Oil-Spill Liability Still Divides Lawmakers

On the one-year anniversary of the Gulf of Mexico oil spill, lawmakers are still debating whether to change a law that caps liabilities for oil and gas companies that cause spills at $75 million.

The inability of Congress to resolve this issue reveals a weakness in U.S. spill policies and exposes taxpayers to situations where they could be on the hook for spill-related expenses.

But Capitol Hill lawmakers are divided on the issue. Some Democrats, like Sen. Robert Menendez of New Jersey want to remove the cap altogether. Gulf Coast lawmakers, such as Sen. Mary Landrieu (D., La.), are looking for more modest changes and say unlimited liability will squeeze small and midsize oil producers out of business.

Efforts to change the liability caps, established under the Oil Pollution Act of 1990, became a top priority for Congress last year after the Deepwater Horizon rig exploded and released millions of barrel of oil into the Gulf of Mexico. But lawmakers have since turned their attention to other issues and their ability to change the liability cap this year is uncertain.

"It essentially means that we have refused to learn the lessons of the nation's worst ecological disaster and we're leaving victims of oil disasters unprotected in future spills," said Regan Nelson, a senior oceans advocate with the Natural Resources Defense Council.

Current law requires oil and gas companies to pay for oil-spill cleanups, but it places a $75 million cap on liability for economic damages. These are the damages related to compensating oil-spill victims, such as restaurant or hotel owners whose businesses suffer as a result of a spill.

In the wake of the oil spill, BP PLC said it would voluntarily pay for economic damages beyond $75 million and set up a $20 billion fund for that purpose. The organization that oversees the fund, the Gulf Coast Claims Facility, has so far approved about $4 billion in claims.

Because BP has deep pockets, the U.S. dodged a bullet on the issue of liability caps. If future oil spills are caused by smaller companies, taxpayers could be left holding the bag for economic damages.

Once the $75 million cap is reached, the federal government can pay economic damages out of the Oil Spill Liability Trust Fund, financed with an 8-cent-per-barrel fee paid by the petroleum industry. But the fund can only pay out $1 billion per incident, which means the taxpayer could be on the hook for further damages.

Lawmakers introduced legislation last year to overhaul the liability caps, but debate over the level of the cap stymied progress.

The divisions still exist today. In the House, Rep. Ed Markey (D., Mass.) and nearly a dozen other Democrats introduced a bill in February to remove the caps. Mr. Menendez, meanwhile, introduced a bill in the Senate in January that likewise proposes to eliminate the cap.

"The best way to prevent future spills is to make sure oil companies bear the full cost for their mistakes," Mr. Menendez said in a statement Wednesday, on the one-year anniversary of the explosion.

Ms. Landrieu and Sen. Mark Begich (D., Alaska), meanwhile, are seeking more modest changes. They are concerned that small to midsize oil companies will not be able to get insurance if they face unlimited liabilities.

Ms. Landrieu and Mr. Begich are working on a bill that is expected to look similar to a proposal floated by Ms. Landrieu last year. That proposal increased the cap from $75 million to $250 million. And if economic damages exceed that level, the proposal set up a $10 billion fund that energy companies paid into based on their production activity.

Ms. Landrieu plans to introduce her bill "as soon as she can" and would like to see her proposal attached to energy legislation that could surface this summer, a Landrieu aide said.

But the Louisiana senator is struggling to overcome conflicting priorities among voters and other lawmakers a year after the spill took place.

"We're cognizant of dropping legislation without the broadest possible support," an aide for Ms. Landrieu said. "But the attitude toward this is colored by the attention on this by the nation."