Maritime Transportation
Major Oil Spills Occur Infrequently, but Risks Remain Gao ID: GAO-08-357T December 18, 2007When oil spills occur in U.S. waters, federal law places primary liability on the vessel owner or operator--that is, the responsible party--up to a statutory limit. As a supplement to this "polluter pays" approach, a federal Oil Spill Liability Trust Fund administered by the Coast Guard pays for costs when a responsible party does not or cannot pay. This testimony is based on GAO's September 2007 report on oil spill costs and select program updates on the recent San Francisco spill. Specifically, it answers three questions: (1) How many major spills (i.e., at least $1 million) have occurred since 1990, and what is their total cost? (2) What factors affect the cost of spills? and (3) What are the implications of major oil spills for the Oil Spill Liability Trust Fund?
On the basis of cost information collected from a variety of sources, GAO estimates that 51 spills with costs of at least $1 million have occurred from 1990 to 2006 and that responsible parties and the federal Oil Spill Liability Trust Fund (Fund) have spent between $860 million and $1.1 billion for oil spill removal costs and compensation for damages (e.g., lost profits and natural resource damages). Since removal costs and damage claims may stretch out over many years, the costs of the spills could rise. The 51 spills varied greatly from year to year in number and cost. All vessel types were involved with the 51 major spills GAO identified, with cargo/freight vessels and tank barges involved with 30 of the 51 spills. According to industry and agency officials, three main factors affect the cost of spills: a spill's location, the time of year, and the type of oil spilled. Spills that occur in remote areas, for example, can increase costs involved in mobilizing responders and equipment. Similarly, a spill occurring during tourist or fishing season might produce substantial compensation claims, while a spill occurring during another time of year may not be as costly. The type of oil affects costs in various ways: fuels like gasoline or diesel fuel may dissipate quickly but are extremely toxic to fish and plants, while crude oil is less toxic but harder to clean up. The total costs of the recent San Francisco oil spill are unknown, but these identified factors are likely to influence the costs. To date, the Fund has been able to cover costs from major spills that responsible parties have not paid, but risks remain. Specifically, GAO's analysis shows that the new 2006 limits of liability for tank barges remain low relative to the average cost of such spills. Since 1990, the Oil Pollution Act (OPA) required that liability limits be adjusted above the limits set forth in statute for significant increases in inflation, but such changes have never been made. Not making such adjustments between 1990 and 2006 potentially shifted an estimated $39 million in costs from responsible parties to the Fund.
GAO-08-357T, Maritime Transportation: Major Oil Spills Occur Infrequently, but Risks Remain
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Testimony:
Before the Subcommittee on Oceans, Atmosphere, Fisheries, and Coast
Guard, Committee on Commerce, Science and Transportation, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:30 p.m. EST:
Tuesday, December 18, 2007:
Maritime Transportation:
Major Oil Spills Occur Infrequently, but Risks Remain:
Statement of Susan A. Fleming, Director Physical Infrastructure Issues:
GAO-08-357T:
GAO Highlights:
Highlights of GAO-08-357T, a testimony to the Subcommittee on Oceans,
Atmosphere, Fisheries, and Coast Guard, Committee on Commerce, Science,
and Transportation, U.S. Senate.
Why GAO Did This Study:
When oil spills occur in U.S. waters, federal law places primary
liability on the vessel owner or operator”that is, the responsible
party”up to a statutory limit. As a supplement to this ’polluter pays“
approach, a federal Oil Spill Liability Trust Fund administered by the
Coast Guard pays for costs when a responsible party does not or cannot
pay.
This testimony is based on GAO‘s September 2007 report on oil spill
costs and select program updates on the recent San Francisco spill.
Specifically, it answers three questions: (1) How many major spills
(i.e., at least $1 million) have occurred since 1990, and what is their
total cost? (2) What factors affect the cost of spills? and (3) What
are the implications of major oil spills for the Oil Spill Liability
Trust Fund?
What GAO Found:
On the basis of cost information collected from a variety of sources,
GAO estimates that 51 spills with costs of at least $1 million have
occurred from 1990 to 2006 and that responsible parties and the federal
Oil Spill Liability Trust Fund (Fund) have spent between $860 million
and $1.1 billion for oil spill removal costs and compensation for
damages (e.g., lost profits and natural resource damages). Since
removal costs and damage claims may stretch out over many years, the
costs of the spills could rise. The 51 spills varied greatly from year
to year in number and cost. All vessel types were involved with the 51
major spills GAO identified, with cargo/freight vessels and tank barges
involved with 30 of the 51 spills.
According to industry and agency officials, three main factors affect
the cost of spills: a spill‘s location, the time of year, and the type
of oil spilled. Spills that occur in remote areas, for example, can
increase costs involved in mobilizing responders and equipment.
Similarly, a spill occurring during tourist or fishing season might
produce substantial compensation claims, while a spill occurring during
another time of year may not be as costly. The type of oil affects
costs in various ways: fuels like gasoline or diesel fuel may dissipate
quickly but are extremely toxic to fish and plants, while crude oil is
less toxic but harder to clean up. The total costs of the recent San
Francisco oil spill are unknown, but these identified factors are
likely to influence the costs.
To date, the Fund has been able to cover costs from major spills that
responsible parties have not paid, but risks remain. Specifically,
GAO‘s analysis shows that the new 2006 limits of liability for tank
barges remain low relative to the average cost of such spills. Since
1990, the Oil Pollution Act (OPA) required that liability limits be
adjusted above the limits set forth in statute for significant
increases in inflation, but such changes have never been made. Not
making such adjustments between 1990 and 2006 potentially shifted an
estimated $39 million in costs from responsible parties to the Fund.
Location and Cost of Major Oil Spills, 1990-2006:
[See PDF for image]
This figure is a map of North America depicting the location and cost
of major oil spills, 1990-2006. Depicted on the map are shaded areas
that indicate spills with costs on the following scale (in millions of
dollars):
$0;
$1;
$25;
$100;
$250.
Source: GAO.
[End of figure]
What GAO Recommends:
In our September 2007 report, we recommended that that the Coast Guard
(1) determine whether and how liability limits should be changed, by
vessel type, and make recommendations about these changes to the
Congress and (2) adjust the limits of liability for vessels every 3
years to reflect significant changes in inflation, as appropriate. The
Department of Homeland Security, including the Coast Guard, generally
agreed with these recommendations.
To view the full product, including the scope and methodology, click on
[hyperlink, GAO-08-357T]. For more information, contact Susan Fleming
at (202) 512-2834 or flemings@gao.gov.
[End of section]
Madame Chair and Members of the Subcommittee:
We appreciate the opportunity to be here today to discuss the costs of
major oil spills. As the recent accident in San Francisco Bay
illustrates, the potential for an oil spill exists daily across coastal
and inland waters of the United States. Specifically, on November 7,
2007, a cargo ship leaving the Port of Oakland struck the San Francisco-
Oakland Bay Bridge, tearing the hull of the ship. As a result, over
50,000 gallons of heavy oil spilled into the bay.[Footnote 1] The total
cost of cleaning up the spill, as well as the damage to marine wildlife
and fisheries is still undetermined. As this spill also illustrates,
the potential for costly spills is present for vessels other than
tankers and tank barges involved in the petroleum industry. Cargo,
fishing, and other types of vessels also carry substantial fuel
reserves and accidents can release this fuel and create substantial
damage. Spills can be expensive, with considerable costs to the federal
government and the private sector.
The framework for addressing and paying for maritime oil spills is
identified in the Oil Pollution Act of 1990 (OPA), which was enacted
after the Exxon Valdez spill. OPA created a "polluter pays" system that
places the primary burden of liability and the costs of oil spills on
the vessel owner or operator who was responsible for the spill--that
is, the responsible party. However, there are financial limitations on
that liability. Under this system, the responsible party assumes, up to
a specified limit, the burden of paying for spill costs--which can
include both removal costs (cleaning up the spill) and damage claims
(restoring the environment and payment of compensation to parties that
were economically harmed by the spill). Above the specified limit, the
responsible party is no longer financially liable.[Footnote 2] To pay
costs above the limit of liability, as well as to pay costs when a
responsible party does not pay or cannot be identified, OPA authorized
the Oil Spill Liability Trust Fund (Fund), which is financed primarily
from a per-barrel tax on petroleum products either produced in the
United States or imported from other countries. The Fund is
administered by the National Pollution Funds Center (NPFC) within the
U.S. Coast Guard. The balance in the Fund--about $600 million at the
end of fiscal year 2006--is well below its peak of $1.2 billion in
2000. The decline in the Fund's balance primarily reflects an
expiration of the barrel tax on petroleum in 1994. The tax was not
reinstated until 2005.
