Gulf Oil Spill: Why Liability Should Be Tied to Risk
The oil spill commission's final report, which is chock full of detailed recommendations on avoiding another disaster, punts on the sticky question of what the current $75 million liability cap should be raised to, deferring instead to Congress. However, former Sen. Bob Graham, D-Fla., who co-chaired the commission floated one promising idea during Tuesday's press conference that would base the liability cap on the riskiness of the offshore drilling project. Meaning, the riskier the project, the higher the liability cap.
The idea isn't perfect and raises a number of questions. For example, who would determine what is risky and what is not? And there would have to be some minimum caps in place. Still, it's compelling because greater economic protections are put in place without shutting out small, independent offshore drilling companies.
Them what drills deep, pays
The industry and pro-drilling advocates have argued that unlimited liability or even a significantly higher cap would inadvertently put smaller oil companies out of business. Supposedly they wouldn't be able to afford adequate insurance, which is a reasonable concern.
Graham's idea is worth considering because it would keep smaller companies out of the ultra-deep waters of the Gulf, an area considered far riskier than the shallow waters where most of them are drilling anyway. The ultra-deep water would be reserved for those major oil companies with the resources and financial heft to contain a blowout and pay for a spill.
Other recommendations
As expected and as it already did earlier this month, the presidential panel investigating the Gulf oil spill cast blame on BP, Transocean (RIG) and contractors like Halliburton (HAL); pointed to systematic failures in the offshore oil and gas industry and offered up a slew of recommendations that generally call for greater oversight, stricter regulations and increased funding for the federal agencies that are in any way connected to offshore drilling. Here are some of the highlights:
- Increase funding for the Interior Department, the Coast Guard and the National Oceanic and Atmospheric Administration
- Interior should toughen its prescriptive safety regulations for offshore drilling and supplement those regulations with a risk-based performance approach. This would be similar to the "safety case" method used by the oil and gas industry in the North Sea
- Establish a self-policing safety institute for oil and gas similar to those in other high-risk industries like nuclear
- 80 percent of the Clean Water Act fines levied against companies should be used to restore the Gulf of Mexico.
- Congress should extend by 30 days the amount of time the Interior Department has to review offshore drilling exploration applications. This is a compromise to a failed attempt to include a 90-day review period condition in a narrow government spending bill passed by the Senate last month, the Hill notes.
- Create a distinct environmental science office within the Interior
- Congress should amend the Outer Continental Shelf Lands Act to give the NOAA a bigger role in environmental protection of leasing areas.
- Federal research effort on the Arctic
- Countries of the Arctic should develop international standards related to Arctic oil and gas activities.
Related: