Bill Would Put the Squeeze on Oil Firms for Spill Costs

(May 4) -- The Gulf of Mexico oil spill has highlighted a loophole in the nation's liability laws that critics say could let the drilling industry off the hook for some of the damage caused by such accidents. But that loophole may be closing fast, thanks to new legislation that picked up support from the White House today.

Energy companies must pay for cleanup, and BP has in fact pledged to cover that for the massive gulf spill, which began April 20 after an explosion at the Deepwater Horizon drilling platform the oil company was leasing. However, when it comes to the economic aftermath of such a disaster, current law says the polluter only has to pay the first $75 million for things like lost wages for idled fishermen and lost tourism revenues for coastal areas.

"The bottom line is that oil spills can leave massive holes in the economy," said Sen. Robert Menendez, D-N.J., who has introduced legislation to raise that cap from $75 million to $10 billion. "If you spill it, you should have to fill it. We're glad that the costs for the oil cleanup will be covered, but that's little consolation to the small businesses, fisheries and local governments that will be left to clean up the economic mess that somebody else caused."

BP has not commented on the legislation.

Oil companies pay into a trust fund to help cover economic costs above $75 million. That fund now has about $1.6 billion in it, according to Sara Banaszak, spokeswoman and economist at the American Petroleum Institute. Until 2008, companies could only tap into the fund for a maximum of $1 billion per incident, but that limit has been dropped, she said.

Economic damage costs could push well above $75 million, and even above the amount available from the trust fund, according to proponents of the legislation.

The Harte Research Institute for Gulf of Mexico Studies estimates that risk from the spill includes $30.3 million in commercial fishing, $114 million in recreational fishing and $77.6 million in gulf states tourism, along with major economic damage if fragile wetlands are destroyed.

"BP says it'll pay for this mess," said Sen. Bill Nelson, D-Fla., a co-sponsor of the Menendez bill. "Baloney. They're not going to want to pay any more than what the law says they have to, which is why we can't let them off the hook."

Kenneth Baer, spokesman for the federal Office of Management and Budget, said the White House supports the idea of raising the cap on how much energy companies must pay for economic damage. And, he noted, the $75 million cap is waived if BP is found to be grossly negligent, to have engaged in willful misconduct or to have violated federal regulations. BP also could be sued under other federal and state laws.

"We support efforts to raise the cap based on the information we currently have. Let's be clear: BP is responsible for -- and will be held accountable for -- the very significant cleanup and recovery costs," Baer said.

While stressing that the energy industry wants to be able to respond to any accident, Banaszak said the gulf spill is "completely unprecedented."

"There's so much uncertainty right now. We don't know where we're landing with the costs on this," she said. "Jumping to policies while we are still responding to the event may be premature."

Kristina Johnson, spokeswoman for the Sierra Club, noted that some lawsuits from the Exxon Valdez dragged out for nearly two decades. People who are hurt by spills, she said, need more help.

"There's no cap on the job losses from an oil spill. There's no cap on the wildlife damage. There's no cap on the damage to coastal communities," she said. "So there shouldn't be a cap on BP or the oil industry for a spill like this."

Even those who live far inland could feel the pinch in the form of higher seafood prices, since about 40 percent of seafood comes from the gulf, Johnson said. "BP's recklessness is going to affect average, hard-working Americans in more ways than one."