While this system is well understood, the costs involved in responding
to oil spills are less clear. Costs paid from the Fund are well
documented, but the party responsible for the spill is not required to
report the costs it incurs. As a result, private-sector and total costs
for cleaning up spills and paying damages are largely unknown to the
public. The lack of information about the cost of spills, the declining
Fund balance, and significant claims made on the Fund--for spills in
which the removal costs and damage claims have exceeded established OPA
liability limits--have all raised concerns about the Fund's long-term
viability.
Although we have not assessed the November 2007 San Francisco oil spill
in depth, we have done considerable work looking at the cost of major
spills in recent years and the factors that contribute to making spills
particularly expensive to clean up and mitigate. My remarks today are
intended to provide a context for looking at the nation's approach to
paying the costs of such spills. Specifically, my testimony today
focuses on (1) the number of major oil spills--i.e., spills for which
the total costs and claims paid was at least $1 million--from 1990 to
2006 and the total costs of these spills, (2) the factors that affect
major oil spill costs, and (3) the implications of major oil spill
costs for the Oil Spill Liability Trust Fund. [Footnote 3] My comments
are based primarily on our September 2007 report on oil spill costs,
which was issued to the Senate Committee on Commerce, Science, and
Transportation and the House Committee on Transportation and
Infrastructure.[Footnote 4] In preparing our September report, we
analyzed oil spill removal cost and claims data from NPFC, the National
Oceanic and Atmospheric Administration's (NOAA) Damage Assessment,
Remediation, and Restoration Program, and the Department of the
Interior's (DOI) Natural Resource Damage Assessment and Restoration
Program and the U.S. Fish and Wildlife Service (FWS). We also analyzed
cost data obtained from vessel insurers and through contract with
Environmental Research Consulting.[Footnote 5] We interviewed NPFC,
NOAA, and state officials responsible for oil spill response, as well
as industry experts and representatives from key industry associations
and a vessel owner. In addition, we selected five oil spills on the
basis of the spill's location, oil type, and spill volume for an in-
depth review. During this review, we interviewed NPFC officials
involved in spill response for all five spills, as well as
representatives of private sector companies involved in the spill and
spill response; and we conducted a file review of NPFC records of the
federal oil spill removal activities and costs associated with spill
cleanup. We also reviewed documentation from the NPFC regarding the
Fund balance and vessels' limits of liability. Because private-sector
and total costs for cleaning up spills and paying damages are not
centrally tracked and maintained, we obtained the best available cost
data from a variety of sources, as previously described. We then
combined the information that we collected from these various sources
to develop cost estimates for the oil spills. However, because the cost
data are somewhat imprecise and the data we collected vary somewhat by
source, we present the cost estimates in ranges. The lower and higher
bounds of the range represent the low and high end of cost information
we obtained. Based on reviews of data documentation, interviews with
relevant officials, and tests for reasonableness, we determined that
the data were sufficiently reliable for the purposes of our report. We
also conducted additional research and interviewed NPFC officials to
update our September 2007 report's findings and to gather information
on the recent oil spill in San Francisco Bay. We conducted this work in
December 2007 in accordance with generally accepted government auditing
standards.
Summary:
We estimate that from 1990 to 2006, 51 oil spills have involved removal
costs and damage claims totaling at least $1 million. Collectively,
from public and nonpublic sources, we estimate that responsible parties
and the Fund have paid between approximately $860 million and $1.1
billion to clean up these spills and compensate affected parties.
Responsible parties paid between about 72 to 78 percent of these costs;
the Fund has paid the remainder, or $240 million. The overall cost for
the 51 spills we identified could also increase over time because the
claims adjudication processes can take many years to resolve. The 51
spills we identified, which constitute about 2 percent of all vessel
spills from 1990 to 2006, varied greatly from year to year in number
and cost and showed no discernible trends in frequency or size. All
vessel types were involved with the 51 major spills we identified--with
cargo/freight vessels and tank barges involved with 30 of the 51 spills.
Three main factors affect the costs of a spill, according to industry
experts and agency officials and the studies we reviewed: the spill's
location, the time of year it occurs, and the type of oil spilled.
[Footnote 6] A remote location, for example, can increase the cost of a
spill because of the additional expense involved in mounting a remote
response. Similarly, a spill that occurs close to shore rather than
further out at sea can become more expensive because it may involve the
use of manual labor to remove oil from sensitive shoreline habitat.
Time also has situation-specific effects, in that a spill that occurs
at a particular time of year might involve a much greater cost than a
spill occurring in the same place but at a different time of year. For
example, a spill occurring during fishing or tourist season might carry
additional economic damage, or a spill occurring during a typically
stormy season might prove more expensive because it is more difficult
to clean up than one occurring during a season with generally calmer
weather. The specific type of oil affects costs because the type of oil
can affect the amount of cleanup needed and the amount of natural
resource damage incurred. Lighter oils such as gasoline or diesel fuels
dissipate and evaporate quickly--requiring minimal cleanup--but are
highly toxic and create severe environmental impacts. Heavier oils such
as crude oil do not evaporate, and therefore may require intensive
structural and shoreline cleanup; and while they are less toxic than
light oils, heavy oils can harm waterfowl and fur-bearing mammals
through coating and ingestion. Each spill's cost reflects the
particular mix of these factors, and no factor is clearly predictive of
the outcome. The 51 major spills we identified, for example, occurred
on all U.S. coasts, across all seasons, and with all major types of
oil; but each spill's particular location, time, or product contributed
to making it expensive. Although the total costs of the San Francisco
spill are unknown, some of the same key factors such as location and
oil type will likely have an impact on the costs of the spill.
To date, the Fund has been able to cover costs that responsible parties
have not paid, but risks remain. In particular, the Fund is at risk
from claims resulting from spills that significantly exceed responsible
parties' liability limits. The effect of such spills can be seen among
the 51 major oil spills we identified: 10 of them exceeded the limit of
liability, resulting in claims of about $252 million on the Fund. In
the Coast Guard and Maritime Transportation Act of 2006, the Congress
increased these liability limits, but for two main reasons, additional
attention to the limits appears warranted. First, the liability limits
for certain vessel types may be disproportionately low compared with
their historic spill cost. For example, of the 51 major spills since
1990, 15 resulted from tank barges. The average cost for these 15 tank
barge spills was about $23 million--more than double the average new
liability limit ($10.3 million) for these vessels. The Coast Guard is
responsible for adjusting limits of liability at least every 3 years
for significant increases in inflation and for making recommendations
to Congress on whether adjustments to limits are necessary to help
protect the Fund.[Footnote 7] In its January 2007 report examining oil
spills that exceeded the limits of liability, the Coast Guard had
similar findings on the adequacy of some of the new limits. However,
the Coast Guard did not make explicit recommendations to Congress on
how the limits should be adjusted. Second, although OPA has required
since 1990 that liability limits be adjusted every 3 years to account
for significant increases in inflation, such adjustments have never
been made. If such adjustments had been made between 1990 and 2006,
claims against the fund for the 51 major spills would have been reduced
by 16 percent, which could have saved the Fund $39 million. The Coast
Guard, which has been delegated the authority to adjust limits for
significant increases in inflation, has not indicated whether it will
exercise its authority to adjust liability limits in the future. Aside
from issues related to limits of liability, the Fund faces other
potential drains on its resources, including ongoing claims from
existing spills, claims related to already-sunken vessels that may
begin to leak oil, and the threat of a catastrophic spill such as
occurred with the Exxon Valdez in 1989.
In our September 2007 report, we recommended that the Commandant of the
Coast Guard (1) determine whether and how liability limits should be
changed, by vessel type, and make recommendations about these changes
to the Congress and (2) adjust the limits of liability for vessels
every 3 years to reflect changes in inflation, as appropriate. The
Department of Homeland Security (DHS), including the Coast Guard,
generally agreed with the report's contents and agreed with the
recommendations. To date, the Commandant of the Coast Guard has not
implemented these recommendations.
Background:
With more than 100,000 commercial vessels navigating U.S. waters and
12.2 million barrels of oil being imported into the United States each
day, some oil spills in domestic waters are inevitable. Fortunately,
however, spills are relatively infrequent and are decreasing. While oil
transport and maritime traffic have continued to increase, the total
number of reported spills has generally declined each year since 1990.
