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US Congress looks at spill-liability limits

COSTS associated with BP's massive oil spill in the Gulf of Mexico have already risen to more than $6bn, including over $300m to compensate people and businesses adversely affected by the incident

The company has agreed to pay all legitimate damages claims; however, its legal obligation is limited to only $75m, and legislators are concerned that if another catastrophic spill occurs, the perpetrator might not be as willing, or able, to pick up the entire tab.

The Macondo well blowout on 20 April killed 11 people on the Deepwater Horizon drilling rig and sent nearly 5m barrels of crude oil spewing into the sea, creating the worst environmental disaster in US history. Since then, some lawmakers have been eager to revisit the Oil Pollution Act of 1990, passed in the wake of the Exxon Valdez oil leak offshore Alaska, which established the ceiling on damages that companies operating offshore facilities must pay if their operations result in a spill. Otherwise, these legislators say, US taxpayers could be forced to shoulder any expenses that exceed the cap.

Bills that would boost the liability limit to $10bn, tie it to a percentage of the perpetrator's profits, or establish caps on a case-by-case basis had been discussed in both branches of Congress. However, in late July, the House of Representatives took a step that was surprisingly bold, given the opposition it faced from many Republicans as well as Democrats from oil-producing states. It voted to remove the cap completely.

Now the issue has gone to the Senate. The liability limit is only one part of a broader energy and oil response package that includes elements ranging from tightening offshore drilling restrictions to promoting energy efficiency, electric cars and natural gas usage in trucks. However, it is such a contentious point that it has put the fate of the entire bill in question.

Critics of the cap claim offshore operators might be more willing to take risks if they are not held fully responsible for costs if a spill results. However, oil industry and other business groups believe such a drastic measure could have unintended – and disastrous – consequences.

Unlimited liability for spill damages, they say, would drive most small and medium-sized energy companies out of the Gulf because they would not be able to afford, or perhaps even obtain, insurance to cover the potential liability costs. Ironically, offshore drilling would then be left in the hands of the big oil companies, such as BP, that have the financial wherewithal to self-insure.

"Independent producers, which hold around 90% of Gulf leases and produce about 30% of the oil and 60% of natural gas in the Gulf, would be particularly hard hit," R Bruce Josten, the second-ranking officer of the US Chamber of Commerce, reported in a letter to members of the House of Representatives,

According to the American Petroleum Institute (API), lifting the liability limit "would put thousands of US jobs at risk and reduce the energy supplies we get from the Gulf". Instead, the API says a "robust, workable oil-spill liability programme – possibly including a mutual insurance element – is achievable and would cover the cost of a large spill without shifting huge costs to taxpayers".

The bill's sponsors had pushed for its passage before the Senate disbanded for its summer recess, but that did not happen. The destiny of the liability limit will not be determined until lawmakers return in September.

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