[Senate Hearing 112-826]
[From the U.S. Government Publishing Office]
S. Hrg. 112-826
REPORT TO THE PRESIDENT FROM THE NATIONAL COMMISSION ON THE BP
DEEPWATER HORIZON OIL SPILL AND OFFSHORE DRILLING
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HEARING
BEFORE THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
MARCH 16, 2011
__________
Printed for the use of the Committee on Environment and Public Works
Available via the World Wide Web: http://www.fdsys.gpo.gov
__________
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
BARBARA BOXER, California, Chairman
MAX BAUCUS, Montana JAMES M. INHOFE, Oklahoma
THOMAS R. CARPER, Delaware DAVID VITTER, Louisiana
FRANK R. LAUTENBERG, New Jersey JOHN BARRASSO, Wyoming
BENJAMIN L. CARDIN, Maryland JEFF SESSIONS, Alabama
BERNARD SANDERS, Vermont MIKE CRAPO, Idaho
SHELDON WHITEHOUSE, Rhode Island LAMAR ALEXANDER, Tennessee
TOM UDALL, New Mexico MIKE JOHANNS, Nebraska
JEFF MERKLEY, Oregon JOHN BOOZMAN, Arkansas
KIRSTEN GILLIBRAND, New York
Bettina Poirier, Majority Staff Director and Chief Counsel
Ruth Van Mark, Minority Staff Director
C O N T E N T S
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Page
MARCH 16, 2011
OPENING STATEMENTS
Boxer, Hon. Barbara, U.S. Senator from the State of California... 1
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 2
Lautenberg, Hon. Frank R., U.S. Senator from the State of New
Jersey......................................................... 4
Alexander, Hon. Lamar, U.S. Senator from the State of Tennessee.. 40
Cardin, Hon. Benjamin L., U.S. Senator from the State of Maryland 40
Vitter, Hon. David, U.S. Senator from the State of Louisiana..... 42
WITNESSES
Graham, Hon. Bob, U.S. Senator (Retired), Co-chair of the
National Commission on the BP Deepwater Horizon Oil Spill and
Offshore Drilling.............................................. 43
Prepared statement............................................... 48
Responses to additional questions from:
Senator Boxer............................................ 60
Senator Carper........................................... 61
Senator Lautenberg....................................... 62
Senator Inhofe........................................... 62
Reilly, William, Co-chair of the National Commission on the BP
Deepwater Horizon Oil Spill and Offshore Drilling.............. 46
Prepared statement............................................... 48
Responses to additional questions from:
Senator Boxer............................................ 60
Senator Carper........................................... 61
Senator Inhofe........................................... 62
ADDITIONAL MATERIAL
Report, U.S. Environmental Protection Agency, Office of Air and
Radiation, March 2011, The Benefits and Costs of the Clean Air
Act from 1990 to 2020.......................................... 5-39
REPORT TO THE PRESIDENT FROM THE NATIONAL COMMISSION ON THE BP
DEEPWATER HORIZON OIL SPILL AND OFFSHORE DRILLING
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WEDNESDAY, MARCH 16, 2011
U.S. Senate,
Committee on Environment and Public Works,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m. in
room 406, Dirksen Senate Office Building, Hon. Barbara Boxer
(chairman of the committee) presiding.
Present: Senators Boxer, Inhofe, Carper, Lautenberg,
Cardin, Whitehouse, Vitter, Sessions and Alexander.
STATEMENT OF HON. BARBARA BOXER, U.S. SENATOR FROM THE STATE OF
CALIFORNIA
Senator Boxer. I would prefer to just chat, but we have to
get busy. So, we are going to get busy. We are going to start.
I am going to waive my opening statement and simply say
that we are so pleased that both of you are here because I have
read a lot of your recommendations and they make a lot of
sense.
As we look at what is happening right now in Japan, those
feelings of being out of control come back when we think about
the BP spill. Nobody felt it more than the two Senators from
Louisiana. So, I am glad that Senator Vitter is on this
committee as we look at ways to make sure that something like
this does not happen again and if it does happen again, we have
the systems in place to keep people whole without having to
scramble like we did before.
So, I want to thank both of you. I will ask unanimous
consent to put my statement in the record. Hearing no
objection, I will do so.
I will ask everyone to keep their opening statement, if
they make it, to 3 minutes.
Senator Inhofe.
[The prepared statement of Senator Boxer follows:]
Statement of Hon. Barbara Boxer, U.S. Senator from the
State of California
Today, we will hear from the distinguished co-chairs of the
Commission on the BP Deepwater Horizon Oil Spill and offshore drilling
about their report to the President on the Deepwater Horizon disaster.
This committee has previously heard testimony about the
heartbreaking economic and resource damages caused by this oil spill
and the need to ensure that the people whose jobs and livelihoods are
impacted are made whole again.
The Commission's report and its recommendations underscore the work
that remains to be done to minimize the chance of another disaster like
the one we witnessed last year. The report highlights the safety and
environmental risks associated with offshore drilling and spotlights
the systemic lapses that led to the tragic Deepwater Horizon spill.
The report lays out a comprehensive set of recommendations to
improve the safety of offshore drilling, to hold oil companies
accountable when things go wrong, and to protect jobs, coastal
communities and the environment.
The Commissioners recommend that Congress take steps to restore the
Gulf Coast, including dedicating a significant portion of Clean Water
Act penalties to the restoration of the Gulf's damaged ecosystems. I
support efforts to restore the Gulf Coast and look forward to working
with colleagues on a proposal that promotes the restoration of
economically and environmentally important ecosystems in the Gulf of
Mexico.
The Commission's report also urges Congress to act to increase the
outdated limits on liability in the Oil Pollution Act. Under current
law, an oil company's liability for economic and natural resources
damages from an oil spill disaster is only $75 million. This is
astounding when total damages for the BP Deepwater Horizon spill could
total in the tens of billions of dollars.
According to the Commission's report, current liability limits
distort safety incentives for companies drilling offshore and fail to
provide assurances to those impacted by a spill that all damages will
be compensated.
Legislation introduced by Sen. Menendez, the Big Oil Bailout
Prevention Unlimited Liability Act of 2011 (S. 214), has been referred
to the EPW Committee for consideration. The bill would remove the
current limits on liability to ensure taxpayers are not left on the
hook for damages from oil spills.
The committee reported this legislation in the last Congress, and
it is important that we once again take action to ensure those impacted
by a spill due to no fault of their own are made whole.
Working collaboratively, I believe we can find ways to address oil
company liability in a way that ensures businesses, particularly small
and independent operators, are able to maintain their economic
competitiveness.
For example, the Commission's report recommends the establishment
of a mutual insurance pool that allows offshore operators to pool risk
and share the liability for any damages associated with an oil spill.
Senators Landrieu and Begich have already begun developing such a
proposal. I plan to continue working with them and other colleagues as
we seek to address this issue.
The Commission report also includes important recommendations on
improving oil spill research, reforming environmental review of
offshore drilling, updating Federal oil spill response efforts, and
better evaluating the use of dispersants.
Many of the Commission's recommendations were addressed in
legislation reported by this committee in the last Congress. I am
committed to working with my colleagues in the Senate to again move
forward on legislation that holds oil companies accountable while
protecting jobs, coastal communities and the environment.
I look forward to hearing from our witnesses today about the
Commission's recommendations.
STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM THE STATE
OF OKLAHOMA
Senator Inhofe. All right, I will do the same thing. I do
have a good statement though.
I just want to make this comment. Every time something
happens, I remember in Prince William Sound, way up there after
the accident 20 years ago, and a lot of people up there
celebrating, we are going to parlay this into stopping drilling
on ANWR and all that type of thing. I said, wait a minute. This
is a transportation accident. If you stop our developing our
own resources we are going to have to transport more of them
and the incidence of that happening would be greater. But that
did not make any difference.
The same thing, I thought, happened when we had this spill
down here. There were a lot of people who were wanting to stop,
and they did successfully do it, and the moratorium came off
and we still have not, we have only issued, I think, two deep
water permits since then.
But I do want to take my remaining 2 minutes to, when I get
the attention of my colleagues here, I have a bill I am going
to be introducing today having to do with all the cumulative
effects of all of these regulations. Now, we are talking about
regulations like the EPA's Greenhouse Gas Rules, we know that
would be between $300 and $400 billion annually, Boiler MACT,
around 798,000 jobs, Utility MACT, $100 billion by 2015, the
NAAQS, $90 billion.
So, what we have tried to do with the Environmental
Protection Agency is to get the cumulative effect in terms of
dollars and jobs of all these regulations, not just the ones I
mentioned, but there are a total of three more, I believe, and
so I am introducing that bill today that will set up a
committee comprised of the Secretaries of Energy, Agriculture,
Commerce, Defense, Labor, Small Business and others to perform
this comprehensive assessment of the effects of the EPA rules
on America.