OPA places the primary burden of liability and the costs of oil spills
on the vessel owner and operator who were responsible for the
spill.[Footnote 8] This "polluter pays" system provides a deterrent for
vessel owners and operators who spill oil by requiring that they assume
the burden of spill response, natural resource restoration, and
compensation to those damaged by the spill, up to a specified limit of
liability--which is the amount above which responsible parties are no
longer financially liable under certain conditions. (See fig. 1 for the
limits of liability by vessel type.) For example, if a vessel's limit
of liability is $10 million and a spill resulted in $12 million in
costs, the responsible party only has to pay up to $10 million--the
Fund will pay for the remaining $2 million.[Footnote 9] The Coast Guard
is responsible for adjusting limits for significant increases in
inflation and for making recommendations to Congress on whether other
adjustments are necessary to help protect the Fund.[Footnote 10] OPA
also requires that vessel owners and operators must demonstrate their
ability to pay for oil spill response up to their limit of liability.
Specifically, by regulation, with few exceptions, owners and operators
of vessels over 300 gross tons and any vessels that transship or
transfer oil in the Exclusive Economic Zone are required to have a
certificate of financial responsibility that demonstrates their ability
to pay for oil spill response up to their limit of liability.[Footnote
11]
Figure 1: Description of Vessel Types and Current Limits of Liability:
[See PDF for image]
Vessel type: Oil tanker;
Description: An oil tanker is a ship designed to carry oil in large
tanks;
Limit of liability: Single hull;
* Vessels greater than 3,000 gross tons the greater of $3,000 per gross
ton or $22 million;
* Vessels less than or equal to 3,000 gross tons the greater of $3,000
per gross ton or $6 million.
Limit of liability: Double hull;
* Vessels greater than 3,000 gross tons the greater of $1,900 per gross
ton or $16 million;
* Vessels less than or equal to 3,000 gross tons the greater of $1,900
per gross ton or $4 million.
Vessel type: Tank barge;
Description: A tank barge is a non-self propelled vessel that carries
liquid, solid, or gaseous cargos in bulk in tanks primarily through
rivers and inland waterways.
Limit of liability: Single hull;
* Vessels greater than 3,000 gross tons the greater of $3,000 per gross
ton or $22 million;
* Vessels less than or equal to 3,000 gross tons the greater of $3,000
per gross ton or $6 million.
Limit of liability: Double hull;
* Vessels greater than 3,000 gross tons the greater of $1,900 per gross
ton or $16 million;
* Vessels less than or equal to 3,000 gross tons the greater of $1,900
per gross ton or $4 million.
Vessel type: Cargo/freight;
Description: A cargo ship or freighter is a vessel that transports non-
oil goods and materials;
Limit of liability: The greater of $950 per gross ton or $800,000.
Vessel type: Fishing vessel;
Description: A fishing vessel is a ship that is used to catch fish for
commercial use.
Limit of liability: The greater of $950 per gross ton or $800,000.
Source: GAO.
[End of figure]
OPA consolidated the liability and compensation provisions of four
prior federal oil pollution initiatives and their respective trust
funds into the Oil Spill Liability Trust Fund and authorized the
collection of revenue and the use of the money, with certain
limitations, with regard to expenditures.[Footnote 12] The Fund's
balance has generally declined from 1995 through 2006, and since fiscal
year 2003, its balance has been less than the authorized limit on
federal expenditures for the response to a single spill, which is
currently set at $1 billion (see fig. 2). The balance has declined, in
part, because the Fund's main source of revenue--a $0.05 per barrel tax
on U.S. produced and imported oil--was not collected for most of the
time between 1993 and 2006.[Footnote 13] As a result, the Fund balance
was $604.4 million at the end of fiscal year 2006.[Footnote 14] The
Energy Policy Act of 2005 reinstated the barrel tax beginning in April
2006.[Footnote 15] With the barrel tax once again in place, NPFC
anticipates that the Fund will be able to cover potential
noncatastrophic liabilities.
Figure 2: Oil Spill Liability Trust Fund Balance, Fiscal Years 1993-
2006:
[See PDF for image]
This figure is a vertical bar graph depicting the Oil Spill Liability
Trust Fund Balance, Fiscal Years 1993-2006. The vertical axis of the
graph represents the balance (in millions of dollars) from 0 to 1,200.
The horizontal axis of the graph represents years from 1993 to 2006.
Source: GAO analysis of NPFC data.
Note: The Fund balance increase in 2000 was largely due to a transfer
of $181.8 million from the Trans-Alaska Pipeline Liability Fund.
[End of figure]
OPA also defines the costs for which responsible parties are liable and
for which the Fund is made available for compensation in the event that
the responsible party does not pay or is not identified. These costs,
or "OPA compensable" costs, are of two main types:
* Removal costs: Removal costs are incurred by the federal government
or any other entity taking approved action to respond to, contain, and
clean up the spill. For example, removal costs include the equipment
used in the response--skimmers to pull oil from the water, booms to
contain the oil, planes for aerial observation--as well as salaries and
travel and lodging costs for responders.
* Damages caused by the oil spill: OPA-compensable damages cover a wide
range of both actual and potential adverse impacts from an oil spill,
for which a claim may be made to either the responsible party or the
Fund. Claims include natural resource damage claims filed by trustees,
claims for uncompensated removal costs and third-party damage claims
for lost or damaged property and lost profits, among other things.
[Footnote 16]
The Fund also covers costs when responsible parties cannot be located
or do not pay their liabilities. NPFC encounters cases where the source
of the spill, and therefore the responsible party is unknown, or where
the responsible party does not have the ability to pay. In other cases,
since the cost recovery can take a period of years, the responsible
party may become bankrupt or dissolved. Based on our analysis of NPFC
records, responsible parties have reimbursed the majority--about 65
percent--of the Fund's costs for the 51 spills.[Footnote 17]
Response to large oil spills is typically a cooperative effort between
the public and private sector, and there are numerous players who
participate in responding to and paying for oil spills. To manage the
response effort, the responsible party, the Coast Guard, EPA, and the
pertinent state and local agencies form the unified command, which
implements and manages the spill response.[Footnote 18] Appendix I
contains additional information on the parties involved in spill
response.
Oil Spills Costing At Least $1 Million Occurred Infrequently Between
1990 and 2006, but Estimated Costs Total $860 Million to $1.1 Billion:
On the basis of information we were able to assemble about responsible
parties' expenditures and payments from the Fund, we estimate that 51
oil spills involving removal costs and damage claims totaling at least
$1 million have occurred from 1990 to 2006. During this period, 3,389
oil spills occurred in which one or more parties sought reimbursement
from the Fund. The 51 major spills represent less than 2 percent of
this total.[Footnote 19] As figure 3 shows, there are no discernable
trends in the number of major oil spills that occur each year. The
highest number of spills was seven in 1996; the lowest number was zero
in 2006.
Figure 3: Number of Major Oil Spills, by Year, 1990-2006:
[See PDF for image]
This figure is a vertical bar graph depicting the number of major oil
spills, by year, 1990-2006. The vertical axis of the graph represents
number of spills from 0 to 9. The horizontal axis of the graph
represents years from 1990 to 2006. The following data is depicted:
Year: 1990;
Number of spills: 3.
Year: 1991;
Number of spills: 3.
Year: 1992;
Number of spills: 1.
Year: 1993;
Number of spills: 6.
Year: 1994;
Number of spills: 4.
Year: 1995;
Number of spills: 3.
Year: 1996;
Number of spills: 7.
Year: 1997;
Number of spills: 2.
Year: 1998;
Number of spills: 3.
Year: 1999;
Number of spills: 3.
Year: 2000;
Number of spills: 3.
Year: 2001;
Number of spills: 2.
Year: 2002;
Number of spills: 1.
Year: 2003:
Number of spills: 2.
Year: 2004:
Number of spills: 4.
Year: 2005;
Number of spills: 4.
Year: 2006;
Number of spills: 0.
Source: GAO analysis of NPFC data.
Note: Because spill costs accrue over time, there may have been vessel
spills in 2006 for which costs will exceed $1 million in the future.
[End of figure]
These 51 spills occurred in a variety of locations and involved a range
of vessel types. The spills occurred on the Atlantic, Gulf, and Pacific
coasts and include spills both in open coastal waters and inland
waterways. In addition, as figure 4 shows, 30 of the 51 spills involved
cargo/freight vessels and tank barges, 12 involved fishing and other
types of vessels, and 9 involved tanker vessels.
Figure 4: Major Oil Spills From 1990 to 2006, By Vessel Type:
[See PDF for image]
This figure includes illustrations of each vessel type, and depicts the
following data:
Vessel type: Oil tanker;
Number of spills: 9.
