Maritime Transportation
Major Oil Spills Occur Infrequently, but Risks to the Federal Oil Spill Fund Remain Gao ID: GAO-07-1085 September 7, 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. The Coast Guard and Maritime Transportation Act of 2006 directed GAO to examine spills that cost the responsible party and the Fund at least $1 million. This report answers three questions: (1) How many major spills (i.e., $1 million or more) 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? GAO's work to address these objectives included analyzing oil spill costs data, interviewing federal, state, and private-sector officials, and reviewing Coast Guard files from selected spills.
On the basis of cost information collected from a variety of sources, GAO estimates that 51 spills with costs above $1 million have occurred since 1990 and that responsible parties and the federal Oil Spill Liability Trust Fund (Fund) have spent between about $860 million and $1.1 billion for oil spill removal costs and compensation for damages (e.g., lost profits and natural resource damages). Responsible parties paid between about 72 percent and 78 percent of these costs; the Fund has paid the remainder. Since removal costs and damage claims may stretch out over many years, the costs of the spills could rise. The 51 spills, which constitute about 2 percent of all vessel spills since 1990, varied greatly from year to year in number and cost. 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. Each spill's cost reflects a unique mix of these factors. To date, the Fund has been able to cover costs from major spills that responsible parties have not paid, but risks remain. Specifically, the Coast Guard and Maritime Transportation Act of 2006 increased liability limits, but GAO's analysis shows the new limit for tank barges remains low relative to the average cost of such spills. Since 1990, the Oil Pollution Act 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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-1085, Maritime Transportation: Major Oil Spills Occur Infrequently, but Risks to the Federal Oil Spill Fund Remain
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
September 2007:
Maritime Transportation:
Major Oil Spills Occur Infrequently, but Risks to the Federal Oil Spill
Fund Remain:
Oil Spill Costs:
GAO-07-1085:
GAO Highlights:
Highlights of GAO-07-1085, a report to congressional committees.
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.
The Coast Guard and Maritime Transportation Act of 2006 directed GAO to
examine spills that cost the responsible party and the Fund at least $1
million. This report answers three questions: (1) How many major spills
(i.e., $1 million or more) 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? GAO‘s work to address these objectives included analyzing
oil spill costs data, interviewing federal, state, and private-sector
officials, and reviewing Coast Guard files from selected spills.
What GAO Found:
On the basis of cost information collected from a variety of sources,
GAO estimates that 51 spills with costs above $1 million have occurred
since 1990 and that responsible parties and the federal Oil Spill
Liability Trust Fund (Fund) have spent between about $860 million and
$1.1 billion for oil spill removal costs and compensation for damages
(e.g., lost profits and natural resource damages). Responsible parties
paid between about 72 percent and 78 percent of these costs; the Fund
has paid the remainder. Since removal costs and damage claims may
stretch out over many years, the costs of the spills could rise. The 51
spills, which constitute about 2 percent of all vessel spills since
1990, varied greatly from year to year in number and cost.
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. Each
spill‘s cost reflects a unique mix of these factors.
To date, the Fund has been able to cover costs from major spills that
responsible parties have not paid, but risks remain. Specifically, the
Coast Guard and Maritime Transportation Act of 2006 increased liability
limits, but GAO‘s analysis shows the new limit for tank barges remains
low relative to the average cost of such spills. Since 1990, the Oil
Pollution Act 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.
Figure: Location and Cost of Major Oil Spills, 1990-2006:
[See PDF for image]
Source: GAO.
[End of figure]
What GAO Recommends:
GAO recommends 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 changes in
inflation, as appropriate.
DHS officials generally agreed with the contents and agreed with the
recommendations in this report.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1085].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Susan Fleming at (202)
512-4431 or flemings@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Oil Spills Costing More than $1 Million Occurred Infrequently Since
1990, but Estimated Costs Total $860 Million to $1.1 Billion:
Key Factors Affect Oil Spill Costs in Unique Ways:
Fund Has Been Able to Cover Costs Not Paid by Responsible Parties, but
Risks Remain:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Overview:
Our Categorization of Oil Spill Costs:
Available Data:
Universe of Major Oil Spills:
Data Analysis and Case Studies:
Appendix II: Comments from the Department of Homeland Security:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Types of OPA-Compensable Removal Costs and Damages:
Table 2: Description of Different Oil Types:
Table 3: Comparison of Limits of Liability as Established in OPA (1990)
and the Coast Guard and Maritime Transportation Act (2006):
Figures:
Figure 1: Description of Vessel Types and Current Limits of Liability:
Figure 2: Oil Spill Liability Trust Fund Expenditures, Fiscal Years,
1990-2006:
Figure 3: Oil Spill Liability Trust Fund Balance, Fiscal Years 1993-
2006:
Figure 4: Number of Major Oil Spills, by Year, 1990-2006:
Figure 5: Location and Cost of Major Oil Spills, 1990-2006:
Figure 6: Average per Spill Costs of Major Oil Spills, by Year, 1990-
2006:
Figure 7: Average per Spill Cost of Major Oil Spills, by Location, 1990-
2006:
Figure 8: Average per Spill Costs of Major Oil Spills, by Time of Year,
1990-2006:
Figure 9: Average per Spill Costs of Major Oil Spills by Type of Oil,
1990-2006:
Figure 10: Average Spill Costs and Limits of Liability for Major Oil
Spill Vessels, 1990-2006:
Abbreviations:
Commerce Department of Commerce:
DOI: Department of the Interior:
EPA: Environmental Protection Agency:
Fund: Oil Spill Liability Trust Fund:
FWS: U.S. Fish and Wildlife Service:
NPFC: National Pollution Funds Center:
NOAA: National Oceanographic and Atmospheric Administration:
OPA: Oil Pollution Act of 1990:
United States Government Accountability Office:
Washington, DC 20548:
September 7, 2007:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Ted Stevens:
Vice Chairman:
Committee on Commerce, Science, and Transportation:
United States Senate:
The Honorable:
James L. Oberstar:
Chairman:
The Honorable John L. Mica:
Ranking Republican Member:
Committee on Transportation and Infrastructure:
House of Representatives:
The potential for an oil spill exists daily across coastal and inland
waters of the United States. In 2005, for example, oil tankers
transported over half of the crude oil that entered the country, and
often, barges move petroleum products to the markets where they are
used. The potential for spills also extends well beyond vessels
involved in the petroleum industry. Cargo, fishing, and other types of
vessels also carry substantial fuel reserves. Accidents, groundings, or
collisions can release this fuel and create substantial damage. Spills
can be expensive, with considerable costs to the federal government and
the private sector. The most expensive spill in U.S. waters, the 1989
Exxon Valdez spill in Alaska, cost $2.2 billion to clean up, according
to ExxonMobil.[Footnote 1] Less expensive but still significant spills
have occurred since then. For example, in 2004, the tanker Athos I
spilled over 260,000 gallons of crude oil into the Delaware River; and,
according to the Coast Guard, removal costs and damage claims from this
spill have cost more than $120 million to date.
