Oil Companies: Clean Up Your Own Mess

You make a mess, you clean it up.  We learned this as kids.  The oil spill bill introduced by Senator Reid, S. 3663, is true to this principle.  But the Republican oil spill bill, S. 3643, would let oil companies walk away without cleaning up the biggest messes ever seen in the United States and make the American taxpayers bail them out. 

Sen. Reid’s bill removes the artificial liability cap on economic and natural resources damages that was written into the Oil Pollution Act of 1990:  $75 million.  Under Sen. Reid’s bill, if an oil company causes a spill that causes $1 billion in economic and cleanup damages, the oil company is liable for those damages without people having to prove that the oil company was reckless or grossly negligent, which the current law requires.  

The Republican alternative, at Section 201, pretends to eliminate the $75 million cap but in fact authorizes the President to set a cap anywhere from $0 on up, depending on a number of confusing factors, one of which (the availability of insurance against blowouts) doesn’t exist.  

Under the Republican proposal, damages from an oil spill that are over whatever limit the President sets, but under $20 billion, would be paid by all other oil companies operating on the Outer Continental Shelf in proportion to the number of wells they have.  Damages over $20 billion would be paid out of the Oil Spill Liability Trust Fund, which is funded by a tax on oil produced, until that fund runs out of money.  After that, the tab is on the taxpayers.  

How would that work using the BP spill as an example?  BP claims it has already paid or reserved $32 billion; in my view, BP is looking at close to $100 billion in liabilities.  If the President had set the liability cap at $10 billion, let's say, then the Oil Spill Liability Trust Fund would be on the hook for $70 billion.  How much is in that fund now?  $2.7 billion; see http://www.uscg.mil/npfc/About_NPFC/osltf.asp

In fact, the Republican proposal would not apply to the BP Deepwater Horizon incident because it only applies to leases entered into after the date that their proposal is enacted into law.  That means that all wells drilled at any time in the future on leases that exist today -- including the BP lease where the Macondo well is located --  would still be under the inadequate $75 million cap.  Under Sen. Reid’s bill, the $75 million cap would be lifted for the Macondo well and all currently-existing wells. 

What’s worse, even if the Republican proposal did govern some well many years in the future, who would pay to clean up a BP-sized mess after the $20 billion damages pool and the Oil Spill Liability Trust Fund were wiped out?  Not the oil company that caused it, not the other oil companies drilling on the outer continental shelf, not the oil companies who pay taxes on the oil they produce.  Who does that leave?