Vessel type: Tank barge;
Number of spills: 15.
Vessel type: Cargo/freight;
Number of spills: 15.
Vessel type: Fishing and other vessels;
Number of spills: 12.
Source: GAO.
[End of figure]
The total cost of the 51 spills cannot be precisely determined because
private-sector expenditures are not tracked,[Footnote 20] the various
parties involved in covering these costs do not categorize them
uniformly, and spills costs are somewhat fluid and accrue over time.
Because spill cost data are somewhat imprecise and the data we
collected vary somewhat by source, the results described below will be
reported in ranges, in which various data sources are combined
together. The lower and higher bounds of the range represent the low
and high end of cost information we obtained.
Our analysis of these 51 spills shows their total cost was
approximately $1 billion--ranging from $860 million to $1.1 billion.
This amount breaks down by source as follows:
* Amount paid out of the Trust Fund: Because the NPFC tracks and
reports all Fund expenditures, the amount paid from the Fund can be
reported as an actual amount, not an estimate. For these 51 spills, the
Fund paid a total of $239.5 million.
* Amount paid by responsible parties: Because of the lack of precise
information about amounts paid by responsible parties and the
differences in how they categorize their costs, this portion of the
expenditures must be presented as an estimate. Based on the data we
were able to obtain and analyze, responsible parties spent between $620
million and $840 million. Even at the low end of the range, this amount
is nearly triple the expenditure from the Fund.
Costs of these 51 spills varied widely by spill, and therefore, by year
(see fig. 5). For example, 1994 and 2004 both had four spills during
the year, but the average cost per spill in 1994 was about $30 million,
while the average cost per spill in 2004 was between $71 million and
$96 million. Just as there was no discernible trend in the frequency of
these major spills, there is no discernible trend in their cost.
Although the substantial increase in 2004 may look like an upward
trend, 2004 may be an anomaly that reflects the unique character of two
of the four spills that occurred that year. These two spills accounted
for 98 percent of the year's costs.
Figure 5: Average per Spill Costs of Major Oil Spills, by Year, 1990-
2006:
[See PDF for image]
This figure is a line graph depicting the average per spill costs 9im
millions of dollars) of major oil spills, by year, 1990-2006. The graph
depicts the following data:
Year: 1990;
Number of spills: 3;
Cost ranges: Single cost estimate of about $2 million.
Year: 1991;
Number of spills: 3;
Cost ranges: Lowest estimate of about $10 million;
Highest estimate of about $15 million.
Year: 1992;
Number of spills: 1;
Cost ranges: Lowest estimate of about $0.5 million;
Highest estimate of about $1 million.
Year: 1993;
Number of spills: 6;
Cost ranges: Lowest estimate of about $18 million;
Highest estimate of about $19 million.
Year: 1994;
Number of spills: 4;
Cost ranges: Single cost estimate of about $30 million.
Year: 1995;
Number of spills: 3;
Cost ranges: Lowest estimate of about $2 million;
Highest estimate of about $4 million.
Year: 1996;
Number of spills: 7;
Cost ranges: Lowest estimate of about $20 million;
Highest estimate of about $26 million.
Year: 1997;
Number of spills: 2;
Cost ranges: Lowest estimate of about $12 million;
Highest estimate of about $33 million.
Year: 1998;
Number of spills: 3;
Cost ranges: Single cost estimate of about $4 million.
Year: 1999;
Number of spills: 3;
Cost ranges: Lowest estimate of about $6 million;
Highest estimate of about $11 million.
Year: 2000;
Number of spills: 3;
Cost ranges: Single cost estimate of about $4 million.
Year: 2001;
Number of spills: 2;
Cost ranges: Lowest estimate of about $3 million;
Highest estimate of about $6 million.
Year: 2002;
Number of spills: 1;
Cost ranges: Single cost estimate of about $2 million.
Year: 2003;
Number of spills: 2;
Cost ranges: Single cost estimate of about $20 million.
Year: 2004;
Number of spills: 4;
Cost ranges: Lowest estimate of about $72 million;
Highest estimate of about $96 million.
Year: 2005;
Number of spills: 4;
Cost ranges: Lowest estimate of about $9 million;
Highest estimate of about $10 million.
Year: 2006;
Number of spills: 0;
Cost ranges: 0.
Source: GAO.
Note: Because we are reporting costs from multiple sources of data, the
data were combined and grouped into cost ranges. In some cases,
however, there was only one cost estimate. In those cases, we present
the amount as a single cost estimate.
[End of figure]
Key Factors Affect Oil Spill Costs in Unique Ways:
Location, time of year, and type of oil are key factors affecting oil
spill costs, according to industry experts, agency officials, and our
analysis of spills.[Footnote 21] Officials also identified two other
factors that may influence oil spill costs to a lesser extent--the
effectiveness of the spill response and the level of public interest in
a spill. In ways that are unique to each spill, these factors can
affect the breadth and difficulty of the response effort or the extent
of damage that requires mitigation.
Location Impacts Costs in Different Ways:
The location of a spill can have a large bearing on spill costs because
it will determine the extent of response needed, as well as the degree
of damage to the environment and local economies. According to state
officials with whom we spoke and industry experts, there are three
primary characteristics of location that affect costs:
* Remoteness: For spills that occur in remote areas, spill response can
be particularly difficult in terms of mobilizing responders and
equipment, and they can complicate the logistics of removing oil from
the water--all of which can increase the costs of a spill.
* Proximity to shore: There are also significant costs associated with
spills that occur close to shore. Contamination of shoreline areas has
a considerable bearing on the costs of spills as such spills can
require manual labor to remove oil from the shoreline and sensitive
habitats. The extent of damage is also affected by the specific
shoreline location.
* Proximity to economic centers: Spills that occur in the proximity of
economic centers can also result in increased costs when local services
are disrupted. A spill near a port can interrupt the flow of goods,
necessitating an expeditious response in order to resume business
activities, which could increase removal costs. Additionally, spills
that disrupt economic activities can result in expensive third-party
damage claims.
Time of Year Has Impact on Local Economies and Response Efforts:
The time of year in which a spill occurs can also affect spill costs--
in particular, impacting local economies and response efforts.
According to several state and private-sector officials with whom we
spoke, spills that disrupt seasonal events that are critical for local
economies can result in considerable expenses. For example, spills in
the spring months in areas of the country that rely on revenue from
tourism may incur additional removal costs in order to expedite spill
clean-up, or because there are stricter standards for clean up, which
increase the costs.
The time of year in which a spill occurs also affects response efforts
because of possible inclement weather conditions. For example, spills
that occur during the winter months in areas of the country that
experience harsh winter conditions can result in higher removal costs
because of the increased difficulty in mobilizing equipment and
personnel to respond to a spill in inclement weather. According to a
state official knowledgeable about a January 1996 spill along the coast
of Rhode Island, extremely cold and stormy weather made response
efforts very difficult.
Type of Oil Spilled Impacts the Extent of the Response Effort and the
Amount of Damage:
The type of oil spilled affects the degree to which oil can be cleaned
up and removed, as well as the nature of the natural resource damage
caused by the spill. The different types of oil can be grouped into
four categories, each with its own set of impacts on spill response and
the environment (see table 1).
Table 1: Description of Different Oil Types:
In general, oil types differ from each other in three ways: viscosity-
-oil's resistance to flow, volatility--how quickly the oil evaporates
in the air, and toxicity--how poisonous the oil is to people and other
organisms.
Oil type: Very light oils; (Jet fuels, gasoline);
Removal and response: Highly volatile (they will evaporate within 1-2
days). It is rarely possible to clean up the oil from such spills;
Environmental impact: Highly toxic: Can cause severe impacts to
shoreline resources.
Oil type: Light oils; (Diesel, No. 2 fuel oil, light crudes);
Removal and response: Moderately volatile, but will leave a residue
after a few days. Cleanup can be very effective for these spills;
Environmental impact: Moderately toxic: Has the potential to create
long-term contamination of shoreline resources.
Oil type: Medium oils; (Most crude oils);
Removal and response: Some oil (about one-third) will evaporate in 24
hours. Cleanup most effective if conducted quickly;
Environmental impact: Less toxic: Oil contamination of shoreline can be
severe and long-term, and can have significant impacts to waterfowl and
fur-bearing mammals.