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--in return for 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 yearly peak of $1.2 billion
in 2000. The decline in the Fund's balance 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.
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. To fulfill this requirement, we examined--after
consultation with committee staff--the following questions: (1) How
many major oil spills have occurred since 1990 and what have been the
total costs of these spills? (2) What are the factors that affect major
oil spill costs? and (3) What are the implications of major oil spill
costs for the Oil Spill Liability Trust Fund?
To address these questions, 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 in contract with Environmental Research
Consulting.[Footnote 3] 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. This report focuses on oil spills that have occurred since
the enactment of OPA--August 18, 1990--for which removal costs and
damage claims exceeded $1 million, and we refer to such spills as major
oil spills.[Footnote 4] 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 study. We conducted our review from
July 2006 through August 2007 in accordance with generally accepted
government auditing standards. More details regarding our scope and
methodology can be found in appendix I.
Results in Brief:
We estimate that since 1990, 51 oil spills have involved removal costs
and damage claims totaling more than $1 million. Collectively, 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 since 1990, varied
greatly from year to year in number and cost and showed no discernible
trends in frequency or size.
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 5] 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. Light oils naturally dissipate and
evaporate quickly--requiring minimal cleanup--but are highly toxic and
create severe environmental impacts. Heavy oils 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.
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 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 the Congress
on whether adjustments to limits are necessary to help protect the
Fund.[Footnote 6] 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 the 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.
We are recommending 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. We provided a copy of this draft
for review and comment to the Departments of Homeland Security (DHS),
including the Coast Guard; Commerce; the Interior (DOI); and
Transportation and the Environmental Protection Agency (EPA). In
commenting on a draft of this report, DHS generally agreed with its
contents and agreed with the recommendations. The written comments from
DHS can be found in appendix II. The Departments of Commerce,
Transportation, DOI, and EPA also provided technical clarifications,
which we have incorporated in this report, as appropriate.
Background:
The United States is the world's largest net importer of oil. In 2006,
the United States had net imports of 12.2 million gallons of oil per
day, more than twice as much as Japan and over three times as much as
China, the world's next largest importers. The transport of oil into
the United States occurs primarily by sea with ports throughout the
United States receiving over 40,000 shipments of oil in 2005. In
addition, vessels not transporting oil, such as cargo and freight
vessels, fishing vessels, and passenger ships, often carry tens of
thousands of gallons of fuel oil to power their engines. With over
100,000 commercial vessels navigating U.S. waters, oil spills are
inevitable. Fortunately, however, they 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 forms the foundation of U.S. maritime policy as it pertains to oil
pollution. OPA was passed in 1990, following the 1989 Exxon Valdez
spill in Alaska, which highlighted the need for greater federal
oversight of maritime oil transport. OPA places the primary burden of
liability and the costs of oil spills on the vessel owner and operator
who was responsible for the spill.[Footnote 7] 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. 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 8] Current limits of liability, which
vary by type of vessel and are determined by a vessel's gross tonnage,
were set by the Congress in 2006. The Coast Guard is responsible for
adjusting limits for significant increases in inflation and for making
recommendations to the Congress on whether adjustments are necessary to
help protect the Fund.[Footnote 9] 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 10]
Figure 1: Description of Vessel Types and Current Limits of Liability:
[See PDF for image]
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 regards to expenditures.[Footnote 11] The Fund has
two major components--the Principal Fund and the Emergency Fund. The
Emergency Fund consists of $50 million apportioned each year to fund
spill response and the initiation of natural resource damage
assessments, which provide the basis for determining the natural
resource restoration needs that address the public's loss and use of
natural resources as a result of a spill. The Principal Fund provides
the funds for third-party and natural resource damage claims, limit of
liability claims, reimbursement of government agencies' removal costs,
and provides for oil spill related appropriations. A number of
agencies--including the Coast Guard, EPA, and DOI--receive an annual
appropriation from the Fund to cover administrative, operational,
personnel, and enforcement costs. From 1990 to 2006, these
appropriations amounted to the Fund's largest expense (see fig. 2).
Figure 2: Oil Spill Liability Trust Fund Expenditures, Fiscal Years,
1990-2006:
[See PDF for image]
Source: GAO analysis of NPFC data.
Notes: Federal research and other programs include appropriations to
Department of Transportation, the Denali Commission, and the Oil Spill
Recovery Institute. The Department of Treasury and the Army Corps of
Engineers have received appropriations, but these account for about
0.10 percent of Fund expenditures.
