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Friday, May 28, 2010

Gulf spill lessons: Understanding the cost surrounding oil spills is complex

By Linda Pilkey-Jarvis, Spill Preparedness Section Manager, Spill Prevention, Preparedness, and Response Program

There’s been a lot of conversation in the news lately about who pays for oil spills. These articles are interesting and sometimes confusing to me because there are a lot of different ways to look at costs. For instance, these costs can include paying for:
  • The costs associated with the response, including cleanup.
  • The costs of the public agencies who are responding to the spill.
  • Public and / or private losses through claims.
  • Penalties for the spill.
  • Restoring the damage to the public’s natural resources at a level assessed by the government. These are known as natural resource damage assessments.
Spillers are legally obliged to pay for all cleanup costs but feds limit some liabilities.
The law is clear that a spiller must pay for all cleanup costs. However, the federal government limits the additional liability of a spiller for things like compensating the days lost for fishermen or restoring habitat. And for the BP Deepwater Horizon spill, we now know BP’s liability for damages is capped at $75 million dollars.

Liability for Washington spillers a different story

However, thanks to the foresight of the Washington Legislature more than 18 years ago, our state has unlimited liability for spillers. This allows Ecology to recover cleanup costs, natural resources damages, and the state’s spill response costs that go beyond the federal $75 million limit. Regulated vessels and oil-handling facilities also have to demonstrate they have the ability to pay for oil spill cleanup and damages. Now is the time for us to ask whether we have structured the levels of responsibility adequately and make improvements if need be.

A Deepwater Horizon-like spill would cost Washington State dearly

Several years ago, we conducted an economic study to try and determine how a major spill might impact Washington. Our study concluded that a significant spill would cost our economy $10.8 billion in economic losses and impact more than 165,000 jobs across the state economy. Puget Sound alone helps drive $20 billion of economic activities in Washington State. Economic losses from oil spills come from:

  • Lost port operating costs, business interest and wages.
  • Damages to marina income.
  • Shellfish and other fish kills and closures
  • Income loss and damages to our commercial fisheries.
  • Income lost due to the damage to our state and national parks.
  • Losses to recreational boating and fishing.
  • Wildlife viewing losses as well as upland game and waterfowl hunting losses.
  • Tourism losses.
And the $10.8 billion figure doesn’t include the spiller’s cost of public and private damage claims or the penalties Ecology would levy for the spill.

Assessing the cost of damage to natural resources

When a spill occurs, representatives from state, federal, and tribal governments perform a damage assessment to quantify the environmental harm and assess the spiller with the cost. This is intended to compensate the public and not be punitive on the spiller. It is not an exact science and can be very controversial. It’s tough because how can everyone agree on the value of geoduck, seals, salmon and seabirds? In Washington State, we’re fortunate because we created a simplified process used for the majority of spills (not a big one like the Deepwater Horizon). However, our process is a bit outdated and could be modernized. Another area for potential improvement.

What does it costs to respond?

I sometimes hear oil industry representatives say they estimate it costs somewhere in the range of $10,000 to $20,000 per gallon of oil spilled to clean up the environment. That cost varies depending on:
  • Type and quantity of oil spilled.
  • Location of the spill.
  • Time of year.
  • Kinds of natural resources damaged.
BP says it spent $350 million during the first 20 days of the Deepwater Horizon spill response – that’s about $17.5 million a day! In Puget Sound, we know that spilled oil quickly reaches our shorelines – unlike the scenario in the Gulf where oil took weeks. Shoreline cleanup costs and managing the waste that’s generated are some of the costliest aspects of a spill response. And it can actually be more costly per gallon spilled to clean up a small spill than a large one.

Understanding how much it costs to be prepared for spills

Here in Washington State, the oil industry is required to:
  • Train people so they know how to manage any spill response in partnership with government agencies like Ecology.
  • Develop oil spill readiness plans.
  • Purchase and maintain response equipment.
  • Conduct frequent preparedness drills that test and improve the plans.
Our study, which is several years old, estimated that Washington’s oil spill preparedness regulations cost Washington’s oil industry $6.8 million dollars a year. The majority of those costs are associated with the equipment they must maintain at various locations around the state. Ecology’s regulations have been in place for about 18 years. We calculate that industry’s investment in the state’s preparedness program was worth around $220 million. Investing wisely in preparedness helps to greatly reduce the costs to clean up a spill by getting equipment to the site faster, configured more efficiently and with people trained using pre-designed oil spill strategies.

Influencing the regulations

Yesterday, President Obama said this about the BP Deepwater Horizon spill, “What’s also been made clear from this disaster is that for years the oil and gas industry has leveraged such power that they have effectively been allowed to regulate themselves.”

He may have been referring to the permitting process for offshore oil rigs. But in my opinion, you can apply the same perspective to the federal rules about oil-spill preparedness. The federal planning standards set around the nation, including the Gulf, are inadequate. It’s fortunate that oil spill preparedness isn’t subject to being pre-empted by federal law and that the individual states are allowed to set higher standards. Spill impacts are local. Some may argue that our state’s standards should be raised – but I believe we can all be grateful that we can establish standards that are more specific to this area and not have to live with the blanket national standard. This is another area where we will be looking at possible improvements.

Sharing lessons learned from the Gulf

We intend to keep blogging about the lessons learned from the Gulf and how they apply here in Washington. You can send us an email if there is a topic you want to hear about.

1 comment:

Mitchell said...

This blog was very interesting for me because I got my Bachelors in Environmental Policy. Pretty much hits the nail on the head when the blog talks about federal and state regulations. I'm concerned about why the cap for liability was so very low. I guess I have some reading to do to figure out why that is the case.

I've always been proud to be from Washington and after reading how our state manages spills I'm yet again reminded that Washington is an alright place to live!