The BP Oil Spill: Where Do We Go From Here?

 A lot of people are asking, how did this happen. I want to pose the question, what will we do now?

This oil spill occurred in international waters. So,who’s responsible for the cleanup, the upstream and downstream damage, and for setting new standards and regulations?

Richard Crespin, 

Executive director of the CROA

I spoke with a senior communications executive for the petroleum industry. Here’s what he told me about who’s responsible for cleanup and damages: “Under the Oil Pollution Act of 1990 (OPA 90), the responsible party (the lease owners, i.e., BP and its partners), not the rig operator (Transocean) are responsible for all cleanup costs. On top of the cleanup costs, the responsible party must also pay up to $75 million in other damage claims (i.e., non-cleanup costs like local community impact, lost wages to fishermen, etc.).

That $75 million liability limit does not apply in instances of gross negligence, willful misconduct, or violation of applicable federal regulations. Injured parties can also pursue damages in state court, which are not limited by the federal cap.

OPA 90 also established an Oil Spill Liability Trust Fund, where everyone operating offshore pays a special tax that creates an extra cleanup/damages fund. This is an extra insurance policy that allows for up to $1 billion per incident to be taken from the industry’s Trust Fund to pay damage claims.”

All of that information helps shed some light on who will foot the bill. But what should we as a society do now? Congress is already acting, but unfortunately not all the facts are known. Last week Politico characterized the US House of Representatives as “the do-nothing (but politics) House,” a “chamber [that] has become… little more than an election-year staging ground.” More than a dozen bills have already been introduced as a result of the spill, before we have all the facts. In the words of my senior petroleum industry source, “Cooler heads must prevail. It’s time to work together and understand the facts, and learn from them first.” This has become a case of Corporate Responsibility colliding with Congressional Responsibility.

Probably the most significant bill, introduced by Senator Robert Menendez (D-NJ) would spike the “maximum liability for oil companies after an oil spill from $75 million to $10 billion. he legislation has significant support from Democrats, and the White House has indicated it backs an increase in liability caps.”

While this may sound great on paper, it could bring about a raft of unintended consequences. Senator Menendez likes to characterize this as “straightforward” and “common sense… Either you want to fully protect the small businesses, individuals, and communities devastated by a man-made disaster… or you want to protect multi-billion dollar oil companies from being held fully accountable.” The sad thing is that passing this bill would protect the largest oil companies and wipe out the smaller ones. According to my oil industry source, “only about two companies” could afford to pay the insurance premiums.

Heard of too big to fail? This is how we get there. In the name of “holding companies accountable,” we end up imposing compliance costs that force industry consolidation.

Why does it seem like Halliburton is involved in almost every corporate liability nightmare these days? In part because Halliburton acquired its way into tentacles that stretch into every major heavy industry on the planet. It bought up the smaller companies that couldn’t keep up with all the costs imposed on them.

I’m not saying we don’t need higher standards and more effective oversight. We need the facts first and then we need to make the tough decisions. I recall something US pay czar Ken Feinberg said at the CRO Summit in Boston: the regulatory power and authority to avert the collapse existed before the collapse occurred. What was missing was the will to wield that authority. Before we run off and pass more laws and regulations, let’s get the facts. Let’s also work on summoning the collective will to be more effective at oversight and prevention.

See Richard's blog on forbes.com