Percentages do not sum to 100 percent due to rounding.
[End of figure]
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. 3). 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 12] As a result, the Fund
balance was $604.4 million at the end of fiscal year 2006.[Footnote 13]
The Energy Policy Act of 2005 reinstated the barrel tax beginning in
April 2006.[Footnote 14] With the barrel tax once again in place, NPFC
anticipates that the Fund will be able to cover its projected
noncatastrophic liabilities.
Figure 3: Oil Spill Liability Trust Fund Balance, Fiscal Years 1993-
2006:
[See PDF for image]
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 the costs 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. (Table 1 provides a brief definition of OPA-compensable removal
costs and damages.) 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 15]
Table 1: Types of OPA-Compensable Removal Costs and Damages:
Removal costs: Removal of oil;
Costs for the containment and removal of oil from water and shorelines
including contract services (such as cleanup contractors and incident
management support) and the equipment used for removal.
Removal costs: Disposal;
Costs for the proper disposal of recovered oil and oily debris.
Removal costs: Personnel;
Costs for government personnel and temporary government employees hired
for the duration of the spill response, including costs for monitoring
the activities of the responsible parties.
Removal costs: Prevention;
Costs for the prevention or minimization of a substantial threat of an
oil spill.
Damages: Natural resources;
Federal, state, foreign, or Indian tribe trustees can claim damages for
injury to, or destruction of, and loss of, or loss of use of, natural
resources, including the reasonable costs of assessing the damage.
Damages: Real or personal property;
Damages for injury to, or economic losses resulting from destruction
of, real or personal property, such as boats or docks.
Damages: Subsistence use;
Damages for loss of subsistence use of natural resources, without
regard to the ownership or management of the resources.
Damages: Government revenues, profits, and earning capacity;
The federal, state, or local government can claim damages for the loss
of taxes, royalties, rents, fees, or profits. Companies can claim
damages for loss of profits or impairment of earning capacity.
Damages: Public services;
States and local governments can recover costs for providing increased
public services during or after an oil spill response, including
protection from fire, safety, or health hazards.
Source: GAO summary of the Oil Pollution Act of 1990 (33 U.S.C. § 2702
(b)).
[End of table]
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 be bankrupt or dissolved. Based on our analysis of NPFC
records, excluding spills with limit of liability claims, the recovery
rate for costs from the 51 major oil spills since 1990 is 65 percent,
which means that responsible parties have paid 65 percent of costs. The
35 percent of nonreimbursed costs to the Fund for these major spills
have amounted to $53.9 million.
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 16] 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 17]
* 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 18] 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 19]
* 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 20]
Oil Spills Costing More than $1 Million Occurred Infrequently Since
1990, 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 $1
million or more have occurred since 1990. In all, the Fund spent $240
million on these spills, and the responsible parties themselves spent
about $620 million to $840 million, for a total of $860 million to $1.1
billion. The number of spills and their costs varied from year to year
and showed no discernable trends in either frequency or cost.
Less Than 2 Percent of Oil Spills Occurring Since 1990 Were Major
Spills:
Less than 2 percent of oil spills from vessels, since 1990, had removal
costs and damage claims of $1 million or greater. Each year, there are
thousands of incident reports called into the National Response Center
that claim oil or oil-like substances have been spilled from vessels
sailing in coastal or inland waters in the United States[Footnote 21]-
--but only a small percentage of these reported incidents are oil
spills from vessels that received federal reimbursement for response
efforts. Specifically, there have been 3,389 oil spills from vessels
that sought reimbursement from the Fund for response efforts. Of these
spills, we estimate that 51 were major oil spills.[Footnote 22] As
figure 4 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 4: Number of Major Oil Spills, by Year, 1990-2006:
[See PDF for image]
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. As figure 5 shows,
the spills occurred on the Atlantic, Gulf, and Pacific coasts and
include spills both in open coastal waters and more confined waterways.
Figure 5: Location and Cost of Major Oil Spills, 1990-2006:
[See PDF for image]
Source: GAO.
[End of figure]
Total Cost of Major Spills Ranges from $860 Million to $1.1 Billion,
and Responsible Parties Pay the Majority of Costs:
The total cost of the 51 spills cannot be precisely determined, for
several reasons:
* Private-sector expenditures are not tracked: The NPFC tracks federal
removal costs expended by the Fund for Coast Guard and other federal
agencies' spill response efforts, but it does not oversee costs
incurred by the private sector. There is also no legal requirement in
place that requires responsible parties to disclose costs incurred for
responding to a spill.[Footnote 23]
* The various parties involved in covering these costs do not
categorize them uniformly: For example, one vessel insurer we spoke
with separates total spill costs by removal costs (for immediate spill
cleanup) and loss adjustment expenses, which contain all other
expenses, including legal fees. In contrast, the NPFC tracks removal
costs and damage claims in terms of the statutory definitions
delineated in OPA.
* Spill costs are somewhat fluid and accrue over time: In particular,
the natural resource and third-party damage claims adjudication
processes can take many years to complete. Moreover, it can take many
months or years to determine the full effect of a spill to natural
resources and to determine the costs and extent of the natural resource
injury and the appropriate restoration needed to repair the damage. For
example, natural resource damage claims were recently paid for a spill
that occurred near Puerto Rico in 1991, over 16 years ago.
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 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 Vary Widely by Spill and Year:
Costs of these 51 spills varied widely by spill, and therefore, by year
(see fig. 6). 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 6: Average per Spill Costs of Major Oil Spills, by Year, 1990-
2006:
[See PDF for image]
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. Data on the 51 major spills show that spills
occurred on all U.S. coasts, across all seasons, and for all oil types.