So, what I am going to want to do is encourage as many of
the members of the committee to get on as co-sponsors of this
and I will be introducing it today.
I will yield back the remainder of my time.
[The prepared statement of Senator Inhofe follows:]
Statement of Hon. James M. Inhofe, U.S. Senator from the
State of Oklahoma
Thank you, Madam Chair, for scheduling today's hearing to discuss
the findings and recommendations of the President's National Commission
on the BP Deepwater Horizon Oil Spill.
I also want to welcome Chairman Reilly, and welcome Senator Graham
back to the Senate; I appreciate their work on this important report. I
think we all can agree that the commission did a terrific job arranging
a massive volume of complex information, releasing it in readable form,
and doing it under budget.
I support some of the commission's conclusions and recommendations,
while I have problems with others. There are specific issues raised by
the commission that fall under the jurisdiction of this committee,
including reforms to the National Environmental Policy Act (NEPA) and
to the Oil Pollution Act. I look forward to hearing from the co-chairs
on these important issues.
The commission calls for greater, more effective safety
regulations. I don't think we need more regulations, but they can
certainly be more effective. And to be effective, regulations must not
be an obstacle to increasing our domestic production. As Chairman
Reilly himself recently put it, ``We vitally need the resources of
offshore oil and gas, that's where the future lies. This industry is a
major contributor to our supplies and will become a significantly more
important contributor in the future.''
And what of our domestic supplies? According to the Congressional
Research Service, America's combined recoverable natural gas, oil, and
coal endowment is the largest on Earth. In fact, America's recoverable
resources are far larger than those of Saudi Arabia, China, and Canada
combined.
Despite this, the Obama administration has made a conscious policy
choice to block domestic production. Consider the proposed rule by the
new regulatory body in the Department of Interior overseeing offshore
production. Here's what it said about the regulations it proposed late
last year:
``The impact on domestic deepwater hydrocarbon production as a
result of these regulations is expected to be negative. . .Currently
there is sufficient spare capacity in OPEC to offset a decrease in GOM
deepwater production that could occur as a result of this rule.''
[Emphasis added]
In other words, the Obama administration is admitting what is
simply a matter of common sense: if we decrease production, we will
increase our dependence on foreign oil.
This is the inevitable result of the Obama administration's cap-
and-trade agenda. EPA is moving forward with regulations that will
restrict, impede, and stop domestic energy production. Energy prices
therefore will go up; as President Obama put it, ``electricity prices
will necessarily skyrocket.''
This is the wrong approach. I agree with the commission that we
should protect the workers who supply the energy we take for granted
every day and protect the environment. But I also agree with the
commission that we should produce our own resources, which are the
largest in the world. In fact, we should increase that production. I
hope that the Obama administration will agree, too.
Senator Boxer. Thank you.
Is Senator Cardin here? Senator Lautenberg?
Senator Lautenberg, hi. You are just in time for your, we
only have 3-minute opening statements. We waived our statements
because we have a pending vote at 10:30 a.m.
Senator Lautenberg. I get the hint, Madam Chairman.
Senator Boxer. But you have 3 minutes.
STATEMENT OF HON. FRANK R. LAUTENBERG, U.S. SENATOR FROM THE
STATE OF NEW JERSEY
Senator Lautenberg. Just very briefly. First, to old
friends, a long time, I am sorry, we do not use the word old.
Friends, I am happy to see you and thank you for the work that
you have done with this Commission. I will be brief with my
statement.
Just to say that today I would like to see us raise the
question about the cost-benefit analysis for drilling off our
coasts and whether or not, with our ravishing use of oil and
our limited supply, whether that is a good course for the long
term.
We know one thing. If oil is drilled, oil will be spilled.
We saw it in the worst of terms in the Gulf of Mexico. We do
not need to repeat that experience, in my view.
So, I once again thank you. Senator Graham, we still miss
you, I can tell you that. Bill Reilly, we were together in
Brazil some time ago and I enjoyed working with you as well.
Madam Chairman, thank you for holding this hearing and I
ask unanimous consent that my full statement be on the record.
Senator Boxer. Without question.
I ask unanimous consent that I may place in the record a
document called The Benefits and Costs of The Clean Air Act
from 1990 to 2020. I think it is a good balance to my dear
friend, his comments on the cost of regulation. This shows how
many lives were saved in 2010, 160,000 infants saved, chronic
bronchitis, et cetera. So, we are going to put that in the
record and we will continue that debate at another time.
[The referenced document follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Inhofe. I would agree that I support this.
Senator Boxer. Good.
Senator Inhofe. I have always been a supporter of the Clean
Air Act. I see it has done wonderful things.
Senator Boxer. Good. Thank you very much.
Senator, I believe it is Vitter at this time. Alexander?
Sorry.
Senator Alexander.
STATEMENT OF HON. LAMAR ALEXANDER, U.S. SENATOR FROM THE STATE
OF TENNESSEE
Senator Alexander. Thank you, Madam Chairman.
I want to welcome Bob Graham and Bill Reilly. I started
with Bob as Governor. He was really one of the most effective
and innovative Governors in our country when he served. Bill
Reilly I served with in the Bush administration, and a great
leader on environmental matters.
Last week, and I will keep my remarks brief, last week I
bought a Nissan Leaf, so I am driving an all electric car back
and forth to the office. But I figured out that even if we
electrify half our cars and trucks, which I would like for us
to do in this country, which is a very audacious and ambitious
goal, we would still need about 10 or 11 million barrels of
oil, of crude oil, a day. And 31 percent of our domestic oil
comes from the Gulf.
We are all watching what is happening in Japan with nuclear
power even though we have never had a death in connection with
a commercial nuclear plant in the United States. We have not
had one on any of our navy reactors, no one was hurt at Three
Mile Island. We worry about nuclear power but it provides 70
percent of our clean electricity, no sulfur, nitrogen, mercury
or carbon.
Coal, we have had many discussions about the use of coal,
but that is 50 percent of our electricity. Natural gas, we are
relieved that we have a new supply of natural gas which has
less pollutants. But all of a sudden we are reminded that 25
percent of our domestically produced natural gas comes from off
shore.
So in a country that uses about 25 percent of all the
energy in the world, all of the energy sources we have have
some cost to them. I look forward, greatly, to your
recommendations about how we can continue to explore for oil
and gas, because we are going to need it, and we are going to
need to look off shore and in Federal lands in Alaska, in my
opinion, but to do so in a safe way as we move toward using
less oil and gas and natural gas in our country.
Thank you very much for your service and your work on this.
Senator Boxer. Thank you, Senator Alexander.
Senator Cardin.
STATEMENT OF HON. BENJAMIN L. CARDIN, U.S. SENATOR FROM THE
STATE OF MARYLAND
Senator Cardin. Thank you, Madam Chair.
I really want to thank our two Co-Chairs, very much, for
your leadership on this. Senator Graham, it is nice to see you
again and thank you for your leadership. Mr. Reilly, it is nice
to have you before the committee and we thank you very much for
your service. Your report I found to be excellent. I think it
really will be used as a judge for congressional action, both
legislative and oversight. So we thank you.
I do want to acknowledge that we are proud that Dr. Don
Boesch was part of your group from Maryland. He is one of our
experts on the environment and he helps us a great deal on the
Chesapeake Bay.
This is the largest environmental disaster in our Nation's
history and there are a lot of things we need to take a look at
as a result of this disaster. We have to take a look at the
liability laws to make sure they are adequate. We certainly
need to take a look at a regulatory system that failed.
But I want to concentrate on one issue and that is focus on
the environmental damage and the ongoing assessment efforts and
your recommendations related to independent scientific
assessment of those damages.
The role of science in the aftermath of the Deepwater
Horizon disaster is something which I think all of us need to
be concerned. I say that because there was a troubling reliance
on the responsible party for funding. Now, BP put major funding
efforts into the cleanup, and that is certainly understandable,
but they also were involved in the assessment of damage and
there, of course, they have a self interest. So, I think it
behooves all of us to make sure that we get objective review of
the material and assessment so that we can take the appropriate
action.
I do not know how that can be done unless we have some form
of an independent source of funding to allow independent
scientists to make those judgments to assist the Government in
holding a responsible party for the damage that has been done.
We need some type of a dedicated source of funding so that
independent science work can be deployed without hesitation.
I hope that we will find ways in which we can address those
issues. I think your recommendations really help us in that
regard. The natural resource damage assessment provisions of
the Oil Pollution Control Act require that the public be
compensated for the injuries and the loss of public resources.
We have a responsibility to make sure that, in fact, is done.
I think you have given us the foundation so that we can
take the appropriate action here in Congress and I thank you
very much for your public service.
