumbíos, Ecuador, comes as an inevitable reminder of the decades-long situation in Nigeria, Africa, with the Shell Oil Company – the one with the sea-shell logo. In Nigeria, the consequences have been disastrous.

It is worth pointing out that inhabitants of Ecuadorian Amazonia, organized in the Amazonia Defense Coalition, state that Texaco, acquired by Chevron in 2001, is responsible for social and environmental damages caused by oil-related activities carried out over the past 26 years. The company was sued for damages and a judgment was pronounced. Although Chevron appealed this decision, the ruling has been fully upheld and the company is now to pay a USD 18 billion damage award. This is a case involving Ecuador. Not the government but the judicial system is responsible for determining the socio-environmental liabilities of the company.

On the other hand, in August 2011, the United Nations Environment Programme (UNEP) published a report containing a list of Shell’s oil spills. Both gas flaring (the practice of burning off the unwanted gas released during oil production) in highly-populated areas as well as the company’s operating standards were questioned. It is rare for the United Nations to publish such a report about a large transnational company, but it is well-known that activities related to oil extraction have caused outbursts of violence in the Niger Delta. Among the thousands of victims of this violence, the most famous was Nigerian author and environmental activist Ken Saro-Wiwa, a member of the Ogoni people, an ethnic minority; Saro-Wiwa was executed by the military government in 1995, along with eight fellow activists.

Shell Oil has already been ordered to pay damages in several other civil lawsuits in Nigeria, but the company refuses to acknowledge these rulings and pay. In trials held in London in 2008 and 2009, Shell admitted responsibility for spills in the Bodo community. The transnational oil company has also been taken to court in the Netherlands. In 2008, with the endorsement of “Friends of the Earth” in the Netherlands and Nigeria, fishermen and farmers from Oruma and other communities brought a lawsuit against Shell at The Hague. This city is not only well-known as the seat of government and famous for its canals, pretty houses and bicycles, but also for the high-profile lawsuits filed there.

The plaintiffs accused Shell Oil of negligence in tackling and cleaning up oil spills and stated that their health was affected by those problems as well as by gas flaring. Shell refused to acknowledge the jurisdiction of The Hague Court given that all incidents had occurred in Nigeria. The Court, however, accepted the case. The amount Shell will be required to pay as compensatory damages remains unknown, as well as the number of similar claims that may be filed in the future.

On December 20, 2011, over 40,000 barrels of crude oil leaked into the ocean, reaching the coast from a platform on the Bonga oilfield, about 120 kilometers off the Niger Delta. The leak affected all communities living along the coast. This was the latest, though by no means the worst, calamity caused by Shell Oil.

Social and environmental costs are not paid, since they are considered “externalities”. “Externalities” are costs and benefits that are not reflected in the market price of goods and services (i.e., costs and benefits that also affect people who neither produce nor consume a product). To “internalize” an externality, one must set a market price that takes into account environmental damages or benefits. Externalities are commonly referred to by terms such as: “market imperfections”, diseconomies, or environmental spillovers. In his book, The Social Costs of Private Enterprise (1950), William Kapp points out that environmental damages are not only the result of market imperfections, but also the consequence of a “successful” transfer of costs from those with more market power onto those with less.

Externalities are often measured in monetary terms, even though many of them are not quantifiable. What is the value of a human life loss or an extinct species? Sometimes, a hard and exhausting – but successful – way compensate for damages is to file a claim. Or better, the system can be changed by pursuing public policies and setting accounting standards that also measure ecological debts and environmental spillovers.

The sea shell, whether stylized or trapped in a logo, should not be only a symbol of ecology exhibited by a large oil company.