Oil type: Heavy oils; (Heavy crude oils, No. 6 fuel oil, bunker C
fuel);
Removal and response: Little or no oil will evaporate. Cleanup is
difficult;
Environmental impact: Less toxic: Heavy contamination of shoreline
resources is likely, with severe impacts to waterfowl and fur-bearing
mammals through coating and ingestion.
Source: NOAA.
[End of table]
Lighter oils such as jet fuels, gasoline, and diesel fuel dissipate and
evaporate quickly, and as such, often require minimal cleanup. However,
these oils are highly toxic and can severely affect the environment if
conditions for evaporation are unfavorable. For instance, in 1996, a
tank barge that was carrying home-heating oil grounded in the middle of
a storm near Point Judith, Rhode Island, spilling approximately 828,000
gallons of heating oil (light oil). Although this oil might dissipate
quickly under normal circumstances, heavy wave conditions caused an
estimated 80 percent of the release to mix with water.[Footnote 22]
Natural resource damages alone were estimated at $18 million, due to
the death of approximately 9 million lobsters, 27 million clams and
crabs, and over 4 million fish.
Heavier oils, such as crude oils and other heavy petroleum products are
less toxic than lighter oils but can also have severe environmental
impacts. Medium and heavy oils do not evaporate much, even during
favorable weather conditions, and can blanket structures they come in
contact with--boats and fishing gear, for example--as well as the
shoreline, creating severe environmental impacts to these areas, and
harming waterfowl and fur-bearing mammals through coating and
ingestion. Additionally, heavy oils can sink, creating prolonged
contamination of the sea bed and tar balls that sink to the ocean floor
and scatter along beaches. These spills can require intensive shoreline
and structural clean up, which is time-consuming and expensive. For
example, in 1995, a tanker spilled approximately 38,000 gallons of
heavy fuel oil into the Gulf of Mexico when it collided with another
tanker as it prepared to lighter its oil to another ship.[Footnote 23]
Less than 1 percent (210 gallons) of the oil was recovered from the
sea, and as a result, recovery efforts on the beaches of Matagorda and
South Padre Islands were labor intensive, as hundreds of workers had to
manually pick up tar balls with shovels. The total removal costs for
the spill were estimated at $7 million.
Other Factors Also Affect Spill Costs:
Some industry experts cited two other factors as also affecting costs
incurred during a spill.
* Effectiveness of Spill Response: Some private-sector officials stated
that the effectiveness of spill response can impact the cost of
cleanup. The longer it takes to assemble and conduct the spill
response, the more likely it is that the oil will move with changing
tides and currents and affect a greater area, which can increase costs.
Some officials said the level of experience of those involved in the
incident command is critical to the effectiveness of spill response.
For example, they said poor decision making during a spill response
could lead to the deployment of unnecessary response equipment, or
worse, not enough equipment to respond to a spill. Several officials
expressed concern that Coast Guard officials are increasingly
inexperienced in handling spill response, in part because the Coast
Guard's mission has been increased to include homeland security
initiatives.
* Public interest: Several officials with whom we spoke stated that the
level of public attention placed on a spill creates pressure on parties
to take action and can increase costs. They also noted that the level
of public interest can increase the standards of cleanliness expected,
which may increase removal costs.
Key Factors Will Likely Influence Cost of San Francisco Spill:
The total costs of the San Francisco spill are currently unknown.
According to NPFC officials, as of December 4, 2007, the Unified
Command estimated that $48 million had been spent on the response,
which includes approximately $2.2 million from the Fund.[Footnote 24]
The total costs will not likely be known for a while, as it can take
many months or years to determine the full effect of a spill on natural
resources and to determine the costs and extent of the natural resource
damage. Our work for this testimony did not include a thorough
evaluation of the factors affecting the spill. However, some of the
same key factors that have influenced the cost of 51 major oil spills
will likely have an effect on the costs in the San Francisco spill. For
example, the spill occurred in an area close to shore, which caused the
closing of as many as 22 beaches, according to Coast Guard officials. A
weather-related factor was that the spill occurred during dense fog,
which complicated efforts to determine how much of an area the spill
covered. Moreover, the cargo ship spilled a heavy oil--specifically
intermediate fuel oil--that requires particularly intensive shoreline
and structural clean-up, and harmed scores of birds and marine mammals
through coating and ingestion.[Footnote 25] Concerns have also been
raised about the effectiveness of the spill response and incident
command, another of the factors cited as contributing to increased
costs. The National Transportation Safety Board, the Coast Guard, as
well as other government agencies, are currently investigating the
details of the accident and the subsequent response.
Fund Has Been Able to Cover Costs Not Paid by Responsible Parties, but
Risks Remain:
The Fund has been able to cover costs from major spills that
responsible parties have not paid, but risks remain. Specifically, the
current liability limits for certain vessel types, notably tank barges,
may be disproportionately low relative to costs associated with such
spills. There is also no assurance that vessel owners and operators are
able to financially cover these new limits, because the Coast Guard has
not yet issued regulations for satisfying financial responsibility
requirements. In addition, although OPA calls for periodic increases in
liability limits to account for significant increases in inflation,
such increases have never been made. Aside from issues related to
limits of liability, the Fund faces other potential drains on its
resources, including ongoing claims from existing spills.
Further Attention to Limits of Liability Is Needed:
The Fund has been able to cover costs from major spills that
responsible parties have not paid, but additional focus on limits of
liability is warranted. Limits of liability are the amount, under
certain circumstances, above which responsible parties are no longer
financially liable for spill removal costs and damage claims. If the
responsible party's costs exceed the limit of liability, they can make
a claim against the Fund for the amount above the limit. Major oil
spills that exceed a vessel's limit of liability are infrequent, but
their impact on the Fund can be significant. Ten of the 51 major oil
spills that occurred since 1990 resulted in limit-of-liability claims
on the Fund.[Footnote 26] These limit-of-liability claims totaled more
than $252 million and ranged from less than $1 million to more than
$100 million. Limit-of-liability claims will continue to have a
pronounced effect on the Fund. NPFC estimates that 74 percent of claims
under adjudication that were outstanding as of January 2007 were for
spills in which the limit of liability had been exceeded. The amount of
these claims under adjudication was $217 million.[Footnote 27]
We identified three areas in which further attention to these liability
limits appears warranted: the appropriateness of some current liability
limits, the need to adjust limits periodically in the future to account
for significant increases in inflation, and the need for updated
regulations for ensuring vessel owners and operators are able to
financially cover their new limits.
Some Recent Adjustments to Liability Limits Do Not Reflect the Cost of
Major Spills:
The Coast Guard and Maritime Transportation Act of 2006 significantly
increased the limits of liability from the limits set by OPA in 1990.
Both laws base the liability on a specified amount per gross ton of
vessel volume, with different amounts for vessels that transport oil
commodities (tankers and tank barges) than for vessels that carry oil
as a fuel (such as cargo vessels, fishing vessels, and passenger
ships). The 2006 act raised both the per-ton and the required minimum
amounts, differentiating between vessels with a double hull, which
helps prevent oil spills resulting from collision or grounding, and
vessels without a double hull (see table 2 for a comparison of amounts
by vessel category).[Footnote 28] For example, the liability limit for
single-hull vessels larger than 3,000 gross tons was increased from the
greater of $1,200 per gross ton or $10 million to the greater of $3,000
per gross ton or $22 million.
Table 2: Comparison of Limits of Liability as Established in OPA (1990)
and the Coast Guard and Maritime Transportation Act (2006):
Vessel types: Single-hull tankers and tank barges;
1990 Limit of liability: Vessels greater than 3,000 gross tons: the
greater of $1,200 per gross ton or $10 million;
2006 Limit of liability: Vessels greater than 3,000 gross tons: the
greater of $3,000 per gross ton or $22 million.
Vessel types: Single-hull tankers and tank barges;
1990 Limit of liability: Vessels less than or equal to 3,000 gross
tons: the greater of $1,200 per gross ton or $2 million;
2006 Limit of liability: Vessels less than or equal to 3,000 gross
tons: the greater of $3,000 per gross ton or $6 million.
Vessel types: Single-hull tankers and tank barges;
1990 Limit of liability: (Single and double-hull tankers and tank
barges);
2006 Limit of liability: [Empty].
Vessel types: Double-hull tankers and tank barges;
1990 Limit of liability: Vessels greater than 3,000 gross tons: the
greater of $1,200 per gross ton or $10 million;
2006 Limit of liability: Vessels greater than 3,000 gross tons: the
greater of $1,900 per gross ton or $16 million.
