Chevron Case Highlights Difficulty of Making Oil Companies Pay for Spills

The biggest oil spill cases show that lengthy and expensive litigation works in favor of oil companies

Oil contamination in the Ecuadorean Amazon rainforest. Photo by Caroline Bennett/Rainforest Action Network.

When an Ecuadorian judge ordered Chevron to pay plaintiffs $8.6 billion last month for damages from oil contamination in the Amazon jungle after 18 years in the courts, environmental and indigenous people's advocates were euphoric.

Some hoped the time had finally come for larger environmental judgments against oil majors, widely derided for not paying the full costs connected to their oil spills.

But their hopes are fading. International arbiters at the Hague, Netherlands and a U.S. District Court in New York have separately blocked enforcement of the verdict. On March 11, Chevron appealed the Ecuador ruling. The appeals process could drag on for years, during which time no payment can flow.

The case is especially complex — it marks the first time a U.S. oil giant was held accountable in a foreign court for pollution overseas. But it raises a fundamental question about all court orders forcing energy companies to pay for spill cleanup and damages: Are they working?

The short answer is not as much, or as fast, as many would like.

A look at some of the biggest oil spills over the last three decades that led to litigation shows that most energy firms pay partial rewards but very few, if any, environmental damages; outcomes vary with no apparent rhyme or reason; and cases, which follow appeal after appeal, can take decades to litigate.

Environmental advocates fear what this means for the more than 400 lawsuits filed against BP in the Deepwater Horizon spill, the largest accidental oil spill in history.

But the ramifications at home are far broader, now that environmental security has become a national priority.

Ground zero for this is the spread of a relatively new gas drilling method, known as hydrofracking. According to new reports, wastewater from the practice contains radioactive material and is being dumped in public waters.

Another concern for some lawmakers and advocates is the proposed Keystone XL oil pipeline, awaiting a thumbs up or down on a U.S. presidential permit. The line would carry as many as 900,000 barrels of tar sands crude a day from Canada to Texas, and pass through the sensitive Ogallala aquifer that many Midwesterners rely on for drinking water and irrigation.

The pipe's builder, Canadian energy company TransCanada, says on its website that it would be responsible for immediate cleanup and an alternative water supply in case of an oil leak.

But whether such declarations are legally enforceable is questionable.

Enbridge Energy, for example, another Canadian firm, suffered a pipeline break last summer in Michigan that released about 820,000 gallons of crude into the Kalamazoo River.

In the accident's aftermath, the company and CEO himself declared that all impacted residents would be compensated. In January, lawyers for Enbridge told a circuit court in Michigan that such statements are "mere expressions of intentions, not [legal] offers."

Can oil companies be held liable for public promises when accidents strike?

"The modus operandi is always the same," said Steve Kretzmann, executive director of Oil Change International, a Washington, D.C.-based advocacy group. "First they deploy their PR people and then they send in the lawyers to whittle away at their responsibility. I'm not saying there's an industry playbook for this, but is sure seems like there is."

Billions in Damage, Decades to Litigate

If there is one common thread that runs through all oil spill litigation, it is that eventual payouts account for a fraction of actual economic and ecological damages, though judgments have toughened over time.

In 1978, the Amoco Cadiz crude carrier spilled 67 million gallons off the coast of Brittany, France. It was the largest spill of its kind at the time and the biggest loss of marine life ever recorded, with damage still evident.

The case took 14 years to settle and resulted in a payout of $282 million to French claimants in the 1990s and none for ecological damage. The French government wanted seven times that amount.

A year later in 1979, a massive accident at an exploratory well, called Ixtoc I, spilled 126 million gallons in the Bay of Campeche, Mexico, the second-largest such spill in history, after BP's.

The Mexican state oil company Pemex asserted sovereign immunity from compensation claims in U.S. courts. In the end, it paid just $100 million for minimal cleanup and capping the well, which took nearly ten months. The price tag of the disaster is estimated to be at least $1.5 billion.

With the 1989 Exxon Valdez disaster, the oil litigation landscape changed.

The supertanker dumped about 11 million gallons of crude into Alaska's Prince William Sound, wiping out the herring industry and harming other fisheries. A jury ordered the company to pay $5 billion in punitive damages to Alaskans in a relatively swift five years. But this was cut in half by a federal appeals court in 2006, before being sent to the U.S. Supreme Court.

