U.S. Policy Experts: Premature to Pass Oil Spill Liability Bill

Pres. Obama should push renewable energy 'with all the force he can muster' now, rethink 'broken' oil liability system later

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WASHINGTON—BP’s vow to pay what chief executive officer Tony Hayward calls "all legitimate claims" connected to the Gulf of Mexico oil spill might be reassuring to the naïve.

But some attorneys and politicians interpret "legitimate" as a weasel word — one that could allow the oil giant to wriggle out of its obligation to cover economic damages caused by massive amounts of oil flowing from a broken deepwater well since April 22.

"When BP says it will pay all legitimate claims, what is legitimate to them?" Natural Resources Defense Council senior attorney David Pettit inquired in an interview with SolveClimate. "I don’t know."

That same suspicion has caused Senate Democrats to spar repeatedly this month with Republicans over proposed legislation to significantly raise the $75 million corporate liability limit and to also question the Obama administration’s seeming reluctance to advocate immediately for a higher cap.

"Clearly, $75 million won’t be enough. It’s gone already," Pettit said about the compensatory money slated to reimburse fishermen, the tourism industry and others for lost profits and wages. "Yes, we need to increase those numbers, but we need to find out what actually happened in the Gulf before picking those numbers." 

Patrick Parenteau, an environmental law professor at the Vermont Law School in South Royalton, agrees with Pettit that debating the liability cap at this juncture before all of the facts are in about the unfolding catastrophe is likely academic and premature. He questions why Congress would play its trump card early on when waiting would be more strategic.

"The federal government has plenty of authority to sock it to BP," Parenteau said. "I don’t see any need to rush into a piece of legislation based on a limited and unclear factual situation. It won’t change one thing about the response to the spill and the eventual calculation of damages. I cannot see a court absolving BP for the consequences of this disaster."

Instead, he is puzzled as to why President Obama isn’t mounting his bully pulpit to initiate a conversation about the rise of renewables and alternative energy sources.

"If politics is the art of the possible, then Obama should seize the moment and see what he can get done," Parenteau told SolveClimate. "If he is going to push for clean energy, now is the time to do it with all the force he can muster."

The $75 million limit approved by Congress in 1990 looks grossly small 20 years later during a spill that could easily lead to billions and billions of dollars in economic claims, Pettit noted.

BP estimates that the ruptured well is spurting 5,000 barrels daily. But some scientists say the slick could be larger by at least five-fold.

"BP has stated that it will pay all legitimate claims and that it will not insist on the $75 million cap," Sen. Jeff Bingaman (D-N.M.) said during a Committee on Energy & Natural Resources hearing he chaired Tuesday. "We hope that’s true. But we still have a broken system in need of repair."


Why a Cap Is Even an Issue

Other senators representing costal states have joined N.J. Democrat Robert Menendez in trying to pass legislation that would raise the liability cap under the Outer Continental Shelf Lands Act to $10 billion. His legislation, S. 3346, is titled the "Big Oil Bailout Prevention Act."

In the wake of the 1989 Exxon Valdez disaster in 1989, Congress passed the Oil Pollution Act of 1990 to provide specific legal authority for dealing with the consequences of oil spills. It caps the responsible parties’ damages at $75 million. This strict liability cap is the amount an oil company is responsible for without being found at fault for an accident.

That figure does not include containment and cleanup costs, which BP has said is now above $760 million. There is no limit on what a company has to pay for those expenses. As well, there is no limit on compensatory or punitive damages an oil company must pay if it is found responsible for a spill.

The law now empowers the Interior Department to adjust the cap amount every three years to account for inflation. However, limits on damages for offshore facilities haven’t been adjusted for 20 years, Bingaman said. Estimates from the Bureau of Labor Statistics out that $75 million figure at $150 million in today’s dollars.

In tandem with the liability cap, Congress also designed what is called the Oil Spill Liability Trust Fund. It is intended to cover higher levels of economic damages and spread the risk of excess damages among the industry as a whole. Currently, its payout limit is $1 billion per incident. The fund’s coffers now stand at about $1.5 billion.

The oil industry finances the trust fund via a charge of 8 cents per barrel of oil that is produced in this country or imported. That tax could quadruple to 32 cents per barrel if Congress passes a piece of catch-all budget legislation this week. It’s estimated the tax increase could generate $11 billion over the next 10 years. That same legislation would increase the payout limit to $5 billion. 


