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Canada Boosts Offshore Oil Spill Liability, But The U.S. Still Caps Deepwater Horizon Costs At 0.2 Percent

By Michael Conathan, Guest Contributor

"Canada Boosts Offshore Oil Spill Liability, But The U.S. Still Caps Deepwater Horizon Costs At 0.2 Percent"

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The Deepwater Horizon oil rig burning. (Credit: Gerald Herbert/AP)

The Canadian government yesterday announced it was raising the limit of liability for offshore drilling in the Atlantic and Arctic Oceans to $1 billion. This was a modest nod to increasing awareness of the dangers of offshore oil and gas exploration and potential damage oil spills can cause.

As Canada’s Financial Post reported yesterday:

Natural Resources Minister Joe Oliver said companies operating in the Atlantic would be on the hook for a maximum of $1 billion in the event of a spill, up from $30 million previously. Arctic drillers, who face high costs and harsh operating conditions in the Canadian Beaufort Sea, would also be responsible for a $1 billion liability limit, up from $40 million under existing rules.

Organizations from both sides of the political spectrum, including the Center for American Progress and the Heritage Foundation, have called for reforms of the current system in the United States. But perhaps the most prominent group recommending increased liability is the nonpartisan National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, which stated:

The current $75 million cap on liability for offshore facility accidents is totally inadequate and places the economic risk on the backs of the victims and the taxpayers. The cap should be raised significantly to place the burden of catastrophic failure on those who will gain the economic rewards, and to compensate innocent victims.

Even Canada’s new billion-dollar cap fails to adequately reflect the potential damages. BP has already set aside $42 billion to cover its fines, clean-up, and other costs. Norway, for example, has no cap on potential liability for offshore accidents. If you spill it, you pay to clean it up. Now there’s a system that makes sense. BP waived its liability cap for the Deepwater Horizon spill, but there’s no guarantee the next company will be solvent enough to pay more than the law requires.

Despite the Commission’s recommendations, Congress has so far failed to act to raise the liability cap which remains just $75 million — or less than two tenths of one percent of the $42 billion BP has set aside to cover fines and costs incurred in the Gulf spill. In fact, Congress has taken no action whatsoever to change the laws governing offshore oil and gas permitting, exploration, or production.

Meanwhile, the five biggest oil companies made $118 billion in profits in 2012, which means collectively, they could pay the maximum legal liability for four offshore oil spills every day for a year and still have cash left over.

Opponents of raising the liability cap argue that it would prevent smaller companies from entering into the industry because they would be unable to afford insurance to cover the extent of their liability. Logic would suggest that if a company can’t afford to clean up the potential mess it might make, it shouldn’t attempt the action in the first place. But setting logic aside for the moment, there are ways around this conundrum. One would be to create a shared risk pool that would make all oil companies jointly liable for major accidents. A similar structure already exists for the nuclear industry under the Price-Anderson Act, which would cover (as of 2011) the first $12 billion of liability for a nuclear accident.

Failure to raise the liability cap for offshore oil and gas accidents in the U.S. leaves taxpayers at risk of swallowing a massive bill while oil companies walk away with massive profits. Canada has taken a first step toward balancing the scales. It’s time for Congress to move us forward as well.

Michael Conathan is the Director of Ocean Policy at the Center for American Progress.

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5 Responses to Canada Boosts Offshore Oil Spill Liability, But The U.S. Still Caps Deepwater Horizon Costs At 0.2 Percent

  1. Forward Thinker says:

    As much as Canada has improved its assessment do liability to the oil companies, as you note, it is still just a fraction of the actual costs. If a per barrel fee were attached to every barrel pumped in Canada ( both on and offshore) and that money was put into a trust which can ONLY be accessed in the event of an event that exceeds the billion dollar limit, then I think it would come close over time, to covering the actual costs. The same could be done with pipelines and maritime import/ export of oil and products. The problem with funds is that they are tempting targets when they get large and governments need money so the trusts would need to be outside of government reach.

  2. Sue says:

    Just another example of back door subsidy and socializing of risk to protect the corporate kings.nothing will improve unless elections and lobbying are totally reformed.

    • Mulga Mumblebrain says:

      ‘Capitalism’ and ‘Democracy’ are about as mutually antithetical as any two concepts can be. Perhaps the ‘Living Dead’ comes close.

  3. Pennsylvania Bob says:

    Why is there a cap at all?

    • Merrelyn Emery says:

      Perhaps because Americans have bought the propoganda that ‘what is good for business is good for America’, despite much evidence to the contrary? ME