Helping Consumers Choose "Green" Oil

The summer before she started at Duke, Rebecca Ward was in Beijing at the 2008 Olympics thwarting fencing competitors with cool competence.

Ward came to Duke having won two Olympic bronze medals and a gold medal from the 2006 World Fencing Championships. As a college athlete, she set records for Duke’s single-season (81) and career wins (272) on the way to winning three NCAA Women’s Saber Championships.

At Duke, Ward has proven to be more than a saber elite. Now a public policy senior, she is finishing her Duke career with a different battle in mind: fighting against environmental degradation. Ward grew up in Portland, Ore., a city known for being environmentally conscious. She had always hated waste, and the apathy that many people bring to environmental issues.

Ward applied her interests to her academic career by combining her public policy major with a certificate in energy and the environment and a minor in psychology. She also found time to serve on the First Year Advisory Board and Undergraduate Conduct Board, participate in Brownstone Selective Living Group, and write for Rival Magazine.

In a class taught by Lincoln Pratson, professor of earth and ocean sciences at the Nicholas School for the Environment, Ward discovered the focus for her honors thesis: the explosion of the Deepwater Horizon oil rig in the Gulf of Mexico and the resulting oil spill, the largest in U.S. history.

Long after the course ended, Ward continued to follow the progression of the spill very closely as oil gushed into the Gulf at a rate of 30,000 to 60,000 barrels per day, claiming marine life, damaging marine ecosystems and putting fishermen out of work.

That summer, Ward interned for U.S. Sen. Jeff Merkley from her home state. Ward said she spent much of her time taking calls from indignant Oregon residents who wanted the government to fix the oil spill and to punish rig operator British Petroleum (BP).

Ward returned to Duke resolved to uncover the underlying issues. What were the mechanisms that controlled the oil industry and how could oil companies be punished for environmental negligence? She decided to explore these questions through a public policy honors thesis.

“I wanted to ensure that something like the Gulf spill never happens again,” said Ward. She dove into these questions under the guidance of her thesis advisor and environmental policy expert, Jay Hamilton, the Charles S. Sydnor professor of public policy and professor of political science and economics.

At first, her hypothesis about oil regulation followed traditional laws of supply and demand. Consumers should be able to punish gas companies that make major mistakes by reducing consumption of that good and taking away the firm’s profits.

Ward soon realized her initial assumptions were inaccurate. She discovered that there is a disjointed connection between individual gas stations and oil wells. About 94 percent of gas stations, such as the BP station on Erwin Road in Durham, are independently operated franchises. In other words, there is no direct link between a particular gas station and the production of the oil sold at that station. Private owners are licensed to represent a particular brand, but the gas sold does not directly affect the namesake oil company, Ward’s thesis explains.

“You see the news stories [about BP], see the emblem and you associate [the station and company]. But you don’t want to punish the local franchise owners. At the same time, you want to be able to take away the profit from the company,” said Ward.

Ward also learned that current incentive structures allow oil companies to avoid implementing adequate safety precautions, placing the environment, dependent economies and taxpayers at risk.

“There must be a systemic change to how the oil industry views safety and profits as conflicting priorities,” said Ward.

Given these institutional barriers, in her thesis Ward developed an alternative model to return power to consumers and allow them to punish problematic oil companies: Use a rating system, similar to restaurant cleanliness ratings, to give consumers greater knowledge about the eco-friendliness of gas they purchase. Prominently displaying oil safety ratings might enable consumers to make informed choices, reward companies with higher ratings and punish companies with poorer ratings.

“If it were possible to guide consumer choices to those companies with the best environmental and safety practices, oil companies would be forced to internalize a portion of environmental damage into the cost of production,” Ward said.

Such a system could bridge the firm-franchise- consumer divide, and allow the safety practices of a firm to directly impact its profit structure.

Ward acknowledged implementing her plan faces challenges. Passing oil legislation is almost impossible, she said, and the plan might marginally increase gas prices and require stringent enforcement. But she remains hopeful that her proposal might be “a step in the right direction.”