[The prepared statement of Senator Cardin follows:]
Statement of Hon. Benjamin L. Cardin, U.S. Senator from the
State of Maryland
Madame Chairman, let me begin by thanking our witnesses. Both
Senator Graham and Administrator Reilly have already had distinguished
careers. The fact that they responded to this call to duty is an
example of selfless public service that deserves the nation's thanks.
We are indebted to you both.
I also want to note the contribution of one of the other Commission
members. Dr. Don Boesch is the President of the University of Maryland
Center for Environmental Sciences and an eminent scientist in his own
right. He has extraordinary experience as a scientist who has studied
the Louisiana wetlands complex for decades. We are especially proud of
the work that he does today as the Chesapeake Bay's preeminent
scientist. I know that his contribution to the Commission was
invaluable, and I want the record to note my personal thanks for the
work of Dr. Boesch.
The Commission's report is thorough-going. It contains key findings
about this extraordinary event that cost 11 people their lives and
immediately disrupted the lives of countless Americans. As you note, it
was the largest environmental disaster in the Nation's history.
Your recommendations are thoughtful and I intend to pursue
legislation that will implement many of them.
We have much to discuss, ranging from liability limits that are too
low, a regulatory regime that failed to protect human lives as well as
our public resources. You have detailed recommendations that include
technology, research, management, oversight, emergency response and
more. All of these are the proper purview of this hearing, but I want
to focus my comments and questions on the environmental damages, the
on-going assessment effort, and your recommendations related to
independent, scientific assessments of those damages.
In short, I want to focus my remarks and later my questions on the
role of science in the aftermath of the Deepwater Horizon disaster.
As the witnesses said in their Recommendations report, we need to
deploy the full range of the nation's scientific capacity when disaster
strikes. That means government scientists and engineers from multiple
agencies and departments, academics, and both private sector and
independent public scientists being fully engaged day one.
Getting this phalanx of expertise into the field quickly and in a
well-coordinated fashion is essential. As you note in your report, the
full range of that expertise was not fully engaged. Unnecessary
restrictions were placed on scientists, who found many areas with
restricted access. Oil spill rates were grossly underreported until
reasonable access to the site was afforded to independent government
and academic engineers.
Further, there was an inability to put sufficient financial
resources into the recovery effort quickly enough. There was a
troubling reliance on the responsible party for funding. BP put major
funding into the effort. But cleanup and restoration activities are in
the company's self interest. An independent analysis of the scope of
damages is not, and yet the company exerted strong hold on those purse-
strings.
In a hearing I held last year, the water and wildlife subcommittee
heard compelling testimony from a number of scientists who were engaged
in the Natural Resources Damage Assessment. The Federal Government had
insufficient financial resources to put full teams into the field to
gather both baseline and impact data.
We need a dedicated source of funding so that independent science
work can be deployed without hesitation. One of the lessons of Exxon
Valdez disaster, several witnesses said, was the need to collect better
data in the immediate aftermath of such a catastrophic event and to
keep such expertise in the field long enough to get a complete picture
of the damages to our natural resources.
We also heard about the need to have independent scientists conduct
these surveys. We were warned repeatedly that data gathered, analyzed
and published by the responsible party would never be viewed as
unbiased.
Your recommendations make this same point. There is a compelling
need for fair and transparent analysis of the impacts on our natural
resources. The Natural Resource Damage Assessment provisions of the Oil
Pollution Control Act require that the public be compensated for injury
to and lost use of public resources. These include essential habitats
such as wetlands. They also include the loss of fish, turtles, and
uncounted shorebirds such as the brown pelican. Plant life and the
microorganisms that make up the basis of the food chain for all species
also must be assessed.
You have done a remarkably thorough job of sorting through the
chaos of the Nation's largest environmental disaster. Your independent,
non-partisan analysis, impartial judgment and thoughtful
recommendations are remarkable. We are grateful for your service, and I
look forward to exploring some of these issues in greater detail during
our question period.
Senator Boxer. Senator Vitter.
STATEMENT OF HON. DAVID VITTER, U.S. SENATOR FROM THE STATE OF
LOUISIANA
Senator Vitter. Thank you, Madam Chair, and thanks to both
of the Chairmen for their work. I would just like to briefly
focus on two things.
First of all, to me, moving forward in Louisiana and on the
Gulf, I think the single most important recommendation of your
report is that we, in Congress, with the President, dedicate a
significant portion of the fines related to this incident under
the Clean Water Act to restoration in the Gulf. I thank you for
making that crystal clear recommendation.
The Administration supports that approach. But, of course,
the devil is in the details in terms of what we dedicate those
resources to and how it is spread geographically and among
jurisdictions. The quicker and the fairer we can resolve that,
the better. I would really encourage all of us to come together
to move forward with dedicating a significant majority of the
fines under the Clean Water Act to Gulf restoration.
Second, I would just like to point out that this incident
in the Gulf is a continuing tragedy and a continuing crisis.
Most of the continuation of it right now is on the economic
side due, in my and many people's opinions, to an unwarranted
continuing shutdown of the Gulf. I think it is unwarranted.
None of us argue with the need to learn from this disaster
and adapt and change. We are doing that in major ways. Maybe
the most obvious are the two major containment systems that
have been developed to be on call to respond to any future
incident, which hopefully we will not have. But we need to move
on and restart the Gulf and put people back to work. That is
the continuing crisis that we are facing, the economic
devastation.
Finally, let me say with regard to both of those points, my
colleague, Mary Landrieu, agrees wholeheartedly. She is a
Democrat, I am a Republican, but we certainly agree on both of
those points about Clean Water Act fines and about putting
people back to work in a much more aggressive way immediately
in the Gulf to help meet our Nation's immediate energy needs.
Thank you, Madam Chair.
Senator Boxer. Senator, I am looking forward to some
legislation that would carry out what you are talking about
because we do need that legislation. I just would ask you if
you are working on such legislation with Senator Landrieu at
this time.
Senator Vitter. Yes.
Senator Boxer. Good. So, as soon as that is ready, I think
we ought to bring it here and I think we ought to get it done
because I fully agree with that.
We welcome you again and we will have time before the vote
starts to hear your full statements. So, Senator Graham, do you
want to proceed? Or, whichever one of you.
STATEMENT OF HON. BOB GRAHAM, U.S. SENATOR (RETIRED), CO-CHAIR
OF THE NATIONAL COMMISSION ON THE BP DEEPWATER HORIZON OIL
SPILL AND OFFSHORE DRILLING
Senator Graham. Thank you very much, Madam Chair.
I am very appreciative to join my long-time friend and
colleague, Bill Reilly, in discussing some of the
recommendations of our Commission on Offshore Oil. We believe
very strongly that this goal should be, as Senator Alexander
has said in other areas, to assure the American people that the
way in which we are conducting this enterprise has the highest
standards of safety of any place in the world. I am afraid that
we cannot say that today.
With that, there may be the confidence of the American
people that will allow this industry, which is a critical part
of our oil and gas production, to proceed forward and continue
to serve America.
The President created our Commission and asked it to
determine the causes of the Deepwater Horizon disaster,
evaluate the response, and advise the Nation about how future
energy exploration could take place in a responsible manner. We
spent the better part of 8 months organizing ourselves and then
conducting a series of hearings, interviews, and expert review
of the documents and literature in order to reach our
conclusions. We made recommendations for the industry, for the
executive branch, and for the Congress.
I am very gratified by the progress that has been made by
the industry. As Senator Vitter commented, the industry is
developing impressive new well containment technologies and
there are new standards being established within the industry
itself. The Interior Department is moving forward with internal
reorganization that will allow it to have a higher level of
oversight of the industry and greater public confidence in the
manner in which the Government-industry relationship is being
managed.
I would like to focus my remarks, Madam Chairman, on the
issues that are within the jurisdiction of this committee and I
will discuss three of those and Bill Reilly others.
The first is the Oil Pollution Act of 1990. This was
legislation enacted after Exxon Valdez and it included the
recommendation that there be a cap on liability of $75 million.
We think this cap is a, obviously 20 years out of date. Just
inflation itself would demand that it be reopened and examined.
We also think an even more important thing that has
happened is that about the time that this law was passed, the
industry moved from being a shallow water industry, that is
drilling at 1,000 feet or less, to increasingly a deep water
industry. In the next 20 years, almost all of the new offshore
oil activities will be at depths of greater than 1,000 feet.
That is not just a difference measured in feet or yards or
meters. It is a significant difference in the risk and the
potential adverse consequence of an untoward event.
So, we recommend that there be a reexamination of what
would be the appropriate level of, the appropriateness of
having any cap, and if there is to be a cap, what should be the
considerations.
We think the basic policy considerations are, on the one
hand, you do not want to create a situation where only the
megafirms are in a financial position that they can be part of
the exploration activity. For a variety of reasons, it is
important to maintain a strong, independent sector within the
oil and gas industry.
