Federal regulators move to hike cap on oil spill liabilities

WASHINGTON — The Obama administration on Friday took the unprecedented step of moving to hike the amount companies must pay for oil spills, following a congressional deadlock on the issue nearly four years after the Deepwater Horizon disaster.

Under the Bureau of Ocean Energy Management’s proposal, the government would boost the current ceiling on economic damages from oil spills from $75 million to $134 million.

While that is far below the unlimited liability many lawmakers proposed after the 2010 spill in the Gulf of Mexico, it represents the first time the Interior Department has moved administratively to raise the liability cap since it was first established by Congress in 1990.

“This adjustment helps to preserve the deterrent effect and the ‘polluter pays’ principle embodied in the law,” said the Bureau Director Tommy Beaudreau. He called the change “necessary to keep pace with the 78 percent increase in inflation since 1990.”

Industry response

The oil industry was skeptical of the move Friday, with some lobbyists suggesting it was unjustified and others warning that it could cause insurance premiums to spike too high for smaller companies working offshore.

Randall Luthi, head of the National Ocean Industries Association, questioned the need for the change and suggested there may not have been instances where costs were not covered or reimbursed solely because of the liability cap.

“Companies are already held accountable in multiple ways and accept their responsibility without question,” Luthi said. “So what does this rule change serve?”

While the 1990 oil pollution statute caps the liability for economic damages at $75 million, the limit is waived entirely if there was gross negligence, willful misconduct or other violations. Companies also are required to pay the entire cost of cleaning up after offshore spills.

Failed efforts

The 24-year-old law actually requires adjustments every three years to keep up with inflation, but the only previous changes were in 2006 and directed just at tankers carrying crude.

Efforts to boost the liability cap in Congress failed despite early unity on the subject in the weeks and months after the April 20, 2010 blowout of BP’s Macondo well in the Gulf. At the time, Democrats and Republicans broadly agreed that the $75 million liability limit was far too low, but they clashed over where to place a new ceiling.

Some Democrats, such as Rep. Rush Holt of New Jersey, Sen. Ed Markey of Massachusetts and Sen. Bill Nelson of Florida insisted on unlimited liability. But oil and gas industry advocates, including Sen. Mary Landrieu, D-La., said that would give a monopoly on offshore drilling to the nation’s most well-heeled companies, effectively shutting out independent operators with fewer financial resources. And a proposed compromise involving a shared-risk insurance pool for offshore operators was rejected as unworkable by small oil companies.

A presidential oil spill commission that investigated the Deepwater Horizon disaster recommended the limit be significantly raised but did not specify a new cap.

“In lieu of any congressional action over the past three years, it is very appropriate that the Department of the Interior take administrative action to raise this outdated liability limit,” former commissioner Donald Boesch said Friday. “However, the level of $134 million hardly seems adequate given the experience of the Deepwater Horizon spill.”

BP waves cap

BP said it would not be bound by the cap for the Gulf spill, which could cost the company some $43 billion for fines, cleanup work, payments to coastal residents, legal settlements and other activities.

But other companies might not make the same promises, and Markey said the Interior Department’s proposed increase isn’t enough.

“When oil spills can lead to tens of billions of dollars in damages, Congress needs to act to make sure that oil companies are held fully responsible for their spills and that American taxpayers are fully protected,” Markey said.

Oil companies and other stakeholders now have 30 days to comment on the ocean energy bureau’s proposal.