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Addressing BP’s Willingness to Pay for the Oil Spill

Posted By Nicolas Loris On May 27, 2010 @ 10:00 am In Energy | Comments Disabled

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It will be a long time before we know how much the oil spill is going to cost in terms of total economic damages, but it is certain to be higher than the $75 million liability cap set by the 1990 Oil Pollution Act and could even be higher than the additional $1 billion provided through the Oil Spill Liability Trust Fund. BP has said it will pay all legitimate claims beyond the $75 million limit yet politicians are understandably skeptical, and so want their promise put in writing..

Some Members of Congress have proposed to raise the liability cap arbitrarily to $10 billion or remove it altogether, which raised concerns that smaller, independent oil companies would be unable to get insurance. Whether to raise the cap and by how much, and all the related particulars, is a matter needing careful thought. The issue at the moment is BP and the Deepwater Horizon oil spill specifically.

To deal with the immediate issue, Senators David Vitter (R-LA) and Lisa Murkowski (R-AK) introduced legislation that would codify BP’s commitment to pay all legitimate costs. By essentially creating a contract with BP, the Vitter-Murkowski bill gets around complicated legal issues of retroactivity and breaching existing lease contracts. It would also expedite the claims process and protect against fraudulent.

BP is said that it would pay all legitimate claims and the Vitter-Murkowski amendment would codify that commitment. Nonetheless, some members of Congress are suggesting that an additional tax is needed to pay for the spill costs. Just last week Members of Congress suggested a one-cent increase per-barrel of oil produced – from eight cents to nine –to increase the amount of funds available in the Oil Spill Liability Trust Fund and ostensibly make more money available for clean up. Now they’re talking about quadrupling it. The AP says [2]:

“Responding to the massive BP oil spill, Congress is getting ready to quadruple — to 32 cents a barrel — a tax on oil used to help finance cleanups. The increase would raise nearly $11 billion over the next decade. The tax is levied on oil produced in the U.S. or imported from foreign countries. The revenue goes to a fund managed by the Coast Guard to help pay to clean up spills in waterways, such as the Gulf of Mexico.”

Why is Congress set on increasing the oil tax to help finance the cleanup? BP, the responsible party, is already on the hook for all the direct cleanup costs, and with its new commitment as codified by Vitter-Murkowsky BP is on the hook for all legitimate indirect costs. While addressing the future of the oil spill trust fund and liability caps will be a critical policy debate going forward, these matters should not be settled in a rush. Instead, policymakers should focus on stopping the spill, cleaning it up, and ensuring that the responsible parties pay. The Murkowski-Vitter proposal does exactly that.


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URL to article: http://blog.heritage.org/2010/05/27/addressing-bp%e2%80%99s-willingness-to-pay-for-the-oil-spill/

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[1] Image: http://www.foundry.org/wp-content/uploads/bp.jpg

[2] says: http://www.boston.com/business/articles/2010/05/25/oil_spill_cleanup_tax_may_quadruple/

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