But, on the other hand, if the liability cap is too low and
is not reflective of the real economic consequences, then the
cost is not going to go away, but it is either going to be born
by the innocent victim, that small fisherman in Louisiana who
has lost the ability to provide his income, or other interests
that will be adversely effected, or, as we have seen in other
industries, it becomes the Federal Government's responsibility
and, therefore, the taxpayers are picking up the costs.
We think the challenge to this committee is to strike that
appropriate balance and we have made a number of
recommendations as to how to do that.
The second issue is oil spill response. One of the best
things that happened in this disaster was that it was a BP
well. If this had occurred to a company that was less
financially capable than BP, the disaster would have been
multiple times more difficult and of greater pain to the
American people.
We believe there are some important steps that can be taken
that would increase the industry-wide ability to respond to an
incident. First, that the Department of the Interior do as it
has been doing, which is develop a more rigorous set of
standards and requirements for industry response plans before a
well is permitted, that is, before we proceed forward, we need
to know that we have the capability to respond to an adverse
event.
Second, that the EPA and the Coast Guard should more fully
involve State and local governments as significant players in
spill response planning. This is a familiar concept to this
committee because it would adopt some of the principles of the
Stafford Act, which relates to earthquakes, hurricanes and
other natural disasters, to oil spills.
Third, that the Congress should provide an adequate and
sustained funding for oil spill research as Senator Cardin has
suggested. One of the shocking discoveries was that there was
virtually no improvement in our ability to respond to an oil
spill between Exxon Valdez in 1989 and this incident in 2010.
In large part, that was a function of the fact that nobody had
been investing in that research that would have improved our
level of response, particularly for a deep water event.
Finally, the issue that Senator Vitter raised. We believe
it is very important to see this as an opportunity to do
something that has been long needed but has faltered largely on
the lack of an adequate source to make it happen, and that is a
major effort to restore one of America's treasures, which is
the Gulf of Mexico. It has been a battered area, and that is
particularly true in the Mississippi Delta area.
A combination of actions that had an economic purpose
combined with nature has caused a serious deterioration of, and
the basic quantity of the marshlands of, the Mississippi Delta.
We believe that this is an opportunity by committing 80 percent
of any civil fines or penalties that are collected under the
Clean Water Act to this purpose to make a major step forward in
the protection of our Gulf.
Madam Chairperson, I have exceeded my time already. I will
thank you and call upon my colleague.
Senator Boxer. I would not have called on you to end except
we do have a vote pending and what I want to do is get both of
your testimony finished. So, we do have time. If the bell
rings, keep on going. We certainly can stay for the full 5, 7
or 8 minutes of your statement.
Hon. Bill Reilly, we are very honored to have you here as
well, along with Senator Graham.
STATEMENT OF WILLIAM REILLY, CO-CHAIR OF THE NATIONAL
COMMISSION ON THE BP DEEPWATER HORIZON OIL SPILL AND OFFSHORE
DRILLING
Mr. Reilly [Speaking off microphone]. Thank you, Chairman
Boxer, Senator Inhofe----
Senator Boxer. Make sure you turn on your mic. There you
go.
Mr. Reilly. Thank you. Chairman Boxer, Senator Inhofe,
members of the committee, I ask that my testimony, our
testimony, be included in the record----
Senator Boxer. Without objection.
Mr. Reilly. It will be fairly brief. Senator Graham, with
whom I have had the great pleasure to serve on this Commission,
a statesman and a terrific collaborator, very important in the
whole presentation, organization and approach of the
Commission, I would just simply point that I believe this may
be the first Commission in history, I think Congressman Waxman
observed that it probably was and he considered it bad
precedent that we came in well under budget, I think about two-
thirds, I think, of the money allocated to us we spent, we also
finished in about the shortest time ever allowed a Commission
and that was 6 months.
I want to comment on a couple of things that are relevant
to the committee, I think, and some that may go somewhat beyond
your jurisdiction. Senator Graham has covered some of the key,
the really salient points that are within this committee's
jurisdiction.
I want to say, first of all, that as someone, the only
member of our Commission who had significant industry
experience, a long-time member of the Board of ConocoPhillips,
I want to say that this is a very vital industry and an
extremely important enterprise.
We do, as Senator Alexander said, get about 30 percent of
our oil, domestic oil, from the Gulf. We are getting it
increasingly from deep water. We will get even more of it from
deep water going forward for the simple reason that that is
where it is. That is where the serious reserves of hydrocarbons
now lie in the United States waters with the single exception
of those that are offshore in Alaska.
The first point I would like to make is that the report is
a hopeful report. It is essentially an optimistic report. We
believe that this enterprise poses significant risks and the
deeper you go the higher the risk. But it is a manageable
enterprise.
There are many high risk industries that have learned to
manage their risks, the chemical industry after Bo Pahl with
responsible care, the nuclear industry in the United States, as
Senator Alexander mentioned, after Three Mile Island, and this
industry has had its wake-up call. It is a sophisticated
industry and largely a responsible industry. We believe that it
will learn from this experience and the indications that they
are going to establish an institute modeled on some of those
that have characterized other high risk industries is very
encouraging in that respect.
The experience of the Exxon Valdez, over which I had
significant responsibilities, led me to believe that the things
that we provided for in the Oil Pollution Act would have
provided a substantially improved response capability,
technology, the skimmers, the booms, the dispersants, and the
rest. The truth is that we did not see any improvement
significantly in the Gulf. That can be addressed. It should be
addressed with concentrated research that is fostered. There
was research provided for, research funds, in the early years
after 1989. But that money diminished over time as memories
faded. We strongly encourage attention to response capability
and technology going forward.
Second, the interagency coordination process really needs
to be fixed. The Interior Department has been in the habit of
accepting comments, advice to its proposals from whomever. If
the Coast Guard or NOAA should make comments, those are treated
along with any ordinary citizen's or inexpert observer. That
needs to be changed.
The Commission makes a number of recommendations about the
improvement in the way in which the National Environmental
Policy Act works to engage other agencies and particularly
expert agencies. We recommend that the role particularly of
NOAA and the Coast Guard, who really, oddly, have not been
heavily involved or consulted in deliberations respecting
leasing decisions, be substantially upgraded.
I think going forward one of the major questions that will
preoccupy us in this field is what to do about the offshore
Arctic. The Arctic poses a different set of risks. It is
shallow water, largely, but has its own threats of terrible
fog, very severe hurricane-type forces, darkness over much of
the year, ice and ice scouring that goes all the way down to
the 140 foot depth that wells are likely to be drilled in the
Chukchi Sea. Those are all going to need special attention,
along with the very important species in the Arctic, some of
which are endangered, many of which are priceless and highly
important.
As we go forward, our Commission, which dealt with this
issue, it was probably the most divisive or difficult issue
that we confronted, we do recommend that there be no moratorium
on offshore drilling in the Arctic. We recommend also that
baseline science be developed with respect to those species and
other impacts that are likely to be encountered. We recommend
that much greater attention be given to the prevention
capabilities of those who are allowed to drill exploratory
wells, and to containment should there be a disaster.
Finally, we recommend that the issue of dispersants, which
have not previously been tested seriously in the Arctic, that
be given a high priority by the Environmental Protection
Agency. As a former EPA Administrator, I fully understand why
there has been significant reluctance to deposit oil into
waters, particularly, perhaps, fragile ones. But that needs to
be done so that we can have the conversation about dispersants
and determine their appropriateness and effectiveness before an
event requires their use, which was not true in the Gulf.
Finally, let me just say that this is a global industry and
these are global problems. We know that Mexico intends to drill
within the next 2 years in deep water in the Gulf in their
sovereign jurisdiction. We know also that Cuba is planning,
possibly as soon as next year, to begin 16 wells, some of them
50 miles off the coast of Key West. In the Arctic, also, we
will have to have some kind of understanding with the other
Arctic powers, Russia, Canada, Denmark and the like, with
respect to how they proceed.
There is every reason to give a high priority to getting
the best practices accepted in regulations and recognized by
the international oil and gas developing community of nations.
Thank you, Madam Chairman.
[The prepared statement of Senator Graham and Mr. Reilly
follows:]
Statement of Hon. Bob Graham, U.S. Senator (Retired) and Hon. William
Reilly, National Commission on the BP ``Deepwater Horizon'' Oil Spill
and Offshore Drilling
i. introduction
Chairman Boxer, Ranking Member Inhofe, and members of the
committee, thank you for the opportunity to testify today on behalf of
the National Commission on the BP Deepwater Horizon Oil Spill and
Offshore Drilling.
The explosion that tore through the Deepwater Horizon drilling rig
last April 20, as the rig's crew completed drilling the exploratory
Macondo well deep under the waters of the Gulf of Mexico, began a
human, economic, and environmental disaster.
