There has been a lot of news lately about whether BP will settle all of the legal claims against it stemming from the Deepwater Horizon catastrophe two years ago, or whether the company will end up in court. As is typical of most things surrounding the oil spill issue, much of the information that has come out in recent weeks has done little more than muddy the waters.
First of all, despite a settlement announced late last Friday, most of the legal claims against BP have not been settled. The recent $7.8 billion settlement only represents the private injury claims brought by local residents, fishermen, tourism companies, and the like whose businesses and livelihoods were devastated by the oil spill. That's important, but it's not even close to half of the story. The remaining claims -- what BP owes the American people -- could amount to many times that amount.
BP has yet to settle with the Federal Government, which represents "we the people," and it hasn't settled with the affected states. The Feds have already brought one suit seeking civil penalties and natural resource damages from BP, and could bring more in the future. Estimates of the total amount that BP owes us just for those federal claims have varied from $20 to $60 billion.
These numbers might seem large, but the truth is they don't come close to the total amount that BP could -- and should -- be required to pay. Our nation's environmental laws allow the Justice Department to seek damages and penalties against BP that could be as high as $90 billion. But recent discussions in the press of a possible future settlement between BP and the Federal Government have focused on much lower amounts in the $20-25 billion range. Compared to what BP could be asked to pay -- and what we have the right to demand -- that's not a deal the American people should be happy about.
To help add some clarity to these numbers, here are a few of the key components that will be decided either through a trial, or by an agreement between BP and the Justice Department:
Clean Water Act Violations -- Under the Clean Water Act, the government can fine the company anywhere from $1,100 to $4,300 per barrel of oil spilled. The high end amount is reserved for cases of "gross negligence" or "willful misconduct" -- something that was a clear part of the disaster if you consider the findings of the President's Commission on the Oil Spill and the other investigative reports, and something that the Justice Department has already alleged in its ongoing case against BP. In the wake of the America's largest environmental disaster, resulting from a long series of operator errors, the government should have no qualms about pursuing the maximum possible fine. If it is used in this case, BP is on the hook for more than $17 billion in fines.
Other Civil Fines -- There are many laws under which civil fines can be assessed against BP. These include fines for safety and operational violations under the Outer Continental Shelf Lands Act and Occupational Safety and Health Act, and fines for harming important animal species under the Endangered Species Act and the Marine Mammal Protection Act, among others. These civil penalties may each amount to a small multimillion dollar fine to the company. While these fines are relatively small, they are symbolically important, emphasizing BP's responsibility for the carelessness that led to loss of human lives in the initial explosion and losses to the natural environment in the months that followed.
Criminal Penalties -- All of the laws discussed above, as well as the Migratory Bird Treaty Act, also provide for criminal penalties in situations of particularly egregious conduct. Again, these fines are fairly small -- just a few million dollars -- but there's a legal route that allows the punishment to fit the crime. The Alternative Fines Act allows the criminal fines against BP to be dramatically increased, up to double the amount BP gained -- or, more importantly, the amount that others lost -- as a result of its actions. That's double the losses to the fishery industry, and double the losses to tourism and the economy. Some estimates put that figure alone in the $20 to $40 billion range.
Natural Resource Damages -- Under the Oil Pollution Act, BP is required to pay us back the amount necessary to restore the natural resources -- our resources -- that it destroyed. While the studies that are underway to assess these costs are top secret, one way to estimate the magnitude of the costs is to compare the Deepwater Horizon disaster with previous spills like the Exxon Valdez Oil Spill.
Doing so and adjusting for inflation suggests that these damages could be in the $30 billion range. It's important to remember that even the most thorough studies won't uncover all of the environmental havoc wreaked by the BP spill soon, or possibly ever -- so even if the government demands the maximum amount supported by the studies we have, it's already going to be an underestimate of the true costs to the Gulf environment and our natural heritage. That's why it's doubly important that the Federal Government doesn't compromise on this part of the case against BP.
Adding up the high-end figures in these three categories suggests that BP may still be on the hook for as much as $90 billion depending on the amount of natural resource damages and other losses that can be demonstrated. Our Justice Department must make sure that the public is fully compensated and that other companies are put on notice of the substantial fines they will face if they spill oil in our waters. Given the extreme carelessness of BP and the vast scope of the resulting damage done, a low-end settlement would send the wrong message to BP and the other companies that are drilling in our oceans, telling them that they may not have to pay for future damages they cause.
The reasons why BP is pushing so hard for a settlement could not be more clear. Besides the high price a lawsuit could exact on the company's checkbooks, airing the mistakes, mishaps and bad management that would likely come out in the trial can't be good for stock prices. But the Federal Government should settle for no less than what the law allows. No amount of money will ever truly fix the mess that BP made, and Americans deserve to be fully compensated.
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