By: Kristin Van Veen-Hincke/Vikki Cooper & Associates
July/August 2010

Just days after the BP accident began dumping crude oil into the waters of the Gulf of Mexico, Washington lawmakers have addressed the problem by introducing a deluge of bills proposing everything from honoring those lost in the incident to temporarily suspending oil drilling on the Outer Continental Shelf.

Several bills have prompted swift response from the industry. Senate Bill 3309 introduced by Lisa Murkowski (R-AK), ranking minority member of the Senate Energy and Natural Resources Committee, and co-sponsored by fellow Alaska Senator Democrat Mark Begich, proposes the expansion of the Oil Spill Liability Trust Fund (OSLTF) to $10 billion by raising the per barrel fee paid by producers from 8 cents to 9 cents. The bill also removes the “sunset” provisions in the law so the fund will always be accessible to those impacted by oil spills. Nothing in the bill would limit the liability of oil companies or other responsible parties.

Several bills have prompted swift response from the industry.

“The liability fund provides a critical, industry-funded source of compensation that’s immediately available to address spill-related impacts,” said Sen. Murkowski in a press release. “It’s now clear that we need to increase the overall size of the fund to ensure that it’s available in the unlikely event that there’s more than one accident at a time.”

The White House called for an immediate one-cent increase that had been slated to go into effect in 2017; however, Democrats in both the House and Senate have called for even bigger hikes ranging from 25 to 32 cents a barrel in an effort to reduce the need for other offsets. Republicans warned that raising taxes on the entire industry may not be the answer especially in light of the fact that BP is taking responsibility for this incident.

“There’s no question we need more resources for oil spill research and prevention,” Sen. Begich said in a statement. “This bill is a solid first step toward that goal. I’ll be working with Sen. Murkowski and other members of Congress to beef up efforts to deal with oil spills.”

The OSLTF currently contains about $1.6 billion and is set to expire in 2017. The Fund was established by Congress in 1986, but not activated until after the 1989 Exxon Valdez oil spill. In 2005, Sen. Murkowski sponsored an amendment raising the fee from 5- cents to 8-cents a barrel. Currently, there is a $1 billion limit for each incident; however, the White House has asked that the limit be raised to $1.5 billion. As of the beginning of June, the Coast Guard had already spent $100 million from the trust fund.

The day before Sen. Murkowski introduced her bill, Rep. Rush Holt (D-NJ) introduced a companion bill to Senate Bill 3305 proposed by Sen. Robert Menendez (D-NJ) on May 3 that would raise the offshore oil spill liability limit from $75 million to $10 billion. This fund would cover economic damages such as lost business revenues from fishing and tourism, natural resources damages, or lost local tax revenues and is in addition to any costs associated with cleanup of the actual spill.

Holt and Menendez’s plan would not only raise the liability limit but would also:
• Eliminate the $1 billion per incident cap on claims against the OSLTF and allow community responders to access the fund for preparation and mitigation up front, rather than waiting for reimbursement later.
• Would allow damages claims to exceed the amount in the OSLTF, thus permitting claimants to collect from future revenues of the fund with interest.
• Eliminate the $500 million cap on natural resources damages.

In 1990, in response to the Exxon Valdez spill, Congress and the President enacted the Oil Pollution Act (OPA). The liability cap was set at $75 million. Any amount above that requires claims made against the OSLTF.

Independent oil producers and lawmakers supportive of the oil and gas industry have cautioned that raising the liability limit to $10 billion will push out the smaller independents from drilling in the Gulf because insurance would be nearly impossible to obtain. They argue that this would leave only the multinational oil producers like BP and foreign, state-owned oil entities such as Saudi Aramco in the Gulf. It has been suggested that liability caps be tailored to each drilling project in order to eliminate this problem.

On a recent edition of Meet the Press, Senate Minority Leader Mitch McConnell when asked about increasing the cap for damages said, “Well, the danger in that, of course, is that if you raise the cap too high, there will be no competition in the Gulf and you’ll leave all the business to the big guys like BP. What BP has said they need to be held to, which is they’re going to pay for this. They ought to pay for it, and they will pay for it. But the danger of taking the cap too high is that you end up with only massive, very large oil producers able to meet that cap and produce in the Gulf. And look, we can’t walk away — and the President’s not suggesting this either — from offshore drilling. As horrible as this is, it’s important to remember that we get 30 percent of our oil from the Gulf and, if you shut that down, you’d have $14 gasoline.”

During a recent hearing of the Senate Committee on Environment and Public Works, Oklahoma Senator Republican James Inhofe had this to say, “Based on what I’ve seen thus far, we have agreement on what needs to get done and I hope we can agree on the path forward. Unfortunately, I’m afraid that this spill has occasioned some fatally misguided legislation, which will make us more dependent on foreign oil.”