5 months ago
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Trinidad is to be compensated by a United Kingdom fund for ‘the ongoing oil spill clean-up’ in its sister island, Tobago. Early estimates, according to a report in this newspaper, put the damage at US$20 million.
Tobago’s economy is very dependent on tourism. This industry contributes nearly 50 per cent and 60 per cent of its gross domestic product and employment, respectively.
The oil spill, which has got very little attention regionally, was first spotted on February 7. It has damaged some of Tobago’s mangrove forests and threatens the tourism and fishing sectors.
The onset of the 2024 Atlantic Hurricane Season with ‘above average’ forecasts of 17 to 25 named storms, recent predictions that Caribbean tourism will remain robust, when coupled with the oil spill off Tobago’s Atlantic Coast, provide two examples of the ever-present external shocks to which regional economies are exposed, and, more importantly, the need to plan for these potentially catastrophic events before they occur.
Jamaica’s recently announced US$150 million catastrophe bond, which was negotiated in association with the World Bank (International Bank for Reconstruction and Development, or IBRD), against named storm events (it is a renewal of the 2021 cat bond), the Mexican government’s 2024 US$360 million cat bond for earthquake and hurricane events, and, more recently, the Puerto Rican government’s US$75 million cat bond, offer examples of the ex-ante strategies that three regional countries are employing to manage some of the risks to which they are exposed.
According to a 2022 report by the United Nation Environment Programme, preliminary research ‘is now being undertaken to calculate the total number of pollution events in certain jurisdictions. Records have been collated for about 492,000 pollution events in the UK, the United States, and Canada between 2010 and 2021
The Deepwater Horizon disaster, which was caused by an explosion on April 20, 2010, on the Deepwater Horizon rig located in the Gulf of Mexico, was the world’s biggest oil spill. The slick associated with it was 13 times the size of Jamaica. Clean-up and other costs amounted to US$70 billion.
The frequency of these events, based on the statistics from three western countries, suggests that at least five pollution events are occurring somewhere in the world every 60 minutes. The actual number of pollution events daily is more than double that estimate. They constitute real threats to tourism interests in the Caribbean in addition to earthquakes and hurricanes.
This is because tourism plays a key role in regional economies. The regional industry “brings in approximately US$60 billion in GDP and generates 2.8 million jobs”, said Prime Minister Andrew Holness. “Approximately 15.2 per cent of employment in the region falls within the sector,” he said.
Is sufficient attention being paid to the threat of oil spills?
Four things in The Gleaner article stood out for me:
• The twin-island state has been contributing to the International Oil Pollution Compensation Funds, IOPCF, for several years. Is this because it is an oil-producing country?
• The clean-up and other costs incurred by the government of Trinidad & Tobago in relation to the Tobago event will be paid by the IOPCF.
• The circumstances under which the Tobago oil spill occurred are unclear. The T&T government appears to be relying on IOPCF’s investigative capacity to find out how the spill occurred and eventually recoup the US$20 million or more from the insurers of the ships that caused the spill.
• Regional insurance interests do not appear to be involved in financing the clean-up and other costs even though insurance policies have existed for years to protect the environment. ‘Environmental pollution liability insurance has traditionally been used to assist with the remediation of an affected site and indemnify third-party losses’.
The UNEP 2022 report argues that “as risk managers, insurers and investors, there is a clear opportunity for the insurance industry to play a leading role in preventing pollution, reducing greenhouse gas emissions, protecting biodiversity and ecosystems, and supporting the transition to a sustainable economy”. I agree with this observation even though some of my associates in the regional insurance industry appear to believe otherwise.
ExxonMobil, according to a recent report by The Institute for Energy Economics and Financial Analysis, “has failed to provide adequate insurance for the costs of recovering from a potentially catastrophic oil spill from a massive drilling project off the coast of Guyana, the nation’s top court has ruled”. The court found that ExxonMobil “engaged in a disingenuous attempt” to dodge full responsibility for any damage that might be caused at its Liza One field, part of an offshore project that produces 380,000 barrels of oil daily.
“Since the judge found that ExxonMobil hasn’t provided sufficient insurance, Guyana taxpayers are currently exposed. The potential consequences for Guyana are catastrophic,” said Tom Sanzillo, director of the institute.
Has T&T assessed the threats posed by a major oil spill to its tourist industry? Has it developed a contingency plan for dealing with that type of event? Has that plan been tested? Is Jamaica a contributor to the International Oil Pollution Compensation Funds? These questions are raised in the context of the specific threats that are posed to Jamaica’s tourist industry and, more broadly, the ongoing offshore oil search efforts.
The research that I conducted for this article answered two of the preceding questions. Oil spill preparedness training, according to information posted on the website of the International Maritime Organization, was conducted in February “to help build capacity and test response systems so that necessary improvements Jamaica’s National Oil Spill Contingency Plan can be identified and implemented”.
The statement reaffirmed the importance of testing the plan, saying, “a comprehensive, up-to-date and tested NOSCP is the foundation for an effective and effective oil spill preparedness and response framework”,
‘Big up’ to all the people who were involved in the design and execution of the training course.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com
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