In ways that are unique to each spill, however, each of these factors
can affect the breadth and difficulty of the response effort or the
extent of damage that requires mitigation. For example, spills that
occur in remote areas can make response difficult in terms of
mobilizing responders and equipment, as well as complicating the
logistics of removing oil--all of which can increase the costs.
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.
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. For example,
a 2001 spill in Alaska's Prince William Sound--which occurred
approximately 40 miles from Valdez, AK--resulted in considerable
removal costs after a fishing vessel hit a rock and sank to a depth of
approximately 1,000 feet. Response took many days and several million
dollars to contain the oil that was still in the vessel, but the effort
was eventually abandoned because it was too difficult from that
depth.[Footnote 24]
* 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. For example, spills that occur in marshes and
swamps with little water movement are likely to incur more severe
impacts than flowing water. A September 2002 spill from a cargo vessel
in the Cooper River near the harbor in Charleston, SC, spread oil
across 30 miles of a variety of shoreline types. The spill resulted in
the oiling of a number of shorebirds and a temporary disruption to
recreational shrimp-baiting in area waters, among other things. As of
July 2007, a settlement for natural resource damages associated with
the spill was still pending.
* 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. For example, after approximately 250,000 gallons of oil
spilled from a tanker in the Delaware River in 2004, a large nuclear
plant in the vicinity was forced to suspend activity for more than a
week. The plant is seeking reimbursement for $57 million in lost
profits.[Footnote 25]
Overall, for the 51 major oil spills, location had the greatest effect
on costs for spills that occurred in the waters of the Caribbean,
followed by the East Coast, Alaska, and the Gulf states.[Footnote 26]
(See fig. 7). The range of average per spill costs for the spills that
occurred in the East Coast locations ranged from about $27 million to
over $37 million, higher than the average costs in any other region
besides the two spills in Caribbean. The high spill costs in the East
Coast locations were caused by several spills in that geographic area
that had considerably higher costs. Specifically, four of the eight
most expensive spills occurred on the waters off the East
Coast.[Footnote 27]
Figure 7: Average per Spill Cost of Major Oil Spills, by Location, 1990-
2006:
[See PDF for image]
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]
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
cleanup, or because there are stricter standards for cleanup, which
increase the costs. This situation occurred in March of 1996 when a
tank barge spilled approximately 176,000 gallons of fuel oil along the
coast of Texas. Because the spill occurred during the annual spring
break tourist season, the time frames for cleaning up the spill were
truncated, and the standards of cleanliness were elevated. Both of
these factors contributed to higher removal costs, according to state
officials we interviewed.
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.
Although the 51 spills occurred during all seasons of the year, they
were most prevalent in the fall and winter months, with 20 spills
occurring in the fall and 13 spills during the winter, compared with 9
spills in the spring and 9 in the summer months.[Footnote 28] On a per-
spill basis, the cost range for the 51 spills was highest in the fall
(see fig. 8).
Figure 8: Average per Spill Costs of Major Oil Spills, by Time of Year,
1990-2006:
[See PDF for image]
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]
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--both of which can significantly impact the costs
associated with an oil 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 2). For example, lighter oils
such as jet fuels, gasoline, and diesel dissipate quickly, but they are
highly toxic, whereas heavier oils such as crude oils and other heavy
petroleum products do not dissipate much and, while less toxic, can
have severe environmental impacts.
Table 2: Description of Different Oil Types:
Oil type [A]: 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 [A]: 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 [A]: 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 [A]: 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.
[A] 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.
[End of table]
Very light and light oils naturally dissipate and evaporate quickly,
and as such, often require minimal cleanup. However, light oils that
are highly toxic can result in severe impacts to the environment,
particularly 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, with only about 12 percent evaporating and 10 percent
staying on the surface of the water.[Footnote 29] The 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.
Medium and heavy oils do not evaporate much, even during favorable
weather conditions, and thus, can result in significant contamination
of shoreline areas. Medium and heavy oils have a high density 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 cleanup, 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 30] 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.
Spills involving heavy oil were the most prevalent among the 51 spills;
21 of the 51 major oil spills were from heavy oils. On a per-spill
basis, costs among the 51 spills, varied by type of oil, but the cost
ranges for medium and heavy oils were higher than light and very light
oils (see fig. 9).
Figure 9: Average per Spill Costs of Major Oil Spills by Type of Oil,
1990-2006:
[See PDF for image]
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]
Other Factors Also Affect Spill Costs:
Although available evidence points to location, time of year, and type
of oil spilled as key factors affecting spill costs, some industry
experts reported that the effectiveness of the spill response and the
level of the public interest can also impact the 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 also stated that the level of experience of those
involved in the incident command is critical to the effectiveness of
spill response, and they can greatly affect spill costs. For example,
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. In particular, several private-sector
officials with whom we spoke 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. Additionally, another noted that
response companies, in general, have less experience in dealing with
spill response and less familiarity with the local geography of the
area affected by the spill, which can be critical to determining which
spill response techniques are most effective in a given area. They
attributed the limited experience to the overall decline in the number
of spills in recent years. Further, one private-sector official noted
that response companies can no longer afford to specialize in cleaning
up spills alone, given the relatively low number of spills, and thus,
the quality, effectiveness, and level of expertise and experience
diminish over time.
* Public interest: Several officials with whom we spoke stated that
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. For example, several officials noted
that a spill along the Texas coast in February 1995 resulted in
increased public attention because it occurred close to peak tourist
season. In addition to raising the standards of cleanliness at the
beaches to a much higher level than normal because of tourist season,
certain response activities were completed for primarily aesthetic
reasons, both of which increased the removal costs, according to state
officials.
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. Although liability
limits were increased in 2006, the 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. We estimate that not making such adjustments in the past
potentially cost the Fund $39 million between 1990 and 2006. Besides
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.
