Setting Standards for Offshore Oil Discharges: A Regulatory Decision Analysis

Offshore oil production platforms continually discharge oily water into the surrounding marine environment. To reduce the risk of these discharges, emission standards are set on the oil concentration in the effluent. This paper describes a decision analytic model for aiding regulators and platform operators in the standard setting process. The model combines three submodules: a regulator model, an operator model, and an impact model. The regulator model is a simple additive value function to evaluate different standards in terms of political objectives. The operator model is an expected utility model that determines optimal oily water treatment based on the standard set by the regulator, penalties for violating the standard, and equipment performance. The impact model simply uses random pollution levels, conditional on the standard and operator's decision, as a proxy for the effects on the marine environment. Given a particular standard, the model allows calculation of utilities or expected utilities for the regulator, the operator, and for environmental impact. An application of the model to setting discharge standards for North Sea production platforms identified several dominated standards. Non-dominated standards clustered around cutoff points at which the operator switched from inferior to superior treatment. These cutoff points were, in turn, very sensitive to treatment equipment uncertainty, and the regulator's monitoring and inspection procedures. In contrast, the analysis found cutoff points to be insensitive to penalties imposed by the regulator or to the risk attitude of the operator.