The law caps BP's monetary responsibility to these claims at $75
million. After that, the Oil Spill Liability Trust Fund covers the next
$1 billion in damages. After that, it's the taxpayers' mess. Capping
liability means capping responsibility, and where the oil
company's responsibility ends, the taxpayers' responsibility begins.
Roughly speaking, there are two kinds of liabilities: natural resource liabilities (eg damage to fish population) and private enterprise (eg damage to fisherman profits). The trick is how do you determine where the line of responsibility breaks. We can agree that the fisherman forced to park his
bum on dry land for the summer is directly harmed by the spill. What about the restaurants that cannot serve his shrimp? What
about their busboys moved to part-time, or their napkin sellers who've seen fewer orders? It's hard to point to the place where
the ripples end.
The liability cap should go. In fact, it's barely there to begin with.
We cap liability because we want companies to take risks without
experiencing the true costs of those risks. This is a recipe for moral hazard. After all, why should a company invest in a $1 million safety
innovation that's more expensive than its worst-case scenario liability? Companies like BP that are rich enough to invest in dangerous deep-sea drilling are also rich enough to withstand the greater
liability costs (BP's 2009 revenue was $240 billion). If you're a smaller company that can't stand the heat, get out of the mile-underwater reservoir.
It's true that ditching the liability cap might have consequences that aren't all pretty. If we make companies
responsible for 100 percent of damages, they might pay more on both safety
measures and insurance (OPA's insurance cap is $150 million). That could discourage smaller start-ups and raise the cost of exploration and
drilling, which might eventually come back to consumers in the form of
higher prices. It could also scare firms away from drilling in risky
areas, which is a problem if that's where the oil is. You might
persuade companies to leave the Gulf, which hurts those states'
But the fact is that the liability cap already has so many holes that it's practically irrelevant, anyway. First drilling operations are subject to numerous complex federal regulations, and any violation, no matter how small, nixes the cap. Second, states without liability caps, like Florida, Mississippi, and Alabama can already sue past the $75 million mark. Third, penalties paid under criminal law (for example, the Migratory Bird Act Treaty) are not covered by the cap.
Oil companies know the law. They know the liability ceiling is leaky and that major oil spills will run them far past the $75 million mark. Time to kill the cap.
more Flashcard posts:
Oil Spill Liability Cap