I noted earlier today the insanity of the statutory limited liability of just $75 million for oil companies whose drilling operations result in oil spills that damage economic activity. Three Democratic Senators just noticed as well, and crafted legislation to change the standard.

Authored by New Jersey Sen. Robert Menendez, and co-signed by fellow Garden Stater
Sen. Frank Lautenberg and Florida Sen. Bill Nelson, the (craftily-titled) “Big Oil Bailout Prevention Act” would raise the economic damages liability cap for offshore oil spills from $75 million to $10 billion.

The impetus for the legislation were reports that surfaced over the weekend that British Petroleum, the company responsible for the disastrous spill in the Gulf Coast, would face limited responsibility for covering costs beyond cleanup and containment.

The oil company, in addition to others, pays money into the Oil Spill Liability Trust Fund — a kind of rainy day piggy bank for handling the immediate costs of dealing with disasters. Under the charter of the federal law that created the $1.6 billion fund, however, operators of the offshore rig face no more than $75 million in liability for non-cleanup and containment damages. And in a region like the Gulf Coast the cost to local industry of a massive oil spill can easily skyrocket well beyond that total.

I know the Senate is tied up with financial reform, but they might want to jump onto this bill right now. It’s unconscionable that BP and its subcontractors would get off so easy after essentially precipitating the greatest man-made environmental disaster in history.

Also, watch for more legislation from these three Senators. They have been the most vocal opponents in recent days of offshore drilling, using this BP disaster as a catalyst for that stance (Ben Cardin has been strong as well). I’d expect a moratorium on new drilling before this is done.

Incidentally, I have read Lisa Margonelli’s article about how reduced drilling stateside means more drilling in more unregulated places like Nigeria, which has experienced spills equal to the Exxon Valdez approximately once a year since 1969. But this makes more emotional sense than logical sense. Oil companies in Nigeria do not raise or drop their production based on relatively puny leases in the Gulf of Mexico. We simply don’t have enough oil deposits in America to have any real impact on global production. We only have enough to cause a massive accident and ruin the coastline. So the costs severely outweigh the benefits.

David Dayen

David Dayen