Last week’s announcement by Interior Secretary Ryan Zinke of a plan to open nearly the entire U.S. outer continental shelf to oil and gas drilling — including a dozen lease sales in the Gulf of Mexico — was notable in the degree to which it immediately engendered bipartisan pushback.
Florida Gov. Rick Scott, along with Republican governors from states like Maryland and South Carolina, joined with their Democratic counterparts in states like California, New Jersey, Virginia and Oregon to express deep concerns about the plan. So too did both of Florida’s senators — Democrat Bill Nelson and Republican Marco Rubio.
Whether the benefits of increased offshore drilling exceed the potential costs is a complex question. But there is an immediate step Congress could take, with Nelson and Rubio leading the charge, to better protect both taxpayers and the environment from the negative consequences that could follow. Simply put, any plan to lift the moratorium on offshore drilling should be accompanied by raising or eliminating the federal liability cap on damages from oil spills.
The current cap was created in the immediate wake of the Exxon Valdez disaster. Congress passed the U.S. Oil Pollution Act of 1990, which limited to $75 million companies’ responsibility for economic damages resulting from oil spills. Claims that exceed that threshold are paid out of the $1 billion Oil Spill Liability Trust Fund, financed by a tax of 8 cents per barrel on imported and domestic oil.
The cap doesn’t apply where a driller has shown gross negligence. Companies also remain liable for cleanup costs and for civil penalties should they be shown to have violated environmental laws. Nonetheless, when the damages to industries like fishing and tourism exceed the cap and exhaust the trust fund’s coffers, victims are either left out in the cold or must rely on the taxpayers to help make them whole.
Under the Obama administration, the U.S. Interior Department’s Bureau of Ocean Energy Management, or BOEM, did move in December 2014 to raise the cap from $75 million to $134 million — the maximum allowable without further action from Congress. This administrative move helped to account for the 78 percent inflation in the years since the law originally went into effect.
But 2010’s Deepwater Horizon blowout showed all too well that $134 million doesn’t begin to cover the knock-on effects from these sorts of mega spills. A 2010 report prepared by Oxford Economics for the U.S. Travel Association projected the three-year costs to the gulf region’s tourism industry alone would total near $23 billion.
Nelson made his feelings on the cap known the last time this issue was on the congressional radar. Responding to the BP spill, he co-sponsored legislation, dubbed the Big Oil Bailout Prevention Act of 2010, that would raise the cap to $10 billion. A version that went even further, eliminating the cap altogether, managed to pass the Senate Environment and Public Works Committee in August 2010.
But pushback from the Republican minority, along with oil-state Democrats like Sens. Mary Landrieu, D-La., and Mark Begich, D-Alaska, meant the measure couldn’t overcome a procedural filibuster on the Senate floor. Just a few months later, Republicans retook the House with the tea party wave election of 2010 and the proposal was brushed to the sidelines.
With the renewed White House push for expanded offshore drilling, it’s time to revive that effort, and Sens. Nelson and Rubio should lead the way. Moreover, other Republicans should join Rubio, not to establish their environmental bona fides or position themselves as bipartisan centrists, but because standing firm against oil industry bailouts is exactly what principled conservatism demands.
In fact, an August 2010 report from none other than the Heritage Foundation argued that simply lifting the liability cap wouldn’t go far enough. It proposed instead a complete revamp of the trust fund system so that companies would be required to buy insurance to cover their first $1 billion of liability per accident and pay into a voluntary pool for amounts that exceed that total. "Above all," the Heritage authors wrote, "taxpayers must be protected from footing the liability costs for industry-caused disasters."
The current liability cap is terrible policy. It privatizes the gains from fossil fuel exploration but socializes nearly all of the potential costs. The moral hazard it creates means that drillers have little incentive to invest in safer and more responsible techniques and equipment.
Eliminating or substantially raising the cap would ensure that recipients of any new drilling leases are held responsible for their practices and that the American people aren’t left to clean up the mess.
R.J. Lehmann is a senior fellow for the R Street Institute in Washington, D.C. He lives in St. Petersburg.