Further Attention to Limits of Liability Is Needed:
Major oil spills that exceed the vessel's limit of liability are
infrequent, but their impact on the Fund could be significant. 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. Of the 51 major oil spills that occurred since
1990, 10 spills resulted in limit of liability claims on the
Fund.[Footnote 31] The limit of liability claims of these 10 spills
ranged from less than $1 million to over $100 million, and totaled over
$252 million in claims on the Fund. 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 32]
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 3 for a comparison of amounts
by vessel category).[Footnote 33] 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 3: 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: 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. We
separated the vessels involved in the 51 spills into four types
(tankers, tank barges, cargo and freight ships, and other vessels such
as fishing boats); determined the average spill costs for each type of
vessel; and compared the costs with the average limit of liability for
these same vessels under both the 1990 and 2006 limits. As figure 10
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 34]
Figure 10: Average Spill Costs and Limits of Liability for Major Oil
Spill Vessels, 1990-2006:
[See PDF for image]
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 35] 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 nontank 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 36] 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 37] 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 38]
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.
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 39] The Coast Guard is currently making
Certificates of Financial Responsibility consistent with current limits
of liability. 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 the officials 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 40] For example, the 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 1,000 sunken vessels that pose a
threat of oil discharge.[Footnote 41] 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 a
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 42] 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.
Conclusions:
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. Given that
responsible parties' liability is not unlimited, the Fund remains an
important source of funding for both response and damage compensation,
and its viability is important. The Fund has been able to meet all of
its obligations, helped in part by the absence of any spills of
catastrophic size. This favorable result, however, is no guarantee of
similar success in the future. Even moderate spills can be very
expensive, especially if they occur in sensitive locations or at
certain times of the year.
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 of dollars for spills that exceed the responsible
parties' limits of liability. As the agency responsible for the Fund,
it is important that the Coast Guard regularly assess whether and how
the limits of liability for all vessel types should be adjusted--and
recommends a course of action to the Congress on the adjustments that
are warranted. Further, to date, liability limits have not been
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. Authority to make such adjustments was
specifically designated to the Coast Guard in 2005, and with this clear
authority, it is important for the Coast Guard to periodically adjust
the limits of liability for inflation, as well. Without such actions,
oil spills with costs exceeding the responsible parties' limits of
liability will continue to place the Fund at risk.
Recommendations for Executive Action:
To improve and sustain the balance of Oil Spill Liability Trust Fund,
we recommend that the Commandant of the Coast Guard take the following
two actions:
* Determine whether and how liability limits should be changed, by
vessel type, and make specific recommendations about these changes to
the Congress:
* Adjust the limits of liability for vessels every 3 years to reflect
significant changes in inflation, as appropriate.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Department of Homeland
Security (DHS), including the Coast Guard and NPFC, for review and
comment. DHS provided written comments, which are reprinted in appendix
II. In its letter, DHS agreed with both recommendations. Regarding our
recommendation that the Coast Guard review limits of liability by
vessel type and make recommendations to the Congress, DHS stated that
it has met the intent of the recommendation by issuing the first of its
annual reports, in January 2007, on limits of liability. As stated in
our report, however, our concern is that the current annual report made
no specific recommendations to the Congress regarding liability limit
adjustments. Therefore, we continue to recommend that in its next
annual report to the Congress on limits of liability, the Coast Guard
make explicit recommendations, by vessel type, on how such limits
should be adjusted. Regarding our recommendation that the Coast Guard
adjust the limits of liability for vessels every 3 years to reflect
significant changes in inflation, DHS stated that the Coast Guard will
make adjustments to limits as appropriate. In response to other
concerns that DHS expressed, we modified the report to clarify the
Coast Guard's responsibility for adjusting liability limits in response
to Consumer Price Index increases, and to deal with the Coast Guard's
concern that the report not imply that responsible parties' liability
is unlimited.
In addition, we provided a draft report to several other agencies--the
Departments of Commerce, Transportation, DOI and EPA--for review and
comment, because some of the information in the report was obtained
from these agencies and related to their responsibilities. The agencies
provided technical clarifications, which we have incorporated in this
report, as appropriate.
We are sending copies of this report to the Departments of Homeland
Security, including the Coast Guard; Transportation, Commerce, DOI, and
EPA; and appropriate congressional committees. We will also make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you have any questions about this report, please contact me at
flemings@gao.gov or (202) 512-4431. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in
appendix III.
Signed by:
Susan A. Fleming:
Director, Physical Infrastructure Issues:
[End of section]
Appendix I: Scope and Methodology:
Overview:
To address our objectives, we analyzed oil spill removal cost and
claims data from the National Pollution Funds Center (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
data obtained from vessel insurers, and in contract with Environmental
Research Consulting.[Footnote 43] We interviewed NPFC and NOAA
officials and state officials responsible for oil spill response, as
well as industry experts and representatives from key industry
associations and a vessel operator. In addition, we selected five oil
spills that represented a variety of factors such as geography, 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; we also conducted a file review of
NPFC records of the federal response activities and costs associated
with spill cleanup. We also reviewed documentation from the NPFC
regarding the Fund balance and vessels' limits of liability. 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 study. This report focuses on oil
spills that have occurred since the enactment of OPA--August 18, 1990-
-for which removal costs and damage claims exceeded $1 million, and we
refer to such spills as major oil spills. We conducted our review from
July 2006 through August 2007 in accordance with generally accepted
government auditing standards.