Vessel types: Double-hull tankers and tank barges;
1990 Limit of liability: Vessels less than or equal to 3,000 gross
tons: the greater of $1,200 per gross ton or $2 million;
2006 Limit of liability: Vessel types: Vessels less than or equal to
3,000 gross tons: the greater of $1,900 per gross ton or $4 million.
Vessel types: Double-hull tankers and tank barges;
1990 Limit of liability: (Single and double-hull tankers and tank
barges);
2006 Limit of liability: [Empty].
Vessel types: All other vessels: Cargo vessels, fishing vessels,
passenger ships;
1990 Limit of liability: The greater of $600 per gross ton or $500,000;
2006 Limit of liability: The greater of $950 per gross ton or $800,000.
Source: Coast Guard and Maritime Transportation Act of 2006.
[End of table]
Our analysis of the 51 spills showed that the average spill cost for
some types of vessels, particularly tank barges, was higher than the
limit of liability, including the new limits established in 2006. As
figure 6 shows, the 15 tank barge spills and the 12 fishing/other
vessel spills had average costs greater than both the 1990 and 2006
limits of liability. For example, for tank barges, the average cost of
$23 million was higher than the average limit of liability of $4.1
million under the 1990 limits and $10.3 million under the new 2006
limits. The nine spills involving tankers, by comparison, had average
spill costs of $34 million, which was considerably lower than the
average limit of liability of $77 million under the 1990 limits and
$187 million under the new 2006 limits.[Footnote 29] Similarly, the 15
major spills involving cargo/freight vessels had an average spill cost
of $67 million, which was lower than both the 1990 and 2006 limits of
liability.
Figure 6: Average Spill Costs and Limits of Liability for Major Oil
Spill Vessels, 1990-2006:
[See PDF for image]
This image is a multiple vertical bar graph depicting the average spill
costs and limits of liability for major oil spill vessels, 1990-2006.
The vertical axis of the graph represents cost in millions of dollars.
The horizontal axis of the graph represents vessel types. The following
data is depicted:
Vessel type: Tanker;
Number of spills: 9;
Average spill cost: approximately $40 million;
1990 average limit of liability: approximately $75 million;
2006 average limit of liability: approximately $180 million.
Vessel type: Cargo/freight;
Number of spills: 15;
Average spill cost: approximately $65 million;
1990 average limit of liability: approximately $70 million;
2006 average limit of liability: approximately $115 million.
Vessel type: Tank barge;
Number of spills: 15;
Average spill cost: approximately $20 million;
1990 average limit of liability: approximately $3 million;
2006 average limit of liability: approximately $8 million.
Vessel type: Fishing/other;
Number of spills: 12;
Average spill cost: approximately $22 million;
1990 average limit of liability: approximately $5 million;
2006 average limit of liability: approximately $9 million;
Source: GAO.
[End of figure]
In a January 2007 report examining spills in which the limits of
liability had been exceeded, the Coast Guard had similar findings on
the adequacy of some of the new limits.[Footnote 30] Based on an
analysis of 40 spills in which costs had exceeded the responsible
party's liability limit since 1991, the Coast Guard found that the
Fund's responsibility would be greatest for spills involving tank
barges, where the Fund would be responsible for paying 69 percent of
costs. The Coast Guard concluded that increasing liability limits for
tank barges and non tank vessels--cargo, freight, and fishing vessels-
-over 300 gross tons would positively impact the Fund balance. With
regard to making specific adjustments, the Coast Guard said dividing
costs equally between the responsible parties and the Fund was a
reasonable standard to apply in determining the adequacy of liability
limits.[Footnote 31] However, the Coast Guard did not recommend
explicit changes to achieve either that 50/50 standard or some other
division of responsibility.
Liability Limits Have Not Been Adjusted for Inflation:
Although OPA requires adjusting liability limits to account for
significant increases in inflation, no adjustments to the limits were
made between 1990 and 2006, when the Congress raised the limits in the
Coast Guard and Maritime Transportation Act. During those years, the
Consumer Price Index rose approximately 54 percent.[Footnote 32] OPA
requires the President, who has delegated responsibility to the Coast
Guard, through the Secretary of Homeland Security, to issue regulations
not less often than every 3 years to adjust the limits of liability to
reflect significant increases in the Consumer Price Index.[Footnote 33]
We asked Coast Guard officials why no adjustments were made between
1990 and 2006. Coast Guard officials stated that they could not
speculate on behalf of other agencies as to why no adjustments had been
made prior to 2005 when the delegation to the Coast Guard was
made.[Footnote 34]
The decision to leave limits unchanged had financial implications for
the Fund. Raising the liability limits to account for inflation would
have the effect of reducing payments from the Fund, because responsible
parties would be responsible for paying costs up to the higher
liability limit. Not making adjustments during this 16-year period thus
had the effect of increasing the Fund's financial liability. Our
analysis showed that if the 1990 liability limits had been adjusted for
inflation during the 16-year period, claims against the Fund for the 51
major oil spills would have been reduced 16 percent, from $252 million
to $213 million. This would have meant a savings of $39 million for the
Fund.
Certification of Compliance with the New Liability Limits Is Not in
Place:
Certificates of Financial Responsibility have not been adjusted to
reflect the new liability limits. The Coast Guard requires Certificates
of Financial Responsibility, with few exceptions, for vessels over 300
gross tons or any vessels that are lightering or transshipping oil in
the Exclusive Economic Zone as a legal certification that vessel owners
and operators have the financial resources to fund spill response up to
the vessel's limit of liability. Currently, Certificate of Financial
Responsibility requirements are consistent with the 1990 limits of
liability and, therefore, there is no assurance that responsible
parties have the financial resources to cover their increased
liability.[Footnote 35] The Coast Guard plans to initiate a rule making
to issue new Certificate of Financial Responsibility requirements.
Coast Guard officials indicated their goal is to publish a Notice of
Proposed Rulemaking by the end of 2007, but they said they could not be
certain they would meet this goal.
Other Challenges Could Also Affect the Fund's Condition:
The Fund also faces several other potential challenges that could
affect its financial condition:
* Additional claims could be made on spills that have already been
cleaned up: Natural resource damage claims can be made on the Fund for
years after a spill has been cleaned up. The official natural resource
damage assessment conducted by trustees can take years to complete, and
once it is completed, claims can be submitted to the NPFC for up to 3
years thereafter.[Footnote 36] For example, NPFC recently received and
paid a natural resource damage claim for a spill in U.S. waters in the
Caribbean that occurred in 1991.
* Costs and claims may occur on spills from previously sunken vessels
that discharge oil in the future: Previously sunken vessels that are
submerged and in threat of discharging oil represent an ongoing
liability to the Fund. There are over 1000 sunken vessels that pose a
threat of oil discharge.[Footnote 37] These potential spills are
particularly problematic because in many cases there is no viable
responsible party that would be liable for removal costs. Therefore,
the full cost burden of oil spilled from these vessels would likely be
paid by the Fund.
* Spills may occur without an identifiable source and therefore, no
responsible party: Mystery spills also have a sustained impact on the
Fund, because costs for spills without an identifiable source--and
therefore no responsible party--may be paid out of the Fund. Although
mystery spills are a concern, the total cost to the Fund from mystery
spills was lower than the costs of known vessel spills in 2001 through
2004. Additionally, none of the 51 major oil spills was the result of
discharge from an unknown source.
* A catastrophic spill could strain the Fund's resources: Since the
1989 Exxon Valdez spill, which was the impetus for authorizing the
Fund's usage, no oil spill has come close to matching its
costs.[Footnote 38] Cleanup costs for the Exxon Valdez alone totaled
about $2.2 billion, according to the vessel's owner. By comparison, the
51 major oil spills since 1990 cost, in total, between $860 million and
$1.1 billion. The Fund is currently authorized to pay out a maximum of
$1 billion on a single spill. Although the Fund has been successful
thus far in covering costs that responsible parties did not pay, it may
not be sufficient to pay such costs for a spill that has catastrophic
consequences.
