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Message in a Penalty: The EPA is Going to Crush BP With Fines

Ever since BP's damaged Macondo well began to spew crude into the Gulf of Mexico, there's been widespread speculation about just how big its oil spill bill would be. Well, we now know the EPA doesn't intend on playing nice.

This week, the EPA issued a record-breaking $25 million fine to BP. It's not for the Gulf disaster, which sent 4.9 million barrels of oil in the water. It's for a relatively tiny 5,078-barrel spill that occurred in 2006 when BP's transit pipe burst in Prudhoe Bay, Alaska.

EPA didn't end with the fine. It also ordered BP to develop a system-wide program for its 1,600 miles of pipeline on Alaska's North Slope, which is expected to cost $60 million over the next three years. That's in addition to the $200 million BP has already spent replacing leaky lines and a $20 million criminal penalty for the spill that was issued several years ago. In total, this burst pipeline issue is going to cost BP $305 million.

So, if a 5,078-barrel spill gets you a $25 million fine. What would a 4.9 million barrel oil gusher cost you? No, don't answer that. But it's a lot.

This latest fine is the largest per-barrel penalty to date for an oil spill. It comes out to about $4,923 per barrel. That's more than $600 above the standard $4,300 per barrel fine issued if a company is found grossly negligent under the U.S. Clean Water Act. Gross negligence is the key term here. It can push million dollar fines into the billions.

  • If the EPA were to follow the exact same formula, BP is looking at a $24.1 billion fine.
  • If the EPA only counts the 4.1 million barrels of oil that weren't captured by skimmers or dispersed, the bill would be $20.2 billion.
Here's the foreshadowing money quote from the Cynthia Giles, assistant administrator for EPA's Office of Enforcement and Compliance Assurance.
The Clean Water Act gives the U.S. authority to assess higher penalties when oil spills are the result of gross negligence, and this case sends a message that we intend to use that authority and to insist that BP Alaska and other companies act responsibly to prevent pipeline oil spills.
In other words, the EPA saw this as an opportunity to make an example out of BP. Expect, the EPA to take the same approach when it determines fines for the Gulf disaster. For one, the EPA wants to send a "we're serious" message to the entire oil industry. And secondly, the EPA is just sick and tired of dealing with BP. This isn't the first "record-breaking fine" BP has paid.

Last October, BP agreed to pay a record $15 million civil fine for violating the Clean Air Act related to chemical pollutants leaked at its Texas City refinery in 2004 and 2005. The settlement was both the largest ever assessed for civil violations of the Clean Air Act's chemical accident prevention regulations and the largest civil penalty recovered for violations at an individual facility, according to the EPA.

And those fines aren't even related to the 15 deaths and 170 injuries from the March 2005 explosion at the refinery; or a 40-day leak this year that released 538,000 pounds of toxic chemicals into the air.

In short, the EPA knows BP. It's not amused.

Photo from BP
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