Our Categorization of Oil Spill Costs:
For the purposes of this review, we included removal (or response)
costs and damage claims that are considered OPA compensable; that is,
the OPA-stipulated reimbursable costs that are incurred for oil
pollution removal activities when oil is discharged into the navigable
waters, adjoining shorelines, and the Exclusive Economic Zone of the
United States, as well as costs incurred to prevent or mitigate the
substantial threat of such an oil discharge. OPA compensable removal
costs include containment and removal oil from water and shorelines;
prevention or minimization of a substantial threat of discharge;
contract services (e.g., cleanup contractors, incident management
support, and wildlife rehabilitation); equipment used in removals;
chemical testing required to identify the type and source of oil;
proper disposal of recovered oil and oily debris; costs for government
personnel and temporary government employees hired for the duration of
the spill response, including costs for monitoring the activities of
responsible parties; completion of documentation; and identification of
responsible parties. OPA compensable damage claims include
uncompensated removal costs, damages to natural resources, damages to
real or personal property, loss of subsistence use of natural
resources, loss of profits or earning capacity, loss of government
revenues, and increased cost of public services.[Footnote 44]
Available Data:
In order to present the best available data on spill costs, we gathered
cost information from a number of sources, including federal agencies,
vessel insurance companies and other private-sector companies involved
in oil spill response, and Environmental Research Consulting--a private
consultant.
* Federal agencies: We gathered federal data on OPA compensable oil
spill removal costs from the NPFC. Additionally, we gathered federal
data on OPA compensable third-party damage claims from the NPFC, and
natural resource damage claims from NOAA's Damage Assessment,
Remediation, and Restoration Program, DOI's Natural Resource Damage
Assessment and Restoration Program, and FWS.
* Insurers and other private-sector companies: We collected the best
available data for OPA-compensable removal costs and damage claims from
private-sector sources, including vessel insurers such as the Water
Quality Insurance Syndicate and the International Group of Protection
and Indemnity Clubs; oil spill response organizations, including the
Alaska Chadux Corporation and Moran Environmental Recovery; and a
vessel operator. We made many attempts to contact and interview the
responsible parties involved in the five spills we reviewed in-depth.
One was willing to speak to GAO directly.
* Environmental Research Consulting: Environmental Research Consulting
is a consulting firm that specializes in data analysis, environmental
risk assessment, cost analyses, and the development of comprehensive
databases on oil/chemical spills and spill costs. Environmental
Research Consulting supplied cost estimates based on reviews of court
documents, published reports, interviews with responsible parties, and
other parties involved with major oil spills. In addition,
Environmental Research Consulting verified its data collection by
relying exclusively on known documented costs, as opposed to estimated
costs. Environmental Research Consulting, therefore, did not include
general estimates of spill costs, which can be inaccurate.
A complete and accurate accounting of total oil spill costs for all oil
spills is unknown, primarily because there is no uniform mechanism to
track responsible party spill costs, and there are no requirements that
private sector keep or maintain cost records. The NPFC tracks federal
costs to the Coast Guard and other federal agencies, which are later
reimbursed by the Fund, but does not oversee costs incurred by the
private sector. There is also no legal requirement in place that
requires responsible parties to disclose costs incurred for responding
to a spill.[Footnote 45] We cannot be certain that all private-sector
cost information we gathered included only OPA-compensable costs.
However, we explicitly outline which costs are included in our review.
Furthermore, private-sector data were obtained primarily from insurance
companies, and one official told us that insurance coverage for
pollution liability usually defines compensable losses in the same
manner as OPA. For instance, while responsible parties incur costs
ancillary to the spill response, such as public relations and legal
fees, these costs are not generally paid by oil spill insurance
policies. In addition, spill costs are somewhat fluid and accrue over
time, making it sometimes difficult to account for the entire cost of a
spill at a given time. In particular, the natural resource and third-
party damage claims adjudication processes can take many years to
complete.
Based on consultation with committee staff, we agreed to present the
best available data for major oil spills between 1990 and 2006, and we
determined that the data gathered were sufficiently reliable for the
purposes of our study. Because of the imprecise nature of oil spill
cost data, and the use of multiple sources of data, the data described
in this report were combined and grouped into cost ranges. Using ranges
of costs to provide upper and lower estimates of total costs and damage
claims allows us to report data on major oil spills from all reliable
sources.
Universe of Major Oil Spills:
To establish the universe of vessel spills that have exceeded $1
million in total removal costs and damage claims since 1990, we used--
in consultation with oil spill experts--a combination of readily
available data and reasoned estimation. Since federal government cost
data are available, we first established an estimate of the probable
share of spill costs between the federal government and the private
sector to determine what amount of federal costs might roughly indicate
the total costs were over $1 million. We interviewed Environmental
Research Consulting, as well as agency officials from the NPFC and
NOAA, to determine a reasonable estimated share of costs between the
private and public sectors. The officials with whom we spoke estimated
that in general, at least 90 percent of all spill costs are typically
paid by the private sector. Based on that estimation, any spill with at
least $100,000 in federal oil spill removal costs and damage claims
probably cost at least $1 million in total---that is, 90 percent of the
total costs being paid by the private sector, and the remaining 10
percent paid by the public sector. Therefore, we initially examined all
spills with at least $100,000 in federal oil spill removal costs and
damage claims. We obtained these data on federal oil spill removal
costs and damage claim payments from the NPFC.
Of 3,389 federally managed spills since 1990, there were approximately
184 spills where the federal costs exceeded $100,000. From this group
of spills, we limited our review to spills that occurred after the
enactment of OPA on August 18, 1990. Additionally, we omitted (1) spill
events in which costs were incurred by the federal government for
measures to prevent a spill although no oil was actually spilled and
(2) spills of fewer than 100 gallons, where, according to the NPFC, the
likelihood of costs exceeding $1 million was minimal.[Footnote 46]
Lastly, in consultation with Environmental Research Consulting, we used
estimated spill costs and additional research to determine spills that
were unlikely to have had total costs and claims above $1 million.
Through this process, we concluded that since the enactment of OPA, 51
spills have had costs and claims that have exceeded $1 million.
