WASHINGTON — In the weeks after the Macondo well blowout, Democrats and Republicans found rare common ground when they agreed that a 21-year-old, $75 million limit on companies’ liability for offshore spills was way too low.
But the unity ended there, and now, nearly a year after the disaster, Congress hasn’t figured out how to rewrite the federal law that governs who pays what for oil spill damages.
Lawmakers also haven’t enacted legislation that would dedicate civil oil spill penalty money to Gulf Coast restoration, boost the time allotted regulators to evaluate offshore drilling plans or any other substantial proposals broadly recommended after the disaster.
“Federal agencies and the industry actually are moving forward in important ways,” said Fran Ulmer, chair of the U.S. Arctic Research Commission and a member of the presidential panel that investigated the deadly Macondo blowout and oil spill. “Unfortunately, Congress has not.”
Frances Beinecke, another presidential panel member and the head of the Natural Resources Defense Council, called the inaction by Congress “a complete failure of responsibility.”
“We know how dependent we are on oil; we know that drilling is going to occur,” Beinecke said. “Isn’t it our responsibility to ensure that this is done in the safest way possible?”
Both the House and Senate held a flurry of hearings in the months after the spill began last April. The Senate Energy Committee approved a bill to overhaul the government’s oversight of offshore drilling. And the House passed broad spill-related legislation that would stiffen oversight of offshore drilling, lift the liability cap and tighten standards for wells and emergency equipment.
But the measures stalled last fall amid pre-election politicking and disputes about the liability limit.
Debates about federal spending have dominated the congressional agenda this year. That has mostly crowded out spill-related legislation, save for three measures advancing in the House to accelerate offshore drilling and open more coastal areas for oil and gas exploration.
“Last summer, Congress was actively considering various reforms,” Beinecke said. “Now, the most active consideration is to get more drilling.”
Contrast to Exxon Valdez
Interior Secretary Ken Salazar said the approach shows “amnesia” by some in Congress.
It contrasts with the legislative response after the nation’s last big oil spill – unleashed in Alaska’s Prince William Sound when the tanker Exxon Valdez ran aground on March 24, 1989. Congress hastily passed legislation requiring double-hulled oil tankers operating in U.S. waters.
Within 17 months, President George H.W. Bush signed into law the Oil Pollution Act setting up the spill liability rules that prevail today.
Tinkering with that liability regime has emerged as the toughest challenge for lawmakers and the industry.
The statute requires companies to pay all costs of cleaning up after offshore spills.
But – absent gross negligence, willful misconduct or other violations – it places a $75 million cap on their liability for economic damages such as destroyed property and lost profits or tax revenue.
A separate oil spill liability trust fund – supported by an 8-cent-per-barrel fee on imported and domestic crude – is meant to help compensate victims too, but federal law sets a $1 billion cap on the per-incident payout.
Although BP has said it won’t try to invoke the caps for the Gulf spill, lawmakers worry what would happen if there were another disastrous blowout at an offshore well owned by a company with fewer resources.
“Seventy-five million dollars doesn’t even begin to address the consequences that a major spill could cause,” said William Reilly, co-chairman of the presidential commission that investigated the Macondo accident. It recommended boosting the cap but couldn’t decide on exactly how much.
Sen. Robert Menendez and Rep. Rush Holt, both Democrats from New Jersey, have pushed for unlimited liability. But oil and gas industry advocates say that would give major integrated companies a monopoly on offshore drilling by effectively shutting out independent operators with fewer financial resources.
Democratic Sens. Mary Landrieu of Louisiana and Mark Begich of Alaska are working with oil and gas industry allies on a hybrid approach that could at least double the liability limit and create a shared-risk insurance pool for offshore operators.
When Landrieu came out with a proposal for a shared-risk pool and a $250 million cap last year, she met resistance from officials of smaller oil companies who said that was unworkable.
Size matters in industry
The issue has fractured the industry. What works for major oil companies, which are generally self-insured, doesn’t work for independents.
And even among independent producers, there are clashes between bigger offshore operators, such as The Woodlands-based Anadarko Petroleum Corp., and smaller ones.
“If you don’t raise the liability limit, you’re in a situation where either the taxpayers end up footing the bill or the injured parties do,” said Ulmer, the presidential panelist.
The tension, she said, is between making the cap so high that smaller operators can’t afford the risk or insurance, or so low that it’s not adequate to meet the needs in a major spill.
Dan Naatz, vice president of the Independent Petroleum Association of America, argues that the current structure is a good starting point. Raising the per-barrel fee that funds the trust fund might be a solution – but only if that money were reserved for spill payouts and not tapped to pay for other programs.
Beinecke acknowledged that the issue is tricky because its effects vary among different players in the industry.
“There ought to be broad public support to get the change,” Beinecke said, but “everyone is sort of looking at which aspect of the industry they are trying to protect.”
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