Taxpayers could be on the hook for billions of dollars from BP’s still-gushing spill in the Gulf of Mexico unless Congress can retroactively change a law that limits a company’s liabilities for oil spills – and experts say it will be tough.
A political battle over the issue is already underway, even though no one yet knows how costly BP’s oil disaster will turn out to be. On Wednesday, President Obama proposed a $118 million rescue package that includes money for unemployment benefits and food stamps for fishermen thrown out of work by the spill. The administration also authorized the Coast Guard to start drawing money from the Oil Spill Liability Trust Fund, which is financed by a fee on each barrel of oil pumped, to reimburse its costs in the damage control effort.
But if the spill contaminates large parts of the Gulf Coast, the real cost is likely to be in the form of prolonged commercial losses to the fishing and tourism industries. Under the Oil Pollution Act of 1990, which was passed in response to the Exxon-Valdez oil spill one year earlier, oil producers are liable for all cleanup and environmental restoration costs that stem from a spill.
But they are only liable for $75 million in claims for commercial and business losses, which could easily run into the billions. If BP and its partners don’t pay, Congress will be under just as much pressure to provide help as it was in the case of natural disasters like Hurricane Katrina. If the oil spill gums up a thousand miles of Gulf coast, the commercial losses would almost certainly run into the billions.
Commercial fishing revenues alone totaled more than $10 billion throughout the Gulf Coast region in 2008, according to the Natural Resources Defense Council, an environmental group.
New Legislation
Sen. Robert Menendez, D-N.J., has introduced legislation that would retroactively raise that limit to $10 billion. The White House supports the measure. But when Senate Democrats tried to pass the measure by “unanimous consent,” a speedy approach for noncontroversial bills, they were blocked by objections from Sen. Lisa Murkowski, R-Alaska.
The oil industry, especially the legions of independent drillers, are claiming that the bill would lead to crippling increases in their insurance costs and put them out of business. “Independent production would largely be shut down and new drilling would come to a halt,” warned the Independent Petroleum Association of America in a recent bulletin.
Environmental advocates say the current liability limit amounts to an invitation to recklessness. “It’s ridiculous,’’ said Ben Schreiber, an energy and tax analyst at Friends of the Earth, an environmental group in Washington. “If they can’t afford the insurance, they obviously won’t be able to afford to compensate for the losses either.”
Legal experts say such a law would face difficult hurdles in court, because the Constitution generally prohibits “ex post facto’’ laws that would impose new penalties retroactively. “I would say it’s problematic, because of the retroactivity,’’ said David Pettit, a senior attorney at the Natural Resources Defense Council, an environmental group.
Supporters of the Menendez bill say that it would indeed hold up in court, noting that the Superfund law was upheld by courts even though it allowed the government to require companies to clean up toxic waste sites from decades earlier.
The Superfund requirements were justified on the theory that Congress was holding companies responsible for the continuing consequences of the toxic waste as it made its way into food and water supplies. Tracy Hester, a specialist in energy and environmental litigation at the University of Houston Law Center, said it was hard to predict whether courts would buy a similar argument when Congress would be retroactively altering one of its own laws.
“At first glance, any attempt to bump up the liability would run up against some pretty stringent constitutional limits,’’ Hester said.
BP's Responsibility
BP executives have been ambiguous about exactly how much financial responsibility they would assume. The company has pledged to pay all cleanup costs and all “legitimate claims’’ for lost business. But it has refused to define what it means by “legitimate claims.’’
To be sure, the $75 million limit on commercial loss liabilities is not absolute. The law allows people to sue an oil company for an unlimited amount of additional money. But to do that, those seeking compensation have to prove that the oil spill resulted from “gross negligence or willful misconduct,” or that the oil company violated federal laws in how it operated the rig.
The Oil Spill Trust Fund currently has more than $1.6 billion to use for cleanup, and BP would be required to reimburse the fund for its outlays in the Gulf cleanup effort.
The White House, as part of its legislative package, has called for increasing the fee that finances that fund from 8 cents per barrel to 9 cents, with another increase to 10 cents in 2017.
