Calif.'s Prop 23 battle pits Big Oil against environmental concerns

Mix together a couple of big oil refiners, an arch-conservative oil tycoon, "green tech" venture capitalists, a former secretary of state and California's far-reaching climate legislation, and stir.

The result is one of the most volatile and expensive political battles of the year.

The issue is Proposition 23, a California referendum that would shelve the state's four-year-old climate legislation until unemployment there falls to 5.5 percent - more than half the current level - which economists agree could take many years. The delay would upend a myriad of solar, wind and low-emission automobile projects.

The referendum has also become a test case about the power of corporate money - mostly from two Texas-based firms - and a measure of how much climate change is sucking wind as a political cause. Fresh off their defeat on a climate bill in Congress, environmentalists and their allies are fighting to prevent their biggest policy success from being rolled back in the country's most "green"-friendly state.

The California legislation would slash greenhouse emissions by 30 percent, limit tailpipe emissions and set targets for utilities' renewable energy use.

A game of big money

One indicator of the emotional charge surrounding the debate was the language Gov. Arnold Schwarzenegger (R) used to attack Prop 23 supporters.

"Does anyone really believe that these companies, out of the goodness of their black oil hearts, are spending millions and millions of dollars to protect jobs?" Schwarzenegger said recently. "This is like Eva Braun writing a kosher cookbook. It's not about jobs at all, ladies and gentlemen. It's about their ability to pollute and thus protect their profits."

The proposition held a slight lead at one point, according to polls, but is now narrowly trailing.

The measure was the brain child of a state legislator, a Sacramento lobbyist who has represented tobacco companies and two oil refiners.

By early October, Valero Energy, the nation's biggest refiner, had poured $4 million into an ad campaign, public records show. Tesoro, the other refiner, has matched that, a company official said. The Koch brothers, who have supported the tea party movement and other conservative causes, added more than $1 million. Other donors brought the total to $16 million.

But Big Oil isn't the only big money in California.

Lined up against the refiners are a group of wealthy fund managers, clean technology investors, environmental groups and onetime Reagan secretary of state George Shultz, who believes that "climate issues are very real" and that Proposition 23 is "a very bad thing."

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Lawyers taking center stage in oil-spill investigation

HOUSTON - The Macondo well gushes no more, but the lawyers are just getting started.

They go wall to wall in a Hilton hotel conference room, sitting at long tables that face the outnumbered investigators assigned to find the cause of the April 20 Deepwater Horizon disaster. The thermometer may be hitting 100 outside, but the room is kept perfect for the men and women in power suits, many from Washington, Chicago, New Orleans and Dallas.

The investigation, a joint operation by the Coast Guard and the Bureau of Ocean Energy Management, is supposed to help the government determine what went wrong and recommend reforms. But the hearings have largely been taken over by lawyers for the major players in the disaster - including BP, rig owner Transocean and the contractor for the cement job, Halliburton - who are trying to prepare for what are sure to be many civil trials to come.

They are generally civil to one another, but their clients have conflicting interests, with billions of dollars at stake and a Justice Department probe shadowing everything.

"The 900-pound gorilla in the room is the criminal investigation," said Pat Fanning, the attorney for one of the top Transocean managers on the rig.

Testimony this week has focused on usual suspects: the construction of the well and maintenance of the blowout preventer. But who's to blame, what piece of equipment or procedure proved fatally deficient, or to what degree the calamity could have been foreseen are issues the lawyers will likely tangle over for years to come.

In a new twist, BP has declared that a Halliburton employee, Jesse Gagliano, who warned that the cement job on the Macondo well might not function properly, should have stopped the operation outright if he had real doubts about safety.

Gagliano testified Tuesday that he told BP engineers on April 15 that if BP proceeded with the cement job as designed, it would have a gas-flow problem. Three days later, he wrote that, with only seven centralizers to center the casing, "this well is considered to have a SEVERE gas flow problem."

Gagliano said he and the BP engineers worked together, late into the night of April 15, trying to resolve the problem. He recommended that BP use 21 centralizers to keep the casing properly positioned. But even though an additional 15 were flown to the rig, BP chose not to use them. The cementing job proceeded with six.

Under cross-examination by BP lawyer Rick Godfrey, Gagliano acknowledged that in some documents, as well as during several conference calls with BP and Transocean managers, he did not cite the gas-flow potential or raise other alarms.

"BP had made their decision," Gagliano said. "They had decided not to follow my recommendation."

After he testified, BP released a pointed statement: "If Halliburton had significant concerns about its ability to provide a safe and high-quality cement job in the Macondo well, then it had the responsibility and obligation to refuse to perform the job. To do otherwise would have been morally repugnant."

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E.U. rules let Iran import, export oil, creating possible split from U.S. policy

TEHRAN - The United States and Europe have worked cooperatively on Iran policy since President Obama took office, but a small crack might have begun to open over sanctions that are beginning to pinch ordinary Iranians.

The European Union issued regulations this week that went well beyond a U.N. Security Council resolution passed in June, outlining tough restrictions on the sale of equipment and technology to the Iranian oil and gas industry, as well as on investment in those sectors. But the regulations - unlike legislation passed by the U.S. Congress - allow for the import and export of oil and gas to the Islamic republic.

