BP oil spill calls for a win-win Regulation 3.0 approach

I’m going to be submitting this as an op-ed later today. Any comments would be gratefully appreciated!

The Off-shore Oil Crisis Demands a Switch to Win-Win Regulation 3.0 Strategy

by W. David Stephenson

The Obama Administration’s proposal to make the off-shore oil drilling safety program independent of the Minerals Management Service doesn’t address a more fundamental problem: the lack of transparency and real-time information regarding what is actually happening on the rigs, as demonstrated by the current BP catastrophe.

This situation demands a new approach, which I call “Regulation 3.0” because it capitalizes on a number of features of the emerging Semantic Web (“Web 3.0”) in which, among other things, everything will have its own internet address, and can therefore be directly monitored and controlled from far away via the Web.

Applying this technology to off-shore oil, Federal and state regulators would no longer depend on information fed to them (and perhaps filtered) by the oil companies: they would have direct, real-time access to the exact information the companies get. What’s called “structured data” (think of it as a 21st-century bar code, in which information about the information in question is permanently attached to the data through “tags” so that it no longer has to be manually updated or “pasted” elsewhere) makes such a shift possible today. The Web 3.0 “Internet of Things” approach where, for example, every part of the oil rig’s safety system could conceivably be monitored individually in real-time could have revealed the dead battery and other problems that we now know contributed to the failure. Perhaps most important, a procedure controlled by regulators could have been designed to automatically shut down the rig when it failed the pressure test, rather than leaving that decision to BP.

Making such a change more palatable to industry, the oil companies would directly benefit from the same real-time data and new approach to regulation.

Used as a management tool, structured data would let them coordinate and integrate not only their internal operations but also those of suppliers and customers to an unprecedented degree, because all of the users would potentially have the same real-time data access and common standards for integrating it into their own operations. This would allow the “zero-latency enterprise” vision that has been difficult to achieve because companies use different proprietary reporting tools that can’t communicate with each other.

Astonishingly, while this new approach would dramatically involve government agencies’ ability to monitor and respond to fast-changing situations such as the BP one, it would also be much less costly and laborious for companies to comply with Regulation 3.0. Instead of having to laboriously fill out individual reports to individual agencies, the same structured data from the oil rig or other equipment would automatically flow to every reporting form. In the Netherlands, where such a unified, automated reporting system has been in place for five years, the average company can cut its compliance costs by 25%. Talk about a win-win solution!

Most important at this point would be how Regulation 3.0 would assure transparency. I spent years as an environmental crisis manager, learning transparency is the only way companies can earn public confidence after a major environmental disaster. They’ve must face the reality that we don’t trust anything they tell us (witness the disparity between BP’s estimate that 5,000 barrels a day were leaking vs. the analysis by an independent expert that concluded the number was nearly 70,000 barrels), and take a “don’t trust us, track us” strategy in which regulators will have unfettered access to the data.

Looking beyond the specific issues of the oil industry to regulation in general, the 3.0 approach deserves serious attention across the board. I have argued elsewhere that particularly with the TARP loans, where taxpayers’ money is at stake, any loans should be instantly reported, so regulators would be able to intervene more rapidly.

Relying solely on quarterly and annual reports to regulators made sense when aggregating and reporting the data was arduous and costly. Using the structured data tools, reporting can largely be automated, and integrated into a company’s daily operations. Perhaps the only silver lining of the BP blowout will be if it speeds the transition to a Regulation 3.0 approach.