Eleven crew members died, and others were seriously injured, as
fire engulfed and ultimately destroyed the rig. And, although the
Nation would not know the full scope of the disaster for weeks, the
first of more than four million barrels of oil began gushing
uncontrolled into the Gulf--threatening livelihoods, the health of Gulf
coast residents and of those responding to the spill, precious
habitats, and even a unique way of life. A treasured American
landscape, already battered and degraded from years of mismanagement,
faced yet another blow as the oil spread and washed ashore. Five years
after Hurricane Katrina, the Nation was again transfixed, seemingly
helpless, as this new tragedy unfolded in the Gulf. The costs from this
one industrial accident are not yet fully counted, but it is already
clear that the impacts on the region's natural systems and people were
enormous, and that economic losses total tens of billions of dollars.
On May 22, 2010, President Barack Obama announced the creation of
the National Commission on the BP Deepwater Horizon Oil Spill and
Offshore Drilling (the ``Commission''): an independent, nonpartisan
entity, directed to provide thorough analysis and impartial judgment.
The President charged the Commission to determine the causes of the
disaster, and to improve the country's ability to respond to spills,
and to recommend reforms to make offshore energy production safer. And
the President said we were to follow the facts wherever they led.
This Commission report (the ``Report''), which we ask be made part
of the hearing record in its entirety, is the result of an intense 6-
month effort to fulfill the President's charge. As a result of our
investigation, we conclude:
The explosive loss of the Macondo well could have been
prevented.
The immediate causes of the Macondo well blowout can be
traced to a series of identifiable mistakes made by BP, Halliburton,
and Transocean that reveal such systematic failures in risk management
that they place in doubt the safety culture of the entire industry.
Deepwater energy exploration and production, particularly
at the frontiers of experience, involve risks for which neither
industry nor government has been adequately prepared, but for which
they can and must be prepared in the future.
To assure human safety and environmental protection,
regulatory oversight of leasing, energy exploration, and production
require reforms even beyond those significant reforms already initiated
since the Deepwater Horizon disaster. Fundamental reform will be needed
in both the structure of those in charge of regulatory oversight and
their internal decisionmaking process to ensure their political
autonomy, technical expertise, and their full consideration of
environmental protection concerns.
Because regulatory oversight alone will not be sufficient
to ensure adequate safety, the oil and gas industry will need to take
its own, unilateral steps to increase dramatically safety throughout
the industry, including self-policing mechanisms that supplement
governmental enforcement.
The technology, laws and regulations, and practices for
containing, responding to, and cleaning up spills lag behind the real
risks associated with deepwater drilling into large, high-pressure
reservoirs of oil and gas located far offshore and thousands of feet
below the ocean's surface. Government must close the existing gap and
industry must support rather than resist that effort.
Scientific understanding of environmental conditions in
sensitive environments in deep Gulf waters, along the region's coastal
habitats, and in areas proposed for more drilling, such as the Arctic,
is inadequate. The same is true of the human and natural impacts of oil
spills.
We reach these conclusions, and make necessary recommendations, in
a constructive spirit: we aim to promote changes that will make
American offshore energy exploration and production far safer, today
and in the future.
ii. the root causes of the explosion
The Commission examined in great detail what went wrong on the rig
itself. Our investigative staff uncovered a wealth of specific
information that greatly enhances our understanding of the factors that
led to the explosion. There are recurring themes of missed warning
signals, failure to share information, and a general lack of
appreciation for the risks involved. In the view of the Commission,
these findings highlight the importance of organizational culture and a
consistent commitment to safety by industry, from the highest
management levels on down.
To summarize, the Macondo blowout happened because a number of
separate risk factors, oversights, and outright mistakes combined to
overwhelm the safeguards--promised by both government and by private
industry--to prevent just such an event from happening. But most of the
mistakes and oversights at Macondo can be traced back to a single
overarching failure--a failure of management by BP, Halliburton and
Transocean. Set out below are what Commission investigative staff
determined were ``key facts.''
Key Facts: The investigation team identified several key human
errors, engineering mistakes and management failures including:
A flawed design for the cement slurry used to seal the
bottom of the well, which was developed without adequate engineering
review or operator supervision;
A ``negative pressure test,'' conducted to evaluate the
cement seal at the bottom of the well, identified a cementing failure
but was incorrectly judged a success because of insufficiently rigorous
test procedures and inadequate training of key personnel;
Flawed procedures for securing the well that called for
unnecessarily removing drilling mud from the wellbore. If left in
place, that drilling mud would have helped prevent hydrocarbons from
entering the well and causing the blowout;
Apparent inattention to key initial signals of the
impending blowout; and
An ineffective response to the blowout once it began,
including but not limited to a failure of the rig's blowout preventer
to close off the well.
Key Findings: The ``key facts'' led investigators to make the
following ``key findings'':
Errors and misjudgments by at least three companies--BP,
Halliburton and Transocean--contributed to the disaster.
Management failures included:
Inadequate training of key personnel.
Inadequate management of numerous late-stage well
design decisions.
Poor communication within and between the companies
involved.
Inadequate risk evaluation and risk mitigation
measures.
The disaster could have been prevented. Notably, workers
on the rig incorrectly interpreted clear warning signs of a hydrocarbon
influx during the negative pressure test. If recognized, those warning
signs would have allowed them to shut in the well before the blowout
began.
Government regulations did not address several key causes
of the blowout, and regulators lacked the resources or technical
expertise to address others.
Whether purposeful or not, many of the risk-enhancing
decisions that BP, Halliburton, and Transocean made saved those
companies significant time (and money).
The Commission's investigation concludes that these failures were
preventable. Errors and misjudgments by at least three companies--BP,
Halliburton and Transocean--contributed to the disaster, and Federal
regulations did not address many of the key issues.
iii. regulatory oversight and the need for reform
Regulatory Oversight
While our testimony will primarily focus on those areas that fall
within the committee's jurisdiction, it is important to briefly discuss
the lapses in regulatory oversight that contributed to this disaster,
and the Commission's recommendations in this area.
The responsibilities assigned to the Minerals Management Services
(MMS) in an effort to regulate the offshore oil and gas industry have
created conflicts of interest and have been subject to pressure from
political and industry interests. MMS was not only responsible for
offshore leasing and resource management; it also collected and
disbursed revenues from offshore leasing, conducted environmental
reviews, reviewed plans and issued permits, conducted audits and
inspections, and enforced safety and environmental regulations.
Over the course of many years, political pressure generated by a
demand for lease revenues and industry pressure to expand access and
expedite permit approvals and other regulatory processes often combined
to push MMS to elevate revenue and permitting goals over safety and
environmental goals. These problems were compounded by an outdated
organizational structure, a chronic shortage of resources, a lack of
sufficient technological expertise, and the inherent difficulty of
coordinating effectively with all of the other government agencies that
have had statutory responsibility for some aspect of offshore oil and
gas activities.
To remedy this conflict of interest, the Commission recommends that
the roles and responsibilities of the former MMS should be separated
into three entities with clearly defined statutory authorities. One
entity would be responsible for offshore safety and environmental
enforcement; another would perform functions related to leasing and
environmental science; and the third would manage natural resource
revenues. The safety and environment enforcement authority or entity,
in particular, should have primary statutory responsibility for
overseeing the structural and operational integrity of all offshore
energy-related facilities and activities, including both oil and gas
offshore drilling and renewable energy facilities.
Since the Commission issued its final report on January 11th,
Secretary of the Interior Ken Salazar has already announced changes in
the organization within Interior that reflect many of the Commission's
recommendations.
Regulation to Better Manage Risk
The Commission also recommends a more comprehensive overhaul of
both the leasing program and the regulatory policies and institutions
used to oversee the safety and environmental protection of offshore
activities. The goals must be to reduce and manage risk more
effectively, using strategies that can keep pace with a technologically
complex and rapidly evolving industry, particularly in high-risk and
frontier areas, and to secure the resources needed to execute the
leasing function and provide adequate regulatory oversight.
BOEMRE currently relies heavily on prescriptive regulations
incorporating a number of industry technical standards. Prescriptive
regulations must be the basis of an effective regulatory system, but
given the many variables in deepwater drilling, prescriptive rules can
never cover all cases. The Federal agency responsible for offshore
activity must have a regulatory approach that integrates more
sophisticated risk assessment and risk management practices into its
oversight of energy developers operating offshore. The focus should
shift from prescriptive regulations covering only the operator to a
foundation of augmented prescriptive regulations, including those
relating to well design and integrity, supplemented by a proactive,
risk-based performance approach that is specific to individual
facilities (production platforms and drilling rigs), operations, and
environments. Both the operator and the drilling rig owners would have
a legal duty to assess and manage the risks of a specific activity by
engaging all contractors and subcontractors in a coordinated safety
management system.
iv. environmental review
As part of its inquiry into the existing regulatory structure for
offshore drilling, the Commission reviewed existing mechanisms for
protecting the environment. In its work on this question, the
Commission focused on two issues: (1) the application of National
Environmental Policy Act (NEPA) requirements to the offshore leasing
process and (2) the need for better science and greater interagency
consultation to improve decisionmaking related to management of
offshore resources.