Data Analysis and Case Studies:
To assess the costs of oil spills based on various factors, we
collected data from federal government, private sector, and a
consultant, and combined the data into ranges. In addition to
collecting data on removal costs and damage claims, we collected
additional information on major oil spills. We categorized and grouped
spill costs based on the vessel type, time of year, location, and oil
type to look for discernable trends in costs based on these
characteristics. We collected information on the limits of liability of
the vessels at the time of the spill and the limits of liability for
vessels after changes in liability limits in the Coast Guard and
Maritime Transportation Act of 2006. In addition, to analyze the
effects of inflation on the Fund and liability limits, using the
Consumer Price Index, we calculated what the limits of liability would
have been at the time of each spill if the OPA-stipulated limits had
been adjusted for inflation. We used the Consumer Price Index as the
basis for inflationary measures because OPA states that limits should
be adjusted for "significant increases in the Consumer Price Index."
In reporting spill cost data by year and by certain categories, we use
ranges, including the best available data. For certain statistics, such
as the public-sector/private-sector cost share, where costs are
aggregated for all spills, we calculated percentages based on the mid-
point of the cost ranges. To test the reliability of using the mid-
point of the ranges, we performed a sensitivity test, analyzing the
effects of using mid-point versus the top and bottom of the cost range.
We determined that presenting the certain figures based on the mid-
point of the ranges is reliable and provides the clearest
representation of the data.
To supplement our data analysis and in order to determine the factors
that affect the costs of major oil spills, we interviewed officials
from the NPFC, NOAA, and EPA regarding the factors that affect major
oil spill costs. We also interviewed state officials responsible for
oil spill response from Alaska, California, New York, Rhode Island,
Texas, and Washington to determine the types of costs incurred by
states when responding to oil spills and the factors that affect major
oil spills costs. Additionally, we interviewed industry experts and a
vessel insurer about the factors that affect major oil spill costs. To
determine the implications of major oil spills on the Fund, we
interviewed agency officials from the NPFC and the Coast Guard as well
as vessel insurers and industry experts to get the private sector's
perspective on the major oil spills' impact on the Fund. In addition,
we reviewed recent Coast Guard reports to Congress on the status of the
Fund and limits of liability.[Footnote 47]
Lastly, we conducted in-depth reviews of five oil spills. The spills
were selected to represent a variety of factors that potentially affect
the costs of spills--geography, oil type, and spill volume. During this
review, we interviewed the NPFC case officers who were involved with
each spill, state agency officials; insurance companies; and private-
sector companies, such as oil spill response organizations that were
involved in the spill and the spill response. To the best of our
ability, we attempted to interview the responsible parties involved in
each spill. We were able to speak with one vessel operator. Our
interviews were designed to gain perspectives on the response effort
for each spill, the factors that contributed to the cost of the spill,
and what actual costs were incurred by the responsible party. Finally,
we also conducted a file review of NPFC records of federal response
activities, removal costs, and damage claims made to the Fund for each
of the five spills we reviewed in-depth.
We conducted our review from July 2006 through August 2007 in
accordance with generally accepted government auditing standards,
including standards for data reliability.
[End of section]
Appendix II: Comments from the Department of Homeland Security:
U.S. Department of Homeland Security:
Washington, DC 20528:
Homeland Security:
August 20, 2007:
Ms. Susan A. Fleming:
Director, Physical Infrastructure Issues:
441 G Street, NW:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Ms. Fleming:
RE: Draft Report GAO-07-1085, Maritime Transportation: Major Oil Spills
Occur Infrequently, but Risks to the Federal Oil Spill Fund Remain (GAO
Job Code 544127):
The Department of Homeland Security and Coast Guard appreciate the
opportunity to review and comment on the draft report referenced above.
The Government Accountability Office (GAO) recommends that the
Commandant of the Coast Guard take two actions to improve and sustain
the balance of the Oil Spill Liability Trust Fund: (1) determine
whether and how liability limits should be changed, by vessel type, and
make specific 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.
Coast Guard agrees with the first recommendation and believes it has
met the recommendation's intent to the extent that Coast Guard
officials have already addressed liability limits in the January 2007
report to Congress titled U.S. Department of Homeland Security, United
States Coast Guard, Report on Oil Pollution Act Liability Limits. Coast
Guard personnel intend to update the report annually. In response to
the second recommendation, Coast Guard will make adjustments in
liability limits to reflect inflation as appropriate.
We have some general clarifying comments regarding GAO's conclusions.
The "polluter pays" principle should be understood in the context of
the broader Oil Pollution Act of 1990 (OPA) regime which provides for
responsible party strict liability (regardless of fault). That
liability is not unlimited. The Oil Spill Liability Trust Fund (Fund)
is intended to pay where costs and damages exceed an applicable
responsible party liability limit. Therefore any suggestion in the
conclusions that limits of liability should be increased to ensure
polluters always pay, rather than the Fund, would be a significant
course change in the public policy purposes underlying OPA.
It should be understood that while any increase to liability limits
would present a corresponding reduction to the exposure of the Fund,
adjustments to liability limits alone cannot ensure the viability of
the Fund given the broader picture of the Fund's expenses and revenues
which were alluded to in GAO's draft report, but not addressed in any
detail. The January 5, 2007 Congress titled U.S. Department of Homeland
Security, United States Coast Guard, Report on Oil Pollution Act
Liability Limits provides a more complete picture of how limits of
liability impact the Fund.
Coast Guard has specific concerns about statements in the draft report
regarding adjustments in liability limits for inflation. The language
[page 29, paragraph 1, final three sentences] suggests the Coast Guard
views increases to limits for CPI increases as a policy decision for
Congress. To clarify, the Coast Guard is proceeding to adjust certain
OPA liability limits for CPI increases pursuant to OPA section
1004(d)(4) and is not delaying such adjustments pending further action
by Congress. In addition, Coast Guard officials are not aware of any
decision to leave limits unchanged as GAO implies.
