While looking into the subject of BP's liability limits I came across this very illuminating document compiled for Congress by the Congressional Research Service last August on the liability caps for Oil Companies responsible for oil spills.
Federal Funding for the Oil Spill Liability Trust Fund pdf file
In recent years the level of funding for the trust fund has created some concern, highlighting a central policy debate: how should policy makers allocate costs associated with a major accidental oil spill? What share of costs should be borne by the responsible party (e.g., oil vessel owner/operators), the oil industry, and the general treasury?
OPA Section 900199 established per-incident expenditure caps: no more than $1 billion (or the maximum amount available in the fund) for all eligible costs, and no more than $500 million for natural resource damages. Thus, a major spill, particularly one in a sensitive environment, could threaten the viability of the fund.
In addition, the above scenario assumes that the owner/operator can take advantage of the liability limits provided by OPA (e.g., obeyed relevant regulations and did not act with "gross negligence or willful misconduct"). If liability is not capped, the owner/operator could be liable for all costs. However, in the case of a significant spill (akin to the Exxon Valdez), some owner/operator companies may go bankrupt before paying for the entire cost of the spill. Such a scenario may also threaten the trust fund
Under the Oil Pollution Act BP's liability WOULD NOT be subject to the limits on liability if BP acted with "gross negligence or willful misconduct" as appears to be the case in the Deepwater Horizon Disaster.
This Report to the Congress lays out several options for adequately funding the Oil Spill Liability Trust Fund, using different mixes of funding from the responsible party, the oil industry in general, and the public treasury. I was surprised that Polluter Pays isn't the hard and fast rule used to allocate cleanup costs.
Addressing Vulnerability
The following options are among several that Congress might consider to address these concerns:
• First, Congress could maintain the status quo, in which the costs are shared between responsible parties, the oil industry, and general taxpayers. Responsible parties (i.e., owners/operators of vessels and facilities) are liable up to their liability caps (if applicable); the trust fund, which is funded through the tax on the oil industry, covers costs above liability limits; general treasury funds would cover costs if the trust fund is depleted.
• Second, Congress could further increase the liability limits for vessels, so that the responsible party would be required to pay a greater portion of the total spill cost before accessing trust fund dollars.
• Third, Congress could (further) increase the per-barrel oil tax to more quickly raise the fund’s balance. A fully funded OSLTF would be more capable of absorbing the costs in excess of a spiller’s liability limit.
• Fourth, policymakers may consider expanding liable parties to include the owner of the oil being transported. This option was considered during the development of OPA.100 More recently, the Coast Guard Authorization Act for Fiscal Year 2008 (S. 1892 in the 110th Congress) would have, among other things, altered the 97
If the United States faces a multi-billion dollar oil spill (and the vessel owner/operators are unable to pay), some may argue that the oil owners should absorb the costs (above the limit of the trust fund), rather than funds from the general treasury. However this particular liability issue is complicated: further legal/and or policy issues associated with this liability change are beyond the scope of this report
Despite the warnings contained in the he Congressional Research Service's report, Congress in its finite wisdom left the status quo in place.
BP's "gross negligence or willful misconduct" shouldn't be hard for the Federal Government to establish leaving BP lible for all dammages and cleanup costs. It looks like BP won't benifit from the protections against unlimited liability written into the Oil Pollution Act.