NEPA
Based on the Commission's review of leasing and permitting
processes in the Gulf of Mexico before the Deepwater Horizon incident,
the Commission concluded that the breakdown of the environmental review
process for OCS activities was systemic and that Interior's historical
approach to the application of NEPA requirements for offshore oil and
gas activities needs significant revision. In particular, the
application of tiering, use of categorical exclusions, the practice of
area-wide leasing, and failure to develop formal NEPA guidance all
contributed to this breakdown. The Commission recommends that the
Council on Environmental Quality and the Department of the Interior
revise and strengthen the NEPA policies, practices, and procedures to
improve the level of environmental analysis, transparency, and
consistency at all stages of the OCS planning, leasing, exploration,
and development process.
Improved Interagency Consultation and Environmental Science
Under OCSLA, it is up to the Secretary of the Interior to choose
the proper balance between environmental protection and resource
development. In making leasing decisions, the Secretary is required to
solicit and consider suggestions from any interested agency, but he or
she is not required to respond to the comments or accord them any
particular weight. Similar issues arise at the individual lease sale
stage and at the development and production plan stage. As a result,
NOAA--the nation's ocean agency with the most expertise in marine
science and the management of living marine resources--effectively has
the same limited role as the general public in the decisions on
selecting where and when to lease portions of the OCS. The Commission
recommends a more robust and formal interagency consultation process in
which NOAA, in particular, is provided a heightened role, but ultimate
decisionmaking authority is retained at DOI. The Commission further
recommends the creation of an Office of Environmental Science, led by a
Chief Environmental Scientist, with specified responsibilities in
conducting all NEPA reviews, coordinating other environmental reviews,
and whose expert judgment on environmental protection concerns would be
accorded significant weight in leasing decisionmaking.
v. reforming industry safety practices
Changing Business As Usual
Without effective government oversight, the offshore oil and gas
industry will not adequately reduce the risk of accidents, nor prepare
effectively to respond in emergencies. However, government oversight
alone cannot reduce those risks to the fullest extent possible.
Government oversight must be accompanied by the oil and gas industry's
internal reinvention: sweeping reforms that accomplish no less than a
fundamental transformation of its safety culture.
Just as the nuclear power industry created the Institute of Nuclear
Power Operations (INPO), the nation's oil and gas industry needs now to
embrace the potential for an industry safety institute to supplement
government oversight of industry operations. To be credible, any
industry-created safety institute would need to have complete command
of technical expertise available through industry sources. To be
successful, an oil and gas industry safety institute would require in
the first instance strong board-level support from CEOs and boards of
directors of companies for a rigorous inspection and auditing function.
Such audits would need to be aimed at assessing companies' safety
cultures and encouraging learning about implementation of enhanced
practices. The inspection and auditing function would need to be
conducted by safety institute staff, complemented by experts seconded
from industry companies. There would also need to be a commitment to
share findings about safety records and best practices within the
industry, aggregate data, and analyze performance trends, shortcomings,
and needs for further research and development. Accountability could be
enhanced by a requirement that companies report their audit scores to
their boards of directors and insurance companies.
vi. financial responsibility and liability
Oil spills cause a range of harms, including personal, economic and
environmental injuries, to individuals and ecosystems. The Oil
Pollution Act makes the party responsible for a spill liable for
compensating those who suffered as a result of the spill--through human
health and property damage, lost profits, and other personal and
economic injuries--and for restoring injured natural resources. The Act
also provides an opportunity to make claims for compensation from a
dedicated Oil Spill Liability Trust Fund. The Oil Pollution Act,
however, imposes limits on both the amount for which the responsible
party is liable, and the amount of compensation available through the
trust fund. In the case of the Deepwater Horizon spill, BP (a
responsible party) has placed $20 billion in escrow to compensate
private individuals and businesses through the independent Gulf Coast
Claims Facility. But if a less well capitalized company had caused the
spill, neither a multi-billion dollar compensation fund nor the funds
necessary to restore injured resources, would likely have been
available.
Liability for damages from spills from offshore facilities is
capped under the Oil Pollution Act at $75 million, unless it can be
shown that the responsible party was guilty of gross negligence or
willful misconduct, violated a Federal safety regulation, or failed to
report the incident or cooperate with removal activities, in which case
there is no limit on damages. Claims up to $1 billion for certain
damages can be made to, and paid out of, the Oil Spill Liability Trust
Fund, which is currently supported by an 8-cent per-barrel tax on
domestic and imported oil.
The Oil Pollution Act also requires responsible parties to
``establish and maintain evidence of financial responsibility,''
generally based on a ``worst-case discharge'' estimate. In the case of
offshore facilities, necessary financial responsibility ranges from $35
million to $150 million.
Inadequacy of Current System
There are two main problems with the current liability cap and
financial responsibility dollar amounts. First, the relatively modest
liability cap and financial responsibility requirements provide little
incentive for oil companies to improve safety practices. Second, as
noted, if an oil company with more limited financial means than BP had
caused the Deepwater Horizon spill, that company might well have
declared bankruptcy long before paying fully for all damages. In the
case of a large spill, the Oil Spill Liability Trust Fund would likely
not provide sufficient backup. Thus, a significant portion of the
injuries caused to individuals and natural resources, as well as
government response costs, could go uncompensated.
Any discussion of increasing liability caps and financial
responsibility requirements must balance two competing public policy
concerns: first, the goal of ensuring that the risk of major spills is
minimized, and in the event of a spill, victims are fully compensated;
and second, that increased caps and financial responsibility
requirements do not drive competent independent oil companies out of
the market. A realistic policy solution also requires an understanding
of the host of complex economic impacts that could result from
increases to liability caps and financial responsibility requirements.
Options for Reform
As this committee and others in Congress consider options for
addressing these problems, the Commission recommends that first,
Congress significantly increase the liability cap and financial
responsibility requirements for offshore facilities. To address both
the incentive and compensation concerns noted above, Congress should
significantly raise the liability cap. Financial responsibility limits
should also be increased, because if an oil company does not have
adequate resources to pay for a spill, the application of increased
liability has little effect. Should a company go bankrupt before fully
compensating for a spill, its liability is effectively capped. If,
however, the level of liability imposed and the level of financial
responsibility required are set to levels that bear some relationship
to potential damages, firms will have greater incentives to maximize
prevention and minimize potential risk of oil spills and also have the
financial means to ensure that victims of spills do not go
uncompensated.
Second, the Commission recommends that Congress increase the limit
on per-incident payouts from the Oil Spill Liability Trust Fund. If
liability and financial responsibility limits are not set at a level
that will ensure payment of all damages for spills, then another source
of funding will be required to ensure full compensation. The Federal
Government could cover additional compensation costs, but this approach
requires the taxpayer to foot the bill. Therefore, Congress should
raise the Oil Spill Liability Trust Fund per-incident limit. Raising
the Oil Spill Liability Trust Fund's per-incident limit will require
the Fund to grow through an increase of the per-barrel tax on domestic
and imported oil production. An alternative would be to increase the
Trust Fund through a surcharge by mandatory provisions in drilling
leases triggered in the event that there are inadequate sums available
in the Fund.
Third, the Commission recommends that the Department of the
Interior enhance auditing and evaluation of the risk of offshore
drilling activities by individual participants (operator, driller,
other service companies). The Department of the Interior, insurance
underwriters, or other independent entities should evaluate and monitor
the risk of offshore drilling activities to promote enhanced risk
management in offshore operations and to discourage unqualified
companies from remaining in the market.
The Interior Department currently determines financial
responsibility levels based on potential worst-case discharges, as
required by the Oil Pollution Act. Although the agency's analysis to
some degree accounts for the risk associated with individual drilling
activities, it does not fully account for the range of factors that
could affect the cost of a spill, and thus the level of financial
responsibility that should be required. Interior should analyze a host
of specific, risk-related criteria when determining financial
responsibility limits applicable to a particular company, including,
but not limited to: geological and environmental considerations, the
applicant's experience and expertise, and applicable risk management
plans. This increased scrutiny would provide an additional guard
against unqualified companies entering the offshore drilling market.
vii. response and containment
As part of its charge from President Obama, the Commission looked
at the effectiveness of the response to the spill. There were
remarkable instances of dedication and heroism by individuals involved
in the rescue and cleanup. Much was done well--and thanks to a
combination of good luck and hard work, the worst-case scenarios did
not all come to pass. But it is impossible to argue that the industry
or the government was prepared for a disaster of the magnitude of the
Deepwater Horizon oil spill. Twenty years after the Exxon Valdez spill
in Alaska, the same blunt response technologies--booms, dispersants,
and skimmers--were used, to limited effect. On-the-ground shortcomings
in the joint public-private response to an overwhelming spill like that
resulting from the blowout of the Macondo well are now evident, and
demand public and private investment. So do the weaknesses in local,
state, and Federal coordination revealed by the emergency.