Nuanced DOJ Position Riles Democrats

During Bingaman’s hearing Tuesday, one of the Department of Justice’s top officials told senators that the Obama administration is "focused on the future," and thus not proposing to change the $75 million liability cap right now. The cap should eventually be eliminated, he emphasized.

"We don’t think there should be an arbitrary cap on financial liability," associate Attorney General Thomas Perrelli said, adding that the administration will push BP to honor its commitment to pay for damages.

However, Perrelli assured the senators that Congress would be standing on solid constitutional footing if it raised liability caps for economic damages retroactively because "Congress legislates retroactively all the time."

Some of Perrilli’s comments seemed to annoy Sen. Bernie Sanders (I-Vt.), who told Perrelli that he must be one of the few people taking BP at its word these days.

"A year from now, the television cameras will be gone, and it will be a fisherman who’s trying to file a claim," Sanders said. "And he’s going to be by himself."

Sen. Ron Wyden (D-Ore.) directed Perrelli’s attention to a news article stating that Transocean has asked a federal court in Houston to limit its liability from the oil spill to under $27 million. Transocean is the Switzerland-based offshore contractor and owner of the Deepwater Horizon drilling rig that blew up April 20. That explosion killed 11 workers.

The article, reported by the Miami Herald, said Transocean officials are invoking an obscure maritime law from 1851 to claim that they shouldn’t have to pay more than the salvage value of the charred oil rig and its freight that sank in about 5,000 feet of water.

"We’re committed to recovering every single dime expended by the taxpayers," Pirrelli said about the recent spill. "But let’s look ahead. Rethinking liability is appropriate as we learn more about the risks. Our fundamental belief is that the polluter should pay."

Outside observers aren’t as confident as Perrelli seems to be that the Constitution allows Congress to legislate retroactively when it comes to the liability cap.

"Increasing that $75 million cap retroactively is problematic," Pettit said, pointing out that criminal law doesn’t allow somebody to be prosecuted retroactively for an act that was legal when he or she committed it. "You can see there is going to be a fight. Even if the cap is $10 billion, or whatever number they choose, it doesn’t mean it will apply to this particular spill."


A Shift Away From Deepwater Drilling?

Sen. Lisa Murkowski (R-Alaska) has echoed the American Petroleum Institute, a trade and lobbying group, with her concerns that a permanent unlimited liability — or even one as high as $10 billion — could exclude all but the richest oil companies from drilling offshore because of excessive costs to insure oil rigs. That, they claim, could lead to foreign "supermajors" harvesting America’s offshore resources.

"This has reinforced my commitment to help make things right," she said Tuesday about compensating those whose livelihoods are being destroyed by the spill.

Still, she emphasized how important it is for Congress to grasp how complex legal and statutory provisions interact because a liability cap could have unintended consequences.

Sen. Jeanne Shaheen (D-N.H.) compiled several charts to show her fellow senators at Tuesday’s hearing how the $75 million cap is dwarfed by several other figures — an estimated $2.4 billion in damages to the Louisiana fishing industry, an estimated $3 billion in damages to the Florida tourism industry and $16.6 billion in profits BP earned in 2009.

"Should we have a cap at all?" she asked. "Or does a cap encourage riskier behavior?"

As costs for BP mount, Parenteau said he sees the oil company being pushed close to bankruptcy.

"Maybe this is another 9/11 event," the Vermont Law School professor said, referring to the terrorist attacks of 2001. "This could be one that makes us reconsider deepwater drilling. That might be the right public policy answer."

Parenteau is not alone in calling for Congress to revisit its piecemeal approach to the regulatory structure for offshore drilling. Plenty of environmental advocates see this as primetime for leaders to pass pending climate legislation that would help to unleash the market forces, creativity and ingenuity needed for a less petroleum-dependent energy economy to flourish.

"The bigger question," Parenteau concluded, "is what is the energy policy of the United States going to be going forward?"

(Image: U.S. Coast Guard)


See also:

Investigator Warned MMS in 2009 About Deepwater Gas Blowouts in Gulf of Mexico

Did Deepwater Methane Hydrates Cause the BP Gulf Explosion?

Advocates Call On Salazar to Relinquish Interior Dept’s Oversight of Drilling Safety

Research Shows Federal Oil Leasing and Royalty Income a Raw Deal for Taxpayers 

Criticism of Secret Oil Dispersant in Gulf Grows Louder in U.S.