Concluding Observations:
In conclusion, the "polluter pays" system established under OPA has
been generally effective in ensuring that responsible parties pay the
costs of responding to spills and compensating those affected. However,
increases in some liability limits appear warranted to help ensure that
the "polluter pays" principle is carried out in practice. For certain
vessel types, such as tank barges, current liability limits appear
disproportionately low relative to their historic spill costs. The
Coast Guard has reached a similar conclusion but so far has stopped
short of making explicit recommendations to the Congress about what the
limits should be. Absent such recommendations, the Fund may continue to
pay tens of millions for spills that exceed the responsible parties'
limits of liability. Further, to date, liability limits have not been
regularly adjusted for significant changes in inflation. Consequently,
the Fund was exposed to about $39 million in liability claims for the
51 major spills between 1990 and 2006 that could have been saved if the
limits had been adjusted for inflation. Without such actions, oil
spills with costs exceeding the responsible parties' limits of
liability will continue to place the Fund at risk. Given these
concerns, in our September 2007 report, we recommended that the
Commandant of the Coast Guard (1) determine whether and how liability
limits should be changed, by vessel type, and make recommendations
about these changes to the Congress and (2) adjust the limits of
liability for vessels every 3 years to reflect significant changes in
inflation, as appropriate. DHS, including the Coast Guard, generally
agreed with the report's contents and agreed with the recommendations.
To date, the Commandant of the Coast Guard has not implemented these
recommendations.
Madame Chair this concludes my statement. I would be pleased to answer
any questions that you or other Members of the Subcommittee may have at
this time.
Contact Information:
For further information on this testimony, please contact Susan Fleming
at (202) 512-2834 or Flemings@gao.gov. Individuals making contributions
to this testimony include Nikki Clowers, Assistant Director; Simon
Galed; Stan Stenersen; and Susan Zimmerman.
[End of section]
Appendix I: Information on Spill Response:
Response to large oil spills is typically a cooperative effort between
the public and private sector, and there are numerous players who
participate in responding to and paying for oil spills. To manage the
response effort, the responsible party, the Coast Guard, EPA, and the
pertinent state and local agencies form the unified command, which
implements and manages the spill response.[Footnote 39] Beyond the
response operations, there are other stakeholders, such as accountants
who are involved in documenting and accounting for costs, and receiving
and processing claims. In addition, insurers and underwriters provide
financial backing to the responsible party. The players involved in
responding to and/or paying for major spill response are as follows:
[Footnote 40]
* Government agencies: The lead federal authority, or Federal On-Scene
Coordinator, in conducting a spill response is usually the nearest
Coast Guard Sector and is headed by the Coast Guard Captain of the
Port.[Footnote 41] The Federal On-Scene Coordinator directs response
efforts and coordinates all other efforts at the scene of an oil spill.
Additionally, the on-scene coordinator issues pollution removal funding
authorizations--guarantees that the agency will receive reimbursement
for performing response activities--to obtain services and assistance
from other government agencies. Other federal agencies may also be
involved. NOAA provides scientific support, monitoring and predicting
the movement of oil, and conducting environmental assessments of the
impacted area. The federal, state, and tribal trustees join together to
perform a natural resource damage assessment, if necessary. Within the
Coast Guard, the NPFC is responsible for disbursing funds to the
federal on-scene coordinator for oil spill removal activities and
seeking reimbursement from responsible parties for federal costs.
Additionally, regional governmental entities that are affected by the
spill--both state and local--as well as tribal government officials or
representatives may participate in the unified command and contribute
to the response effort, which is paid for by the responsible party or
are reimbursed by the responsible party or the Fund.[Footnote 42]
Responsible parties: OPA stipulates that both the vessel owner and
operator are ultimately liable for the costs of the spill and the
cleanup effort. The Coast Guard has final determination on what actions
must be taken in a spill response, and the responsible party may form
part of the unified command--along with the federal on-scene
coordinator and pertinent state and local agencies--to manage the spill
response. The responsible parties rely on other entities to evaluate
the spill effects and the resulting compensation. Responsible parties
hire environmental and scientific support staff, specialized claims
adjustors to adjudicate third-party claims, public relations firms, and
legal representation to file and defend limit of liability claims on
the Fund, as well as serve as counsel throughout the spill response.
Qualified individuals: Federal regulations require that vessels
carrying oil as cargo have an incident response plan and, as part of
the plan, they appoint a qualified individual who acts with full
authority to obligate funds required to carry out response activities.
The qualified individual acts as a liaison with the Federal On-Scene
Coordinator and is responsible for activating the incident response
plan.
Oil spill response organizations: These organizations are private
companies that perform oil spill cleanup, such as skimming and disposal
of oil. Many of the companies have contractual agreements with
responsible parties and the Coast Guard. The agreements, called basic
ordering agreements, provide for prearranged pricing, response
personnel, and equipment in the event of an oil spill.
Insurers: Responsible parties often have multiple layers of primary and
excess insurance coverage, which pays oil spill costs and claims.
Pollution liability coverage for large vessels is often underwritten by
not-for-profit mutual insurance organizations. The organizations act as
a collective of ship owners, who insure themselves, at-cost. The
primary insurers of commercial vessels in U.S. waters are the Water
Quality Insurance Syndicate, an organization providing pollution
liability insurance to over 40,000 vessels, and the International Group
of P & I Clubs, 13 protection and indemnity organizations that provide
insurance primarily to foreign-flagged large vessels.[Footnote 43]
At the federal level, the National Oil and Hazardous Substances
Pollution Contingency Plan provides the framework for responding to oil
spills.[Footnote 44] At the port level, each port has an Area
Contingency Plan, developed by a committee of local stakeholders, that
calls for a response that is coordinated with both higher-level federal
plans and lower-level facility and vessel plans. The federal plans
designate the Coast Guard as the primary agency to respond to oil
spills on water. The Coast Guard has a National Strike Force to provide
assistance to efforts by the local Coast Guard and other
agencies.[Footnote 45] The Coast Guard also has an exercise program--
known as the Spills of National Significance exercise program--to test
national level response capabilities. This program is focused on
exercising the entire response system as the local, regional and
national level using large-scale, high probability oil and hazardous
material incidents that result from unintentional causes such as
maritime accidents or natural disasters. The most recent program
exercise, in June 2007, tested the response and recovery to an oil and
hazardous materials release in the wake of a large scale earthquake in
the Mississippi and Ohio river valleys.
[End of section]
Footnotes:
[1] As of December 4, 2007, about 20,000 gallons of oil had been
recovered.
[2] Responsible parties are liable without limit, however, if the oil
discharge is the result of gross negligence, or a violation of federal
operation, safety, and construction regulations.
[3] The National Oil and Hazardous Substances Pollution Contingency
Plan states that any oil discharge that poses a substantial threat to
public health or welfare of the United States or the environment or
results in significant public concern shall be classified as a major
spill. For the purposes of our work, however, we defined major spills
as spills with total removal costs and damage claims that exceed $1
million.
[4] GAO, Maritime Transportation: Major Oil Spills Occur Infrequently,
but Risks to the Federal Oil Spill Fund Remain, GAO-07-1085
(Washington, D.C.: Sept. 7, 2007). The Coast Guard and Maritime
Transportation Act of 2006 directed us to conduct an assessment of the
cost of response activities and claims related to oil spills from
vessels that have occurred since January 1, 1990, for which the total
costs and claims paid was at least $1 million per spill. The mandate
required that the report summarize the costs and claims for oil spills
that have occurred since January 1, 1990, that total at least $1
million per spill, and the source, if known, of each spill for each
year.
[5] Environmental Research Consulting is a private consulting firm that
specializes in data analysis, environmental risk assessment, cost
analyses, expert witness research and testimony, and development of
comprehensive databases on oil and chemical spills in service to
regulatory agencies, nongovernmental organizations, and industry.
[6] Another potential factor is the size of the spill. Although a
larger spill will require an extensive and expensive cleanup effort,
officials reported that compared with the factors presented here, spill
volume is less important to the costs of oil spill response.
[7] OPA has required since 1990 that the President” and through several
delegations to the Secretaries of Transportation and Homeland Security
and a redelegation to the Coast Guard in 2005”adjust liability limits
at least every 3 years to account for significant increases in
inflation. However, the executive branch has never made such
adjustments.
[8] OPA applies to oil discharged from vessels or facilities into
navigable waters of the United States and adjoining shorelines. OPA
also covers substantial threats of discharge, even if an actual
discharge does not occur.
[9] When responsible parties' costs exceed their limit of liability and
the limit is upheld--because there was no gross negligence or
violations of federal regulations by the vessel owner or operator--the
responsible party is entitled to file a claim on the Fund to be
reimbursed for costs in excess of the limit. NPFC reviews the claim to
determine which costs are OPA-compensable and the responsible party is
reimbursed from the Fund.
[10] Title VI of the Coast Guard and Maritime Transportation Act of
2006. Public Law 109-241, § 603 (c)(3).
[11] 33 C.F.R. §138. The U.S. Exclusive Economic Zone extends 200
nautical miles offshore.