Neither BP nor the Federal Government was prepared to conduct an
effective response to a spill of the magnitude and complexity of the
Deepwater Horizon disaster. Three critical issues or gaps existed in
the government's response capacity: (1) the failure to plan effectively
for a large-scale, difficult-to-contain spill in the deepwater
environment; (2) the difficulty of coordinating with State and local
government officials to deliver an effective response; and (3) a lack
of information and understanding concerning the efficacy of specific
response measures, such as dispersants or berms. Moreover, the
technology available for cleaning up oil spills had improved only
incrementally since 1990. The technologies and methods available to cap
or control a failed well in the extreme conditions thousands of feet
below the sea were also inadequate. Although BP was able to develop new
source-control technologies in a compressed timeframe, and the
government was able to develop an effective oversight structure, the
containment effort would have benefited from prior preparation and
contingency planning.
Improved Oil Spill Response Planning
The Department of the Interior should create a rigorous,
transparent, and meaningful oil spill risk analysis and planning
process for the development and implementation of better oil spill
response. Several steps are needed for implementation:
Interior should review and revise its regulations and
guidance for industry oil spill response plans. The revised process
should ensure that all critical information and spill scenarios are
addressed in the plans.
In addition to Interior, other agencies with relevant
scientific and operational expertise should play a role in evaluating
spill response plans to verify that operators can conduct the
operations detailed in their plans. Specifically, oil spill response
plans, including source-control measures, should be subject to
interagency review and approval by the Coast Guard, EPA, and NOAA.
Other parts of the Federal Government, such as Department of Energy
national laboratories that possess relevant scientific expertise, could
be consulted. Plans should also be made available for a public comment
period prior to final approval and response plans should be made
available to the public following their approval.
Interior should incorporate the ``worst-case scenario''
calculations from industry oil spill response plans into NEPA documents
and other environmental analyses or reviews.
Spills of National Significance
The Gulf oil spill presented an unprecedented challenge to the
response capability of both government and industry. Though the
National Contingency Plan permitted the government to designate the
spill as one of ``national significance,'' this designation did not
trigger any procedures other than allowing the government to name a
National Incident Commander.
EPA and the Coast Guard should establish distinct plans and
procedures for responding to a ``Spill of National Significance.''
Specifically, EPA should amend or issue new guidance on the National
Contingency Plan to:
Increase government oversight of the responsible party,
based on the National Contingency Plan's requirement that the
government ``direct'' the response where a spill poses a substantial
threat to public health or welfare.
Augment the National Response Team and Regional Response
Team structures to establish additional frameworks for providing
interagency scientific and policymaking expertise during a spill.
Further, EPA, NOAA, and the Coast Guard should develop procedures to
facilitate review and input from the scientific community--for example,
by encouraging disclosure of underlying methodologies and data.
Create a communications protocol that accounts for
participation by high-level officials who may be less familiar with the
National Contingency Plan structure and create a communications center
within the National Incident Command--separate from the joint
information center established in partnership with the responsible
party--to help transmit consistent and complete information to the
public.
strengthening state and local involvement
The response to the Deepwater Horizon disaster showed that State
and local elected officials had not been adequately involved in oil
spill contingency planning, though career responders in State
government had participated extensively. Unfamiliarity with, and lack
of trust in, the Federal response manifested itself in competing State
structures and attempts to control response operations that undercut
the efficiency of the response overall.
EPA and the Coast Guard should bolster State and local involvement
in oil spill contingency planning and training and create a mechanism
for local involvement in spill planning and response similar to the
Regional Citizens' Advisory Councils mandated by the Oil Pollution Act
of 1990.
In addition, a mechanism should be created for ongoing local
involvement in spill planning and response in the Gulf. In the Oil
Pollution Act of 1990, Congress mandated citizens' councils for Prince
William Sound and Cook Inlet. In the Gulf, such a council should
broadly represent the citizens' interests in the area, such as fishing
and tourism, and possibly include representation from oil and gas
workers as ex-officio, non-voting members.
Research and Development for Improved Response
The technology available for cleaning up oil spills has improved
only incrementally since 1990. Federal research and development
programs in this area are underfunded: In fact, Congress has never
appropriated even half the full amount authorized by the Oil Pollution
Act of 1990 for oil spill research and development.
Specifically, Congress should provide mandatory funding (i.e.
funding not subject to the annual appropriations process) at a level
equal to or greater than the amount authorized by the Oil Pollution Act
of 1990 to increase Federal funding for oil spill response research by
agencies such as Interior, the Coast Guard, EPA, and NOAA. In addition,
Congress and the Administration should encourage private investment in
response technology more broadly, including through public-private
partnerships and a tax credit for research and development in this
area.
Dispersants
Prior to the blowout, the Federal Government had not adequately
planned for the use of dispersants to address such a large and
sustained oil spill, and did not have sufficient research on the long-
term effects of dispersants and dispersed oil to guide its
decisionmaking.
EPA should update and periodically review its dispersant testing
protocols for product listing or pre-approval, and modify the pre-
approval process to include temporal duration, spatial reach, and
volume of the spill. EPA should update its dispersant testing protocols
and require more comprehensive testing prior to listing or pre-
approving dispersant products. The Coast Guard and EPA should modify
pre-approvals of dispersant use under the National Contingency Plan to
establish procedures for further consultation based on the temporal
duration, spatial reach, or volume of the spill and volume of
dispersants that responders are seeking to apply. EPA and NOAA should
conduct and encourage further research on dispersants.
Containment
The most obvious, immediately consequential, and plainly
frustrating shortcoming of the oil spill response set in motion by the
events of April 20, 2010 was the simple inability--of BP, of the
Federal Government, or of any other potential intervener--to contain
the flow of oil from the damaged Macondo well.
At the time of the blowout on April 20, the U.S. Government was
unprepared to oversee a deepwater source-control effort. Once the
Secretary of Energy's science team, the U.S. Geological Survey, the
national laboratories, and other sources of scientific expertise became
involved, the government was able to substantively supervise BP's
decisionmaking, forcing the company to fully consider contingencies and
justify its chosen path.
The National Response Team should develop and maintain expertise
within the Federal Government to oversee source-control efforts. The
National Response Team should create an interagency group--including
representation from the Department of the Interior, Coast Guard, and
the Department of Energy and its national laboratories--to develop and
maintain expertise in source control, potentially through public-
private partnerships.
Industry's Spill Preparedness
Beyond attempting to close the blowout preventer stack, no proven
options for rapid source control in deepwater existed when the blowout
occurred. The Department of the Interior should require offshore
operators to provide detailed plans for source control as part of their
oil spill response plans and applications for permits to drill.
These plans should demonstrate that an operator's containment
technology is immediately deployable and effective. In applications for
permits to drill, the Interior should require operators to provide a
specific source-control analysis for each well. As with oil spill
response plans, source-control plans should be reviewed and approved by
agencies with relevant expertise, including the Interior and the Coast
Guard.
Improved Capability for Accurate Flow Rate Estimates
Early flow rate estimates were highly variable and difficult to
determine accurately. However, the understated estimates of the amount
of oil spilling appear to have impeded planning for and analysis of
source-control efforts like the cofferdam and especially the top kill.
The National Response Team should develop and maintain expertise
within the Federal Government to obtain accurate estimates of flow rate
or spill volume early in a source-control effort. The National Response
Team should create an interagency group--including representation from
Interior, the Coast Guard, the national laboratories, and NOAA--to
develop and maintain expertise in estimating flow rates and spill
volumes. In addition, EPA should amend the National Contingency Plan to
create a protocol for the government to obtain accurate estimates of
flow rate or spill volume from the outset of a spill. This protocol
should require the responsible party to provide all data necessary to
estimate flow rate or spill volume.
More Robust Well Design and Approval Process
Among the problems that complicated the Macondo well-containment
effort was a lack of reliable diagnostic tools and concerns about the
well's integrity. The Department of the Interior should require
offshore operators seeking its approval of proposed well design to
demonstrate that:
Well components, including blowout preventer stacks, are
equipped with sensors or other tools to obtain accurate diagnostic
information--for example, regarding pressures and the position of
blowout preventer rams.
Wells are designed to mitigate risks to well integrity
during post-blowout containment efforts.
Industry Responsibilities for Containment and Response
Industry's responsibilities extend to efforts to contain any big
spills as quickly as possible and to mitigate the harm caused by spills
through effective response efforts. Both government, which must be
capable of taking charge of those efforts, and industry were woefully
unprepared to contain or respond to a deepwater well blowout like that
at Macondo. All parties lacked adequate contingency planning, and
neither had invested sufficiently in research, development, and
demonstration to improve containment or response technology.
