E&E: Interior proposes near-doubling of spill liability cap

Phil Taylor, E&E reporter
Published: Friday, February 21, 2014

The Interior Department today announced plans to nearly double the current $75 million oil spill liability cap for offshore oil and gas development to keep pace with inflation, marking the cap’s first increase since passage of the Oil Pollution Act of 1990.

The proposed rule, which environmentalists called long overdue, would also spell out how Interior implements future increases to the cap.

“This proposed change is the first administrative increase to the liability cap since the Oil Pollution Act came into effect 24 years ago and is necessary to keep pace with the 78 percent increase in inflation since 1990,” said Bureau of Ocean Energy Management Director Tommy Beaudreau. “This adjustment helps to preserve the deterrent effect and the ‘polluter pays’ principle embodied in the law.”

Companies involved in a spill are legally responsible for the full cost of containing and cleaning up a spill. But Congress has capped companies’ liability for economic damages — people put out of work by the spill, fishermen who cannot fish, empty hotel rooms on the beach at high season — at $75 million. The BOEM proposal would raise the cap to $134 million, the largest increase allowed without legislation.

The proposal comes more than three years after a presidential BP PLC spill commission recommended that Congress “significantly” raise the liability cap, a proposal that has sputtered on Capitol Hill and has not seen serious consideration in years.

House Democrats in 2010 passed a bill to eliminate the cap, but oil state Democrats particularly in the Senate expressed concerns that such proposals could harm smaller operators. Sens. Mark Begich (D-Alaska) and Mary Landrieu (D-La.) worked hard on a compromise, but the issue seems to have dropped off Congress’ radar.

“Increasing the liability is long overdue,” said Athan Manuel, director of the Sierra Club’s lands protection campaign. “The $75 million cap was too low, especially when you consider catastrophic spills such as the Deepwater Horizon spill.”

The American Petroleum Institute and National Ocean Industries Association didn’t comment on the proposal this morning.

The liability issue is complex and harks back to the legislation passed in response to the Exxon Valdez oil spill.

The president’s seven-member BP spill panel did not specify how high the liability cap should be lifted, but it noted that the “relatively modest” cap “provide[s] little incentive for oil companies to improve safety practices.”

Although the panel has since disbanded, members issued a report last year finding there is still an “obvious need” for companies to face more responsibility for damage to coastal communities.

“The Gulf states and the country at large were fortunate that BP, the well’s owner, ignored the cap and had both the resources and the willingness to bear the full costs of responding to the spill,” the members said in the report. “The commission recommended that the liability cap be significantly increased, which requires congressional legislation. But Congress took no action to even consider such an amendment during the past year.”

Special thanks to Richard Charter

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