Justices capped the payout at $507.5 million, and Exxon agreed to pay $383.3 million of it. In total, it has spent about $3.8 billion for cleanup and compensation costs, though litigation continues to this day.

Ten years after Exxon Valdez, the Erika tanker spilled another 6.2 million gallons of crude off the coast Brittany. In 2008, French oil giant Total SA was ordered to pay civil penalties totaling around $260 million. An appeals court in 2010 added another 200 million euros to the fine, and recognized the presence of ecological damage, a first for a French court.

Plaintiffs had sought more than $1.5 billion for damages.

BP Will Trigger More Accountability, For Now

The BP oil spill is the biggest oil accident by far, releasing an enormous 205 million gallons of crude into the Gulf of Mexico last year. The disaster could end up costing the company $40 billion.

About 400 cases have been filed, involving thousands of plaintiffs, with about 15 lawsuits pending now in state courts from California to Florida, according to Courthouse News Service, along with at least eight shareholder suits.

Because it is so high-profile, experts say more accountability in both accident prevention and response is inevitable — at least temporarily.

"BP has raised consciousness and, if the Valdez experience is any indication, there will clearly be a tightening in practice and on the books," said Zygmunt Plater, a Boston College law professor and former chairman of the Alaska Exxon Valdez Oil Spill Commission's legal task force.

"In time, though," he continued, "there will be an erosion in practice and on the books. We'll still take two steps forward and one step back."

In the U.S., current laws hold companies accountable for some damages. Elements of the Clean Water Act, the Oil Pollution Act, Superfund and others all have strict provisions that put absolute responsibility on the polluter. The regulations have limited defenses for releases caused by war or Acts of God.

Oil Spills 'Minor' Cost to Companies

Oil companies work disasters into their bottom lines, observers say.

"For the most part, oil companies seem to be fairly confident that major releases into the environment can be tolerated as a cost of doing business," said Tyson Slocum, the energy program director of advocacy group Public Citizen.

"I see on a routine basis that companies do a cost-benefit analysis of violating the law and right now it is a minor cost to them. Regulations are not strong enough and the agencies don't have enough manpower."

John Pendergrass, an attorney with the Environmental Law Institute, said the bigger the spillage and potential court penalty, the larger the fight.

"The companies don't often fight on when it is that they are required to do something, but on whether the proposed remedy is really necessary," he said. "The bigger the stakes are in terms of cost, the more likely the defendants will examine what's required and what's necessary."

Kretzmann says oil giants are never liable for full public health and environmental costs, and he doesn't see that changing.

"They do their absolute best to get around reasonable regulations and then there's a ton of externalities that they don't even get charged with," he said. "There's a huge cost to health and the environment that rarely gets linked to industry and written off as, 'Gosh, that's too bad.'

"Their lawyers look for holes in regulations, legal strategies they can use to get around them, or ways they can defund the regulations. Then they'll send the PR out that says they agree with us ... I've been around this industry as an environmentalist for two decades now. They always say they'll make it better and they never do."

Chevron, Global Test Case, to Continue

In the long-running Ecuador case, Chevron has accused both the court system in that country and the U.S. legal team representing the villagers of corruption and fraud. 

Immediately following the February judgment, the largest-ever environmental reward after BP's $20 billion compensation fund, which was set up after the Deepwater Horizon spill, Chevron declared it "illegitimate," saying it was "unenforceable in any court that observes the rule of law."

The dispute stems from Texaco oil operations that started in the 1970s, which locals say have caused widespread illness and death. They claim there are still hundreds of unlined waste pits dotting the countryside leaking toxic compounds into the county's water supplies, and have sought up to $27 billion in damages. Chevron bought Texaco in 2001 and assumed its liabilities.

"The petroleum companies were bulldozing indigenous villages. They were like Conquistadors on the hunt for black gold," said Plater. He said such scorched-earth tactics by the companies are part of the past, a time before regulation.

For the plaintiffs, their fight has a long history and a long future. They have said they will appeal the U.S. district court's decision on "multiple grounds" and have vowed not to stop fighting until full payment is made.

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