Right now, BP is on trial in New Orleans over damages resulting from the Deepwater Horizon drilling rig explosion that killed 11 people, filled the Gulf of Mexico with millions of barrels of oil and caused billions of dollars in damages. The company faces a fine of up to $17.6 billion if found guilty of “wilful misconduct.”
No one doubts that the worst oil spill in history was caused in part by executives cutting corners when it came to safety. The Financial Times reports that lawyers from the US Department of Justice have argued that BP had a “culture of corporate recklessness” and had acted with “gross negligence or wilful misconduct.”
An additional part of the story most people aren’t familiar with involves a privilege government offers some companies like BP called a liability cap. In 1990, right after the Exxon Valdez spill, Congress decided that even though corporations would have to pay for the environmental clean up, they only have to set aside $75 million (somewhat more for deepwater drills like Deepwater Horizon) to pay all the victims of an oil spill.
Drilling for oil is risky. Proponents of the cap argue that without them, companies won’t drill as aggressively, which will limit the amount of oil available. When an executive decides where to drill for oil, he or she must weigh the likelihood of an explosion (as well as the cost of the resulting lawsuits) against the potential profit from the well. Artificially limiting a company’s liability for damages while keeping profit potential constant will certainly encourage drilling — but only the most dangerous drilling.
Liability caps may be intended to help consumers by getting more oil to the markets, they benefit business and members of Congress while putting citizens at risk. The law that implemented the cap was named, with ironic accuracy, the Oil Pollution Act of 1990.
This policy of incentivizing risk-taking by companies by limited their liability hurts citizens and benefits politicians. First, coastal congressmen and women have every reason, from raising employment in their states to any incentives companies might offer (from favorable loans to stock tips) to encourage drilling for oil in their states.
“We want to be careful before we change any of these laws that we don’t jeopardize the operations of an ongoing industry, because there are 4,000 other wells in the Gulf that have to go on,” Sen. Mary Landrieu, D-La., said while arguing against repealing the liability cap after the Deepwater Horizon explosion marred her state.
In terms of compensation to legislators, besides jobs in their states, it may surprise people to know that BP has long supported Cap and Trade, a policy that would increase revenue for the federal government by taxing industries that emit greenhouse gases. It’s well within the realm of possibility that BP supports Cap and Trade in part in exchanged for risk-limiting legislation.
Lest you think that liability caps put government money at risk, rest assured that the federal government will get the money for the environmental cleanup from BP, up to $17.6B. The fact that BP will end up having to pay the government for the cleanup doesn’t mean their decision-making when it came to safety wasn’t influenced by applicable liability caps. Environmental cleanup minus damages to victims is still less than they’d otherwise have to pay.
The real money at risk is the money citizens will have to pay to replace their property after the spill, many of whom are still waiting for the payout the federal government was supposed to provide for their damages.
Limiting liability encourages risk-taking by companies, thereby putting private property in jeopardy. It also expands the role of the federal government into incentivizing and taking on risk for companies. Leaving the responsibility for risk/benefit analysis and the consequences of doing it wrong up to companies keeps citizens safer. Companies who profit from taking risks should have to shoulder the entire fallout if they wreak havoc on citizens.
Source: AFF Doublethink Online | Kaavya Ramesh
Source: AFF Doublethink Online | Hadley Heath