Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

No cap on British Petroleum

Jerry Stratton, June 16, 2010

There is no cap on British Petroleum’s liability for failing to follow regulations.

Read that again. There is no cap on British Petroleum’s liability for failing to follow regulations.

There is no cap on BP’s liability if they are at fault in any way.

Sec. 2704. Limits on Liability

[The liability limit] of this section does not apply if the incident was proximately caused by—

(A) gross negligence or willful misconduct of, or

(B) the violation of an applicable Federal safety, construction, or operating regulation by,

the responsible party, an agent or employee of the responsible party, or a person acting pursuant to a contractual relationship with the responsibility party.


Notwithstanding the limitations established under subsection (a) of this section and the defenses of section 2703 of this title, all removal costs incurred by the United States Government or any State or local official or agency in connection with a discharge or substantial threat of a discharge of oil from any Outer Continental Shelf facility or a vessel carrying oil as cargo from such a facility shall be borne by the owner or operator of such facility or vessel.

The only real question here is, did they violate regulations?1

The $75,000,0002 cap is necessary because deep drilling3 is inherently more dangerous than shallow drilling or drilling on land. In order to push drilling off-shore, but still retain jobs and a tax base, Congress put a cap on liability for accidents that occur through no fault of the people building and maintaining the rig.

If it turns out they did not correctly maintain the rig, or that they deliberately used substandard materials, they are fully liable.

If we start holding companies responsible for accidents that we caused by pushing them further off-shore, some of them will go elsewhere to avoid the massive insurance costs that’s going to entail. We will lose those jobs; we will lose those taxes4; and our gas will get more expensive.

Even if BP was fully at fault, we still share responsibility for the resulting damage, because the spill could have been stopped by now if the leak was somewhere we could get at it.

There are several lessons from the Deepwater Horizon explosion. One of them is that pushing businesses into accident-prone territory will result in more accidents. BP isn’t drilling in mile-deep waters because they want to. They’re drilling there because we’re not letting them drill in safer areas.

Is the cap counterproductive? Of course it is—but so is our policy of only allowing drilling in dangerous places. A more sensible solution is to lift both the cap and the ban.

  1. Lift the ban on drilling closer to shore and on land, so that safer areas are available to drill.
  2. Remove the cap, so that liability insurance can work its magic and push rigs into safer locations and safer technology.

But regardless, all this talk about how the cap should be removed to punish British Petroleum is smoke and mirrors. If British Petroleum deserves to be punished, there is no cap. We should be careful that the “cap removal” bills in congress don’t end up covering for BP by bypassing the exemptions to the cap as well.

  1. There is some question on whether the U.S. Government signed off on violations in April, which might—and should—limit their liability. The Federal Government is legally in control, and if they don’t follow that control, that’s a trigger for removing the cap.

  2. Incidentally, there’s some presidential responsibility for the amount of the cap, too. “The President, by regulations issued not later than 3 years after July 11, 2006, and not less than every 3 years thereafter, shall adjust the limits on liability specified in subsection (a) to reflect significant increases in the Consumer Price Index.”

  3. I’m using “deep” drilling here in the sense everyone else seems to be; there’s a definition of “deepwater” drilling in the regulations that presumably doesn’t apply here, because if they were deepwater drilling their liability limit is $350 million, not $75 million.

  4. When you hear gulf-state politicians “concerned” about BP’s profits, this is what they’re really concerned about: billions of dollars in lost profits means billions of dollars in lost taxes, too, both directly from the company’s taxes and from those the company employs.

  1. <- The Al Greene Conspiracy
  2. Bureaucracy or conspiracy? ->