Finally, GAO notes that the Coast Guard is in the process of making
certificates of financial responsibility consistent with current limits
of liability and plans to "initiate a rulemaking to issue new
Certificate of Financial Responsibility requirements." While a
regulatory project to adjust Certificate of Financial Responsibility
limits is ongoing, at this time the Coast Guard cannot predict with any
reasonable degree of certainty that the Notice of Proposed Rule Making
will be published by the end of 2007. This remains a goal and Coast
Guard and Department officials are working diligently to this end.
Sincerely,
Signed by:
Steven J. Pecinovsky:
Director:
Departmental GAO/OIG Liaison Office:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Susan Fleming, (202) 512-4431 or flemings@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Nikki Clowers, Assistant
Director; Michele Fejfar; Simon Galed; H. Brandon Haller; David Hooper;
Anne Stevens; Stan Stenersen; and Susan Zimmerman made key
contributions to this report.
Footnotes:
[1] The Exxon Valdez spill ranks as the 35th largest spill by spill
volume for all spills since 1967 on the list of international tanker
spills.
[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] 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.
[4] 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 this report, however, major spills are
defined as spills with total removal costs and damage claims that
exceed $1 million.
[5] 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.
[6] 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.
[7] 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.
[8] 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.
[9] Title VI of the Coast Guard and Maritime Transportation Act of
2006. Public Law 109-241, § 603 (c)(3).
[10] 33 C.F.R. §138. The U.S. Exclusive Economic Zone extends 200
nautical miles offshore.
[11] 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. The Congress created the Fund in
1986 but did not authorize collection of revenue or use of the money
until it passed OPA in 1990.
[12] 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.
[13] 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).
[14] The Energy Policy Act of 2005. Public Law 109-58 §1361. The barrel
tax is scheduled to be in place until 2014.
[15] 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.
[16] 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.
[17] 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.
[18] 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 the Coast Guard is lead on-scene
coordinator in the coastal zone.
[19] 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.
[20] 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; and
the West of England Ship Owners Mutual Insurance Association
(Luxembourg).
[21] The primary function of the National Response Center is to serve
as the sole national point of contact for reporting all oil, chemical,
radiological, biological, and etiological discharges into the
environment anywhere in the United States and its territories.
[22] We established the universe of major oil spills since 1990, 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 vessel insurers, and in contract with Environmental
Research Consulting. For more information on our scope and methodology,
see appendix I.
[23] 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.
[24] Officials from the state of Alaska told us that although costs to
mobilize crews and equipment to respond to spills in Alaska are
generally higher due to its remote nature, in this case, response crews
were already nearby responding to a previous spill, which resulted in
mobilization and equipment costs that were lower than would have been
expected.
[25] CRS: Oil Spills in U.S. Coastal Waters: Background, Governance,
and Issues for Congress, (Apr. 24, 2007). Testimony of Rear Admiral
Thomas Gilmour (U.S. Coast Guard), in U.S. Congress, House Committee on
Transportation and Infrastructure, Subcommittee on Coast Guard and
Maritime Transportation, Implementation of the Oil Pollution Act,
hearings, 109th Cong., 2nd sess., (Apr. 27, 2006).
[26] For the purposes of this report, we used the following geographic
classifications to group the major oil spills. Inland refers to spills
that occurred on U.S. navigable waters within the continental United
States; Pacific refers to spills that occurred in or around Hawaii,
American Samoa, and Saipan; West Coast refers to spills that occurred
along the coasts of California, Oregon, and Washington; East Coast
refers to spills that occurred along the east coast of the United
States, including Florida's Atlantic Coast; Caribbean refers to spills
in U.S. territorial waters of the Caribbean Sea; Gulf States refers to
spills that occurred along the coasts of the states bordering the Gulf
of Mexico, including the Gulf Coast of Florida; and Alaska refers to
spills that occurred in Alaskan coastal waters.
[27] This does not mean that spills that occur on the East Coast will
necessarily be more expensive. Rather, only among these 51 spills, the
particular location of East Coast spills had a sizeable effect.
[28] We categorized the "times of year" as fall: September to November;
winter: December to February; spring: March to May; and summer: June to
August.
[29] National Research Council of the National Academies, Oil in the
Sea III: Inputs, Fates, and Effects (Washington, D.C.: 2003). Numbers
do not add to 100 percent due to rounding.
[30] 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.
[31] 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.
[32] 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.
[33] 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.
[34] 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.
[35] U.S. Coast Guard, Report on Oil Pollution Act Liability Limits,
(Jan. 5, 2007).
[36] We did not assess the reasonableness of adopting such a standard
in determining liability limits.
[37] 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.
[38] 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.
[39] 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.
[40] 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.
[41] 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.
[42] The Exxon Valdez 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.
[43] 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.
[44] Additionally, a responsible party may also submit claims to the
NPFC if the total of all removal cost and damage claims is more than
the responsible party's statutory liability limit or if the spill was
caused solely by a third party, an act of God, or an act of war.
[45] 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.
[46] The Coast Guard categorizes instances, in which no oil was
actually spilled, as an oil spill when the Fund is used to pay for
actions taken to prevent a spill from occurring.
[47] U.S. Coast Guard, Report on Oil Pollution Act Liability Limits,(
Jan. 5, 2007); U.S. Coast Guard, Oil Spill Liability Trust Fund (OSLTF)
Funding for Oil Spills, (January 2006); U.S. Coast Guard, Report on
Implementation of the Oil Pollution Act of 1990, (May 2005).
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