Oil Pollution Promotion Act of 1990

BP is settling with the Gulf States of Florida, Georgia, Alabama, Mississippi, Louisiana and Texas for $18.7 billion on top of another $30 billion already committed to cover the DeepWater Horizon Oil Spill.  The Administration and these states ought to appreciate the deep pockets of BP in this incident.  The U.S. Oil Pollution Act of 1990 puts a liability cap of only $75 million on overwater platform oil rigs.  Because BP has extensive assets throughout the U.S. it was easy enough to make them cover the clean up costs but what if it had been an obscure limited liability corporation allowed by Congress?  Imagine Governors Rick Perry of Texas and Bobby Jindal of Louisiana among others looking for federal help to cover the 50 billion dollar clean up cost of their oil and gas cronies.

Deepwater Horizon was regulated by the United States Department of Interior’s Minerals Management Service.  It was pretty much an after thought by those on the rig making decisions.  Clearly the agency was out of its league in managing the rig and the devastation it reeked. Without BP’s assets the Administration would have been powerless to command resources other than the taxpayer’s to clean up the mess.  Its a situation strikingly similar to the 2008 bank crisis where risks and performance bonuses were taken on imprudent short cuts but the taxpayer was made to cover the fraudulent excesses. Incredibly in 2010, the year of the oil spill disaster, the Administration proposed an increase to $134 million on the liability cap.  Incredible because of the insignificance of the figure in comparison to the costs of the disaster just experienced.  Never the less the increase wasn’t approved nor is the Minerals and Resources agency a greater deterrent today on sloppy oil rig operating procedures.

The liability cap allowed by the Oil Pollution Act is an open invitation to imprudent risk taking.   A regulation that puts a government agency in charge of reviewing operational procedures puts the liability onus on government and so therefore the taxpayers as well.  A more effective regulation would be one that requires a performance bond to guarantee prudently run operations.  It is a laughably cynical  testament to the oil and gas lobby’s powers in Congress that the limited liability provision converts the law into the “the oil pollution promotion act.”  In Banking there is the very good example of the Federal Deposit Insurance Company, FDIC, where banks contribute to an insurance fund to guarantee deposits.  When a bank fails the insurance protects the public at the other banks’ expense, not the taxpayers, and with it comes an extrajudicial power to transfer ownership and shear off shareholder equity to fix the problem quickly rather than taking years in court to adjudicate.  

The oil and gas version of the FDIC would have industry experts reviewing procedures in all matters regarding prudent oil and gas drilling, transport and maintenance. The fund would pay out from revenue raised by the oil industry. High spill payouts would require high premium payments. This fact gives the industry an incentive to eliminate the sloppy operators and bring down the insurance cost.  Also it’s charter would have extrajudicial powers to quickly transfer operations and take sufficient shareholder equity from the bad operator to make the fix work with a minimum charge to premium income.  Naturally the upfront acknowledgement of these powers would eliminate players tempted by a fly by night endgame. The major oil companies would be participants as well with their domestic activities and yet given a really large disaster such as Exxon’s Valdez or BP Deepwater Horizon would break out into the regular tort judicial system as well. The People of Santa Barbara, California right now are justifiably concerned that the Plains All American Pipeline, whose recent pipeline oil spill from coastal rigs was caused by poor maintenance, will just hide behind press conferences assuring the public that everything possible had been done to secure the pipeline while legally hiding behind liability caps placed by well paid lobbyists and their crony politicians.  

For a fair and just society laws are to be kept to a minimum.  Clearly some are necessary for the good functioning of society but too many are for rent seeking crony capitalist. The Oil Pollution Act of 1990 is such a crony’s law.  It would have been best not to have written it in the first place.  Its time to either eliminate the law or rewrite it to favor and reward prudent operators and drive out the bad actors in the oil and gas business. Leaving it as is promotes liars and cheats to conjure risky ventures with a high probability of failure and a passing to the taxpayer the bill to clean up their mess.