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How high the liability cap?

By Kate Sheppard

There's growing frustration about the administration's response to the oil spill in the Gulf of Mexico, with complaints that officials have been sluggish in demanding BP be more transparent and hesitant to criticize the company's inability to plug the well. The administration clearly faces a number of tough choices here with few right answers, but there's one area where it could be weighing in on specifics but haven't: the liability cap on oil spills.

An effort is underway in the Senate to raise the liability cap to $10 billion. This would be significantly higher than the current cap of $75 million, set under the Oil Pollution Act of 1990, though it still might still be well below the estimated $14 billion in costs anticipated in the gulf spill. Senate Democrats have tried twice to bring up the measure under unanimous consent but were twice blocked -- first by Lisa Murkowski (R-Alaska) and then by James Inhofe (R-Okla.).

Both Republicans offered the same argument: Too high of a cap would keep smaller, "independent" oil companies from entering the marketplace. The idea that a company should be able to drill and potentially cause problems that it can't afford to fix should register as patently ridiculous. But then Obama's own interior secretary, Ken Salazar, essentially agreed with them. "You don’t want only the BPs of the world to be involved in these operations," said Salazar in a Senate hearing last week.

Robert Menendez (D-N.J.), a co-sponsor of the bill to raise the limit, was clearly taken aback by the suggestion: "That simply means if you're smaller you can get away with taking the same risk and having less liability." The same day, Majority Leader Harry Reid suggested that perhaps there should be no upper limit on the amount oil companies are forced to pay out.

Shortly thereafter, Obama tried to defuse the conflict, issuing a statement calling on Republicans to stop blocking the bill. But he did not offer a figure for how high he thought it should be. Even yesterday, press secretary Robert Gibbs didn't offer a figure, only noting that it should be raised "to a place that would ensure that the economic damages" are covered.

The administration has been very clear that it expects BP to cover all costs related to the spill. "BP will pay for every bit of this," Gibbs reaffirmed Sunday. But raising the liability cap would serve to both reinforce that and deter future risky drilling. Some concrete direction from the White House on the oil spill liability would be a good place to start asserting some direct political pressure.

Kate Sheppard covers energy and environmental politics in Mother Jones's Washington bureau. For more of her stories, see here, and you can follow her on Twitter here.

By Washington Post editor  |  May 25, 2010; 9:09 AM ET
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That's defuse, not diffuse. Ezra is not immune, but this points up the need for a proofreader for this blog.

Posted by: ctnickel | May 25, 2010 9:23 AM | Report abuse

Hmm, lets see. Exxon earned $6.3 billion in just 3 months! I think they can afford a 10 Bn cap. Chevron, $4.55 Bn quarterly profit.

I actually happen to own some stock (legacy of my dad) in a smallish drilling company, but I agree that the cap should be at least $10 Bn so that companies have some skin in the game if the screw up and destroy an ecosystem.

If that means my holdings in this small company are damaged, so be it. I'd rather loose money than loose the entire Louisiana marsh system.

Posted by: RalfW | May 25, 2010 9:32 AM | Report abuse

No cap. If smaller companies can't afford to be out there they either shouldn't be out there or they should be allowed to band together to buy insurance to cover the cost of potential damages.

I can't believe that with the extent of this spill still undetermined that they're considering a cap at all. Do they not realize that they won't take this up again until there's another spill 10,20,30 years from now and the costs will be well above whatever they're going to set the cap at now. $75 million. What a joke.

Posted by: visionbrkr | May 25, 2010 9:34 AM | Report abuse

BP has already put their check book away. Some of the media claims thousands of workers are busy with clean up. The true figure: a few hundred. If you want the oil cleaned up you'll have to use your own money. However BP will still sell you fuel.

Posted by: oo_swan | May 25, 2010 9:46 AM | Report abuse

As usual, the RepubliKKKan idiots have blocked a reasonable, rational piece of legislation.

Insurance is available for all drillers -- based on an assesment of their skill, record and many other factors, and insurance for higher risk drilling is available through standard insurance practice.

Further, a $fee per barrel could provide a fund that would cover all companies.

And, there are many other solutions, but politicians would rather suck down oil money and not do anything.

This fall, vote against every incumbent you can and encourage others to do so.

Posted by: bgreen2224 | May 25, 2010 9:49 AM | Report abuse

ctnickel - This isn't one of Ezra's posts. That leaves aside the question of whether the occasional typo shouldn't be considered part of the beast with blogging. It's hard to combine immediacy with copyediting unless you have someone on call 24/7 to do it.

On the topic of the post, I have yet to see a convincing argument for the existence of these kinds of liabilities caps, an issue that was widely discussed in connection with nuclear power in the '70's. What is the public benefit in allowing these companies to dump the financial costs of their worst mistakes on the private sector? If the worst case risk makes the project untenable, so be it. Of course, the "socialize the risk, privatize the profit" advantage for the drillers is pretty obvious, so we know why Mary Landrieu favors them.

Posted by: zimbar | May 25, 2010 9:54 AM | Report abuse

"private sector" in the second paragraph should be "public sector." Maybe we should look into copyeditors for the commenters ...

Posted by: zimbar | May 25, 2010 9:56 AM | Report abuse

i think thad allen is doing a better job in his position, than salazar is in his. thad allen seems like the only voice of trust. maybe under the unforseen circumstances of this oil spill, there are other people who could do a better job than salazar now.
when an interior secretary is helping the argument for a lower cap for liability, in the midst of this crisis, it doesnt give much sense of trust or comfort.

Posted by: jkaren | May 25, 2010 10:02 AM | Report abuse

sounds like a job for naked wellhead default swaps!

Posted by: bdballard | May 25, 2010 10:10 AM | Report abuse

I actually agree with vision for a change.


All oil companies should share in all costs (whether it be through insurance or some other mechanism) with cleaning up oil spills.

Posted by: Lomillialor | May 25, 2010 11:16 AM | Report abuse

How much is a way of life ended for those who depend on the marshes and coastland for their living?

How much is are beautiful wetlands, the breeding place for much of the country's seafood worth? How much are lovely beaches worth.?

How much is the Gulf, home of much of the seafood eaten by most of the country, worth?

And, people are trying to put a liability cap on environmental damage caused by oil companies. I say let them pay and pay, even if they go bankrupt.

The wetlands of my beautiful state, Louisiana, are already bankrupt.

Posted by: janye1 | May 25, 2010 3:19 PM | Report abuse

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