"If you want to send a tanker filled with refined petrol to Iran, and you have proved that you are not carrying any other goods that we deem illegal, Europe has no problem," said a European official who specializes in sanction policies and spoke on the condition of anonymity because of the sensitivity of the subject. "We don't want any negative effect on the Iranian population or to deprive them of energy, so we do not follow U.S. measures that go beyond United Nations sanctions."

The E.U. will also permit financial transactions needed to import of oil and gas to Iran. The United States, by contrast, penalizes companies if they sell gasoline to Iran, and has increased pressure on international oil companies and refineries to cancel their contracts with the country.

The practical effect of the European action might be minimal because European oil giants might still refuse to supply Iran with fuel for fear of appearing to thwart U.S. sanctions.

U.S. officials said Wednesday that they were broadly pleased with the European regulations, which they said could devastate Iran's oil and gas industry. "We are going at the supply, while they are going at the back end," said a senior administration official who handles the Iran portfolio. "We have had the kind of cooperation and coordination with the Europeans that has been unprecedented."

The U.S. official said he had never heard any concerns raised by his European interlocutors about the effect of the sanctions on ordinary Iranians. "The regulations turned out to be pretty solid," he said. "At each stage, when they have faced a choice between going soft or going heavy, they have gone heavy."

U.S. officials have in the past said that if the increased pressure is hurting ordinary Iranians, they should blame their leaders for the Islamic republic's increasing isolation.

But E.U. officials said Wednesday that they specifically allowed fuel sales to ease the burden on average Iranians.

According to June statistics, Iran needs to import 4.7 million gallons of refined petroleum each day because of the country's low refining capacity. After U.S. sanctions were implemented in July, Iranian leaders announced that they had started an emergency plan to increase local production by mixing oil with high-octane products.

At several European airports, planes belonging to Iran's national carrier, Iran Air, are being refused refueling services by representatives of major oil companies. According to the European Union, there is no legal basis for denying the airline services.

Iran Air has been able to refuel at only three European airports since a Sept. 30 agreement among the State Department and European oil firms Total of France, Statoil of Norway, Eni of Italy and Royal Dutch Shell of Britain and the Netherlands.

They pledged to end their investments in Iran and avoid new activity in the country's energy sector. In turn, U.S. officials said, the companies would be protected from possible U.S. penalties for doing business with Iran.

"We have complained to the U.S. about the extraterritorial effects of their measures on European companies," the European official said. "If those companies submit to U.S. wishes, it is their decision, but we are against these policies. This is a major issue for us."

There have been complaints in the European parliament over U.S. pressure on E.U. companies regarding Iran.

"If Europe accepts U.S. interference through pressure on its businesses, it is giving up independence," said Marietje Schaake, an influential parliament member who represents a liberal party. "The influence of U.S. interference beyond our own sanctions harms the E.U.'s credibility as a global player.

Kessler reported from Washington.

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Freak accident or frontier enterprise? Deep-water drilling is still a big unknown.

BP's internal report on the causes of the Deepwater Horizon blowout, released earlier this month, summarized the calamity as the result of eight separate breaches of physical and operational barriers, any one of which could have, and should have, stopped the unfolding disaster. The blowout, in the BP scenario, was very much a freak event. A long shot.

A graphic in the report showed the barriers arrayed like eight slices of Swiss cheese. All the holes, the report states, "lined up" to enable the blowout:

"[A] complex and interlinked series of mechanical failures, human judgments, engineering design, operational implementation and team interfaces came together to allow the initiation and escalation of the accident."

There is a different, and simpler, way to describe what happened: They weren't careful enough.

For the can-do culture of petroleum engineers, this catastrophe should heighten respect for the way bad things can happen to what looks like proven technology. Oil drilling is a risky business, and deep-water drilling is riskier still. Depth matters. And as the industry went deeper, it didn't commensurately increase its safety margin -- or prepare for the worst-case scenario.

On land, on sea, in the air, in space, in our laboratories, on our farms, we are surrounded by technologies of increasing complexity, all of them vulnerable, at some level, to catastrophes of human origin. Engineers do amazing things, but they aren't always as smart as they think, nor their systems as robust as they seem on paper.

The more complex the job, the more potential infiltration points for gremlins.

"We believed that the blowout preventer was the ultimate fail-safe mechanism," BP CEO Tony Hayward testified before Congress in June, bringing to mind the captain of the Titanic, believing that his ship was unsinkable.

Charles Perrow, in his seminal book on technological disasters, "Normal Accidents," writes, "We have produced designs so complicated that we cannot anticipate all the possible interactions of the inevitable failures; we add safety devices" -- think blowout preventers -- "that are deceived or avoided or defeated by hidden paths in the system."

His argument is that such accidents, though rare, are integral characteristics of the system, with its interlinked components. That's what happened here.

The pivotal moment came late on the afternoon and into the early evening of April 20. The Horizon crew conducted two pressure tests to look for any signs of hydrocarbons flowing in the well, which had already been cemented. For reasons that remain somewhat murky -- most of the key figures either have refused to testify or died in the explosion -- the BP "company man" and the Transocean crew decided that the results of the pressure tests were benign.

As in many industrial accidents involving complex technology, they were trying to interpret something they couldn't see directly -- what was happening below the bottom of the sea. The critical hardware, the blowout preventer, was a mile deep.

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