Paying For The Oil Spill: A Guide To Who’s On The Hook

May 4, 2010 10:15 a.m.

There are two broad categories of costs associated with the catastrophic BP Gulf oil spill: one is cleanup; the other is damage caused by the oil — to shoreline property, local tax revenues, the fishing and tourism industries, and other businesses and individuals.

Here’s a guide to who’s on the hook for which costs.What The Law Says

The primary law at issue here is the 1990 Oil Pollution Act, passed after the Exxon Valdez spill in Alaska.

Everyone, including BP, seems to agree that BP is on the hook to pay for all clean up costs associated with the spill. That includes the government response from the Coast Guard, Interior Department, and other federal and state agencies.

The Coast Guard, which is leading the joint local-state-federal unified command responding to the spill, is keeping track of costs and will eventually bill BP, an Obama Administration official tells TPMmuckraker. It’s not clear when that will happen. (We’ve asked the unified command for details and will let you know if we hear back.)

The question of who will pay for damages caused by the spill is more complicated. As reported by the New York Times, the Oil Pollution Act caps at $75 million the liability for BP for economic damages caused by the spill.

However, notes Office of Management and Budget spokesman Ken Baer, if courts find BP to have been “grossly negligent or to have engaged in willful misconduct or conduct in violation of federal regulations,” the $75 million cap disappears.

Beyond the $75 million, there is a Oil Spill Liability Trust Fund, funded by an 8 cents per barrel tax paid by oil companies. The Times reports “[u]p to $1 billion of the $1.6 billion reserve could be used to compensate for losses from the accident, as much as half of it for what is sometimes a major category of costs: damage to natural resources like fisheries and other wildlife habitats. ”

Attorney Carl Nelson, an expert on the Oil Pollution Act with Fowler White Boggs in Tampa, tells TPMmuckraker that though BP will have to pay for cleanup and damages “in the first instance,” the company will likely try to get some of the money back from the rig owner and any subcontractors involved in the accident.

“You can take it to the bank that BP will seek contribution from the other parties in proportion to their degree of fault,” says Nelson. Degree of fault is determined by litigation that could take many years, he says.

What BP Says

BP’s chief executive, Tony Hayward, has said that the company takes full responsibility for cleaning up the oil. But, in a possible bid to limit liability, he has consistently placed blame for the accident on the rig owner, Transocean.

[TPM SLIDESHOW: Fire In The Gulf: New Pictures Of The Deepwater Horizon]

In a claims document posted on its website, BP says it will pay for “all necessary and appropriate clean-up costs” as well as “legitimate and objectively verifiable claims for other loss and damage caused by the spill.” The document says such damage “may include claims for assessment, mitigation and clean up of spilled oil, real and property damage caused by the oil, personal injury caused by the spill, commercial losses including loss of earnings/profit and other losses as contemplated by applicable laws and regulations..”

According to the AP, the Obama Administration and several state AGs have asked BP to clarify its offer to pay damages. This was reported to be a planned topic of conversation in a Monday meeting between Homeland Security Secretary Janet Napolitano, Interior Secretary Ken Salazar, and BP executives.

It’s also worth noting that, early on, BP tried to get some coastal residents to waive their future right to sue for $5,000.

What The Administration Is Saying

President Obama has said repeatedly that BP will pay for the cleanup. In Louisiana on May 2, he went as far as saying flatly, without specifying cleanup costs: “Let me be clear: BP is responsible for this leak; BP will be paying the bill.”

In a press briefing Monday, Robert Gibbs said, “BP is the responsible party, right? So if local fishermen can’t fish, that’s an economic loss that BP is going to have to pay.” When pressed by a reporter about whether the Administration could force BP to pay lost wages, Gibbs said, “Absolutely. That’s part of the law. Absolutely. The economic damages that are incurred are part of the cost of this incident. Absolutely.”

That appears to be true only up to $75 million dollars (unless the cause of the accident falls into one of the exceptions mentioned above, in which case there is no cap).

In addition, Baer, the OMB official, said in a statement that “BP could be liable for damages under additional applicable federal and state laws. You can be sure that BP will be held accountable to the full extent of the law.”

What Congress Is Doing

Sens. Bob Menendez (D-NJ), Bill Nelson (D-FL), and Frank Lautenberg (D-NJ) proposed legislation Monday to raise the $75 million damages cap to $10 billion, and eliminate the $1 billion-per-incident cap on claims to the Oil Spill Liability Trust Fund.

Said Nelson: “BP says it’ll pay for this mess. Baloney. They’re not going to want to pay any more than what the law says they have to …”

The Administration says it backs the bill.

The Costs

Putting an estimate on the cleanup costs and the potential damages would seem impossible at this early point. But here are a few figures of interest. It’s not known at this point how much of the coast will be affected, but the Washington Post offers a sense of the size of the coastal economy:

The annual commercial seafood harvest in the gulf is $661 million, recreational fishing contributes $757 million and nearly 8,000 jobs, and tourism related to wildlife adds $517 million, according to the Harte Research Institute for Gulf of Mexico Studies.

The cost of cleanup for the 1989 Exxon Valdez spill in Alaska was $3.5 billion, the Los Angeles Times reports. But that figure does not include damages, and that spill affected unpopulated areas.

BP earned almost $40 billion in 2008 and 2009, according to the AP.

Another unknown is how much other companies associated with the spill will be forced to pay as a result of lawsuits. Multiple class action suits have already been filed — by shrimpers, restaurant owners, and boat dealerships, among others — naming BP, rig owner Transocean, blowout preventer manufacturer Cameron International, and rig subcontractor Halliburton.

(This post has been updated with comment from Nelson.)

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