[12] The prior federal laws regarding oil pollution included the
Federal Water Pollution Control Act, the Deepwater Port Act, the Trans-
Alaska Pipeline System Authorization Act, and the Outer Continental
Shelf Lands Act Amendments of 1978. Congress created the Fund in 1986
but did not authorize collection of revenue or use of the money until
it passed OPA in 1990.
[13] The tax expired in December 1994. Besides the barrel tax, the Fund
also receives revenue in the form of interest on the Fund's principal
and fines and penalties.
[14] Recent related GAO products include GAO, U.S. Coast Guard National
Pollution Funds Center: Improvements Are Needed in Internal Control
Over Disbursements, GAO-04-340R (Washington, D.C.: Jan. 13, 2004) and
GAO, U.S. Coast Guard National Pollution Funds Center: Claims Payment
Process Was Functioning Effectively, but Additional Controls Are Needed
to Reduce the Risk of Improper Payments, GAO-04-114R (Washington, D.C.:
Oct. 3, 2003).
[15] The Energy Policy Act of 2005. Public Law 109-58 §1361. The barrel
tax is scheduled to be in place until 2014.
[16] OPA authorizes the United States, states, and Indian Tribes to act
on behalf of the public as natural resource trustees for natural
resources under their respective trusteeship. Trustees often have
information and technical expertise about the biological effects of
pollution, as well as the location of sensitive species and habitats
that can assist the federal on-scene coordinator in characterizing the
nature and extent of site-related contamination and impacts. Federal
Trustees include Commerce, DOI, the Departments of Agriculture,
Defense, Energy, and other agencies authorized to manage or protect
natural resources.
[17] Our analysis excluded the spills with limit of liability claims.
[18] The Incident Command System (ICS) is a standardized response
management system that is part of the National Interagency Incident
Management System. The ICS is organizationally flexible so that it can
expand and contract to accommodate spill responses of various sizes.
The ICS typically consists of four sections: operations, planning,
logistics, and finance/administration.
[19] We established the universe of major oil spills from 1990 to 2006,
based on available public and private sector data in consultation with
NPFC, Environmental Research Consulting, and other industry experts.
Additionally, we gathered removal costs and damage claims data from
federal agencies involved in spill response, claims payments, and
conducting natural resource damage assessments (Coast Guard, NOAA, DOI,
and FWS); and to the best of our ability, we gathered private-sector
cost data from vessels insurers, and in contract with Environmental
Research Consulting.
[20] Under regulation S-K, 17 C.F.R. 229, companies that are publicly
traded must disclose any outstanding liabilities, including liabilities
such as oil spill removal costs or claims made against the company for
natural resource or third-party damages incurred. However, many vessel
owners or operators are not publicly traded companies.
[21] Another potential factor is the size of the spill. Although a
larger spill will require an extensive and expensive cleanup effort,
officials reported that compared with the factors presented here, spill
volume is less important to the costs of oil spill response.
[22] National Research Council of the National Academies, Oil in the
Sea III: Inputs, Fates, and Effects (Washington, D.C.: 2003).
[23] Lightering is the process of transferring oil at sea from a very
large or ultra-large carrier to smaller tankers that are capable of
entering the port.
[24] According to NPFC officials, the OPA limit of liability for this
vessel, if the limit applies under the circumstances of the spill, is
approximately $61.8 million.
[25] Intermediate fuel oil is a common diesel fuel used to power marine
vessels.
[26] Additional spills had costs in excess of the vessel's limit of
liability, but either the limit was not upheld or no claim was filed by
the responsible party.
[27] This figure is based on all spills with claims on the Fund,
currently under adjudication, not just the 51 major spills. U.S. Coast
Guard, Report on Oil Pollution Act Liability Limits, Jan. 5, 2007. Like
our report, the Coast Guard's report was prepared in response to a
provision in the Coast Guard and Maritime Transportation Act.
[28] OPA requires that all tank vessels (greater than 5,000 gross tons)
constructed (or that undergo major conversions) under contracts awarded
after June 30, 1990, operating in U.S. navigable waters must have
double hulls. Of the 51 major oil spills, all 24 major spills from tank
vessels (tankers and tank barges) involved single-hull vessels.
[29] The average limits of liability for the spills involving tankers
are much greater than the average liability for tank barges because the
liability is based on the volume of the vessel, and tankers generally
have much higher volumes than tank barges.
[30] U.S. Coast Guard, Report on Oil Pollution Act Liability Limits,
Jan. 5, 2007.
[31] We did not assess the reasonableness of adopting such a standard
in determining liability limits.
[32] The new limits, which increased an average of 125 percent for the
51 vessels involved in major oil spills, were substantially higher than
the rise in inflation during the period.
[33] Congress reiterated this requirement in the Coast Guard and
Maritime Transportation Act by requiring that regulations be issued 3
years after the enactment of the act (July 11, 2006) and every 3 years
afterward to adjust the limits of liability to reflect significant
increases in the Consumer Price Index.
[34] OPA has required since 1990 that the President--and through
several delegations to the Secretaries of Transportation and Homeland
Security and a redelegation to the Coast Guard in 2005--adjust
liability limits at least every 3 years to account for significant
increases in inflation. However, the executive branch has never made
such adjustments.
[35] According to the NPFC, while liable parties are not required to
establish an ability to pay at the higher amended limits until the
certificate of financial responsibility rule is published as required
by OPA, those parties are liable for the higher amounts.
[36] Federal response costs for spills that resulted from hurricanes
Katrina and Rita were paid from the Stafford Act Disaster Relief Funds.
However, private parties can seek reimbursement from the Fund for
cleanup costs and damages in the future. According to NPFC, it is
difficult to estimate future liabilities to the Fund as a result of
hurricanes Katrina and Rita, but as of July 2007, there are no claims
pending in connection with these hurricanes.
[37] Michel, J., D. Etkin, T. Gilbert, J. Waldron, C. Blocksidge, and
R. Urban; 2005. Potentially Polluting Wrecks in Marine Waters: An Issue
Paper Prepared for the 2005 International Oil Spill Conference.
[38] The ExxonValdez only discharged about 20 percent of the oil it was
carrying. A catastrophic spill from a vessel could result in costs that
exceed those of the Exxon Valdez, particularly if the entire contents
of a tanker were released in a 'worst-case discharge' scenario.
[39] The Incident Command System (ICS) is a standardized response
management system that is part of the National Interagency Incident
Management System. The ICS is organizationally flexible so that it can
expand and contract to accommodate spill responses of various sizes.
The ICS typically consists of four sections: operations, planning,
logistics, and finance/administration.
[40] For a full description of the organizational structure and
procedures for preparing for and responding to discharges of oil, see
The National Oil and Hazardous Substances Pollution Contingency Plan,
40 C.F.R. § 300.
[41] Although this report focuses on vessels, and most vessel spills
are in the Coast Guard zone of jurisdiction, EPA is the lead on-scene
coordinator in the inland zone, and Coast Guard is lead on-scene
coordinator in the coastal zone.
[42] State governments can seek reimbursement directly from responsible
parties or from the Fund. State officials in Alaska, California, New
York, Rhode Island, Texas, and Washington said that state agencies
recover almost all of their costs, either directly from responsible
parties or from the NPFC. Officials in Texas said that the
reimbursement rate for oil spill costs may be as high as 98 percent.
[43] These 13 organizations are American Steamship Owners Mutual
Protection and Indemnity Association, Inc.; Assuranceforeningen Gard;
Assuranceforeningen Skuld; the Britannia Steam Ship Insurance
Association Limited; the Japan Ship Owners' Mutual Protection &
Indemnity Association; the London Steam-Ship Owners' Mutual Insurance
Association Limited; the North of England Protection and Indemnity
Association, Limited; the Shipowners' Mutual Protection and Indemnity
Association (Luxembourg); the Standard Steamship Owners' Protection and
Indemnity Association (Bermuda), Limited; the Steamship Mutual
Underwriting Association (Bermuda), Limited; the Swedish Club; United
Kingdom Mutual Steam Ship Assurance Association (Bermuda), Limited; the
West of England Ship Owners Mutual Insurance Association (Luxembourg).
[44] The National Oil and Hazardous Substances Pollution Contingency
Plan is a part of a larger plan known as the National Response Plan
which covers a wide variety of contingencies that include natural
disasters, major disasters, and terrorist attacks.
[45] The National Strike Force was established in 1973. Originally
comprised of three 17-member strike teams, today's National Strike
Force totals over 200 active duty, civilian, and reserve Coast Guard
personnel for three distinct regions--the Atlantic, Gulf and Pacific.
[End of section]
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