Unless a key provision is changed, the well-intentioned 1990 Oil Pollution Act -- signed into law a year after the horrific Exxon Valdez spill -- might as well be known as the Big Oil Protection Act.
The shores of Alaska's Prince William Sound were still saturated in crude oil when the nation's lawmakers passed this landmark legislation, hoping to prevent or mitigate future spill devastation. Among other things, the act strengthened disaster planning by oil companies and the government and created a trust fund for future cleanups. Yet within it are unique and disturbing legal protections for the oil industry. By capping firms' liability for economic damages at $75 million -- if there were no violations before the spill -- the act shields this highly profitable industry from paying for the economic damages a spill inflicts.
That's unacceptable, and it needs to change. Fortunately, Minnesota lawmakers -- Sens. Amy Klobuchar and Al Franken, as well as Rep. Jim Oberstar -- have joined New Jersey Democratic Sen. Robert Menendez in calling for reforms to ensure that oil companies pay for coastal communities' economic damages. Measures under consideration would remove the cap altogether or update it to $10 billion.
Very few other industries enjoy the same kind of liability protection as the oil industry, though many would like it (malpractice caps were a fiery issue in the health reform debate). Why the caps were put in place and how the amount was set remains unclear. At the time, $75 million may have seemed like a reasonable sum. Today, it would cover just a small fraction of the losses from the devastating Deepwater Horizon spill in the Gulf of Mexico. Damages are now estimated in the billions and will likely exceed the amount in the 1990 law's oil spill trust fund.
If BP sticks to its agreement to put $20 billion in an escrow account and pays out claims responsibly, America's badly out-of-date 1990 liability limit shouldn't become an issue in this spill. But the nation's thirst for oil won't slake soon. A judge also recently overturned the president's moratorium on deepwater drilling. The liability limit needs updating, not only to compensate future spill victims fairly but also to prevent spills from happening in the first place.
The Libertarian Party argues compellingly that the liability cap is a classic case of big-government meddling -- and its consequences. Although oil companies certainly don't want an oil spill to happen, artificially low liability caps (BP posted $6.1 billion in profits during the first quarter of 2010) make it easier to cut corners. Being fully liable for damages isn't the only incentive to take the utmost care -- but it's a powerful one.
Congress is expected to take up the liability cap issue again this week. Lawmakers should end oil companies' special treatment and remove the cap altogether, as Menendez's bill now calls for. The oil industry and many Republicans so far have objected to this sensible approach that lets the courts, not big government, determine appropriate compensation for spill victims. They claim that this would harm small companies drilling in the Gulf and make deep-water drilling uninsurable.
The reality is there aren't many small companies capable of doing this work. A Rice University oil policy expert called this a "specious argument" on Thursday. And in May, a Congressional Research Service expert testified before a Senate committee that insurers would adjust and find new ways to provide coverage.
