After the Exxon Valdez disaster, Congress passed the Oil Pollution Act of 1990. It required oil companies to pay an 8 cent tax on all oil produced or imported into the United States. In exchange for this act, the companies were guaranteed a maximum liability of $75 million dollars in the event of an oil spill. Furthermore, the Act stipulates that the President can mandate an escrow fund of only up to $250,000 dollars.
This limited liability greatly reduced the risk that oil companies were shouldering. Hence, BP opted for single wall rather than double walled pipe at the Deepwater Horizon site.
Now, BP has agreed to establish a fund of $20 Billion to pay for cleanup and economic recovery. That is more than 250x the maximum the company could be held liable for under 101 HR 1465, and 80,000x greater than what the President is allowed to mandate.
So what? Well, there are some lessons to be had here.
1. The Oil Pollution Act has taken about $8 Billion in revenues from the oil companies in the last 20 years. Where did that money go? Why isn’t it being used to mobilize the National Guard?
2. Congress artificially capped the liability of these oil companies and thus encouraged BP to take greater risks.
3. The free market will save the Gulf Coast. BP is ponying up the $20 Billion, not because the might of the government is descending upon them, but because they know that not a soul in this country will buy gas from them if they don’t make good on this screwup.
4. Everything that has happened on Capitol Hill is simply political posturing to ramp up support for the new Cap and Trade bill that before Deepwater Horizon had no chance of passing in the Senate. But this administration will “never let a crisis go to waste.”