From now on, the oil and gas industry needs to combine its
commitment to transform its safety culture with adequate resources for
containment and response. Large-scale rescue, response, and containment
capabilities need to be developed and demonstrated--including
equipment, procedures, and logistics--and enabled by extensive
training, including full-scale field exercises and international
cooperation.
To that end, at least two industry spill containment initiatives
have emerged that build on ideas and equipment that were deployed in
response to the Macondo blowout and spill. The nonprofit Marine Well
Containment Company was created in July 2010 by four of the major,
integrated oil and gas companies. The second spill containment
initiative is being coordinated by Helix Energy Solutions Group, which
played a role in the Macondo well containment efforts.
Yet neither the Marine Well Containment Company's planned
capabilities nor Helix's go past 10,000 feet despite the fact that
current drilling technology extends beyond this depth. Also it seems
that neither is structured to ensure the long-term ability to innovate
and adapt over time to the next frontiers and technologies. What
resources, if any, either initiative will dedicate to research and
development going forward is unclear.
The primary long-term goal of a spill containment company or
consortia should be to ensure that an appropriate containment system is
readily available to contain quickly spills in the Gulf of Mexico with
the best available technology. Any spill containment company or
consortia should ensure that it remains focused on this goal, even when
doing so potentially conflicts with the short-term interests of its
founding companies, in the case of MWCC, or the parent company, in the
case of Helix. An independent advisory board, with representatives from
industry, the Federal Government, State and local governments, and
environmental groups could help keep any spill containment initiative
focused on innovative, adaptive, effective spill response over the long
term.
viii. spill impacts and gulf restoration
Even before the highly visible damages caused by the spill became
clear, many crucial Gulf economic and ecological resources--fisheries,
transportation, tourism--faced long-term threats. First, more than
2,300 square miles of coastal wetlands--an area larger than the State
of Delaware--have been lost to the Gulf since the United States raised
the massive levees along the lower Mississippi River after the
devastating Great Flood of 1927. Exceptionally powerful hurricanes,
always a threat to the region, struck the coast in 2005 (Katrina and
Rita) and 2008 (Gustav and Ike), causing even more wetland loss.
Second, low-oxygen bottom waters were in the process of forming a
massive ``dead zone'' extending up to 7,700 square miles during the
summer of 2010. Referred to as hypoxia, this phenomenon has intensified
and expanded since the early 1970's as a result of nutrient pollution,
mainly from Midwestern agriculture. And finally, the Deepwater Horizon
disaster made matters worse: 11 rig workers killed in the explosion and
17 injured; many thousands of people exposed to contaminated waters,
coasts, beaches, and seafood; thousands out of work; birds and sea
animals killed and significant habitats damaged or destroyed. The
Commission's investigation made plain that existing authorities are not
adequate to redress these significant harms and ensure restoration of
the Gulf.
Human Health Impacts
The National Contingency Plan overlooks the need to respond to
widespread concerns about human health impacts. For smaller oil spills,
the response effort is generally carried out by trained oil spill
response technicians, but given the scale of the response to the
Deepwater Horizon spill and the need to enlist thousands of previously
untrained individuals to clean the waters and coastline, many response
workers were not screened for pre-existing conditions. This lack of
basic medical information, which could have been collected if a short
medical questionnaire had been distributed, limits the ability to draw
accurate conclusions regarding long-term physical health impacts. EPA
should amend the National Contingency Plan to add distinct procedures
to address human health impacts during a Spill of National
Significance. Spills of this magnitude necessarily require a
significant clean-up effort, potentially exposing workers to toxic
compounds in oil and dispersants.
Consumer Confidence
Images of spewing oil and oiled beaches in newspapers and on
television set the stage for public concern regarding the safety of
Gulf seafood. Additional factors contributed to the lingering
impression that the public could not trust government assurances that
the seafood was safe: the unprecedented volumes of dispersants used,
confusion over the flow rate and fate of the oil, frustration about the
government's relationship with BP in spill cleanup, and lawsuits filed
by fishermen contesting the government's assurance of seafood safety.
The economic blow to the Gulf region associated with this loss of
consumer confidence is sizable. BP gave Louisiana and Florida $68
million for seafood testing and marketing, as well as money to assess
impacts on tourism and fund promotional activities. As of early
December 2010, BP was considering a similar request from Alabama.
In future spills, however, there is no guarantee that a responsible
party will have the means or the inclination to compensate such losses.
Such indirect financial harms are currently not compensable under the
Oil Pollution Act. Nevertheless, losses in consumer confidence are real
and Congress, Federal agencies, and responsible parties should consider
ways to restore consumer confidence in the aftermath of a Spill of
National Significance.
The Commission recommends that Congress, Federal agencies, and
responsible parties take steps to restore consumer confidence in the
aftermath of a Spill of National Significance.
Lack of Sustained Funding for Gulf Restoration
A lack of sustained and predictable funding, together with failed
project coordination and long-term planning, has resulted in incomplete
and often ineffective efforts to restore the Gulf's natural
environment. No funding source currently exists to support regional
restoration efforts. While cost estimates of Gulf restoration vary
widely, according to testimony before the Commission, fully restoring
the Gulf will require $15 billion-$20 billion, or a minimum of $500
million per year, over 30 years. A number of different sources
currently provide funding to individual states for restoration, however
none of these sources provides funds for Gulf-wide coastal and marine
restoration, and none is sufficient to support the sustained effort
required. Most policymakers agree that without a reliable source of
long-term funding, it will be impossible to achieve restoration in the
Gulf.
Several Gulf States and the Federal Government have filed or are
expected to file suit against BP and other companies involved in the
spill, which will likely create opportunities to direct new restoration
funds to the region. In some cases, congressional action will be
required to ensure that funds are directed to this purpose. The
Commission recommends that 80 percent of any Clean Water Act penalties
and fines be directed to Gulf restoration. Should such penalties and
fines not be directed to the Gulf, Congress should consider other
mechanisms for a dedicated funding stream not subject to annual
appropriations. Although such mechanisms face hurdles, the fact remains
that resources are needed if progress on coastal restoration is to
continue. Inaction is a prescription for further degradation. Should
CWA penalties not be redirected to Gulf restoration, Congress should
consider other mechanisms for a dedicated funding stream not subject to
annual appropriations.
Decisionmaking Body for Expediting Work
In order for funding to be most efficiently directed at long-term
restoration, a decisionmaking body is needed that has authority to set
binding priorities and criteria for project funding. The Gulf Coast
Ecosystem Restoration Task Force is now in place, as recommended by the
September 2010 report on restoration from Secretary of the Navy Ray
Mabus to the President, and subsequently established by Presidential
Executive Order. According to the Executive Order, the job of the Task
Force is to begin coordinating the different restoration projects being
undertaken by various jurisdictions in the Gulf, coordinating related
science activities and engaging stakeholders. However, as many in
Congress and the Administration have suggested, the Task Force lacks
some features necessary to effectively direct long-term restoration
efforts in the Gulf--most importantly the ability to set binding goals
and priorities.
The Commission recommends that Congress establish a joint state-
Federal Gulf Coast Ecosystem Restoration Council. The Council should
implement a restoration strategy for the region that is compatible with
existing State restoration goals. Experience in major restoration
endeavors, including those in the Gulf, has shown that, absent binding
goals to drive the process, restoration projects are insufficiently
funded, focused, or coordinated. Therefore, the restoration strategy
should set short-and long-term goals with binding criteria for
selecting projects for funding. Key criteria should include national
significance; contribution to achieving ecosystem resilience; and the
extent to which national policies--such as those related to flood
control, oil and gas development, agriculture, and navigation--directly
contributed to the environmental problem. Congress should also ensure
that the priorities and decisions of the Council are informed by input
from a Citizens Advisory Council that represents diverse stakeholders.
Restoration Rooted in Science
Finally, but essentially, restoration decisions must be rooted in
science. An approach that draws heavily on information and advice from
scientists will result in project selection and funding allocations
that are more likely to lead to an effective region-wide restoration
strategy. Such an approach will also advance transparency in
decisionmaking and enhance credibility with the public.
The Commission accordingly recommends the establishment of a Gulf
Coast Ecosystem Restoration Science and Technology Program that would
address these issues in three ways: (1) by creating a scientific
research and analysis program, supported by the restoration fund, that
is designed to support the design of scientifically sound restoration
projects; (2) by creating a science panel to evaluate individual
projects for technical effectiveness and consistency with the
comprehensive strategy; and (3) by supporting adaptive management plans
based on monitoring of outcomes scaled both to the strategy itself and
to the individual projects or categories of projects included in it.
Managing Ocean Resources
The Commission recommends that as a part of management and
restoration efforts in the marine environment, greater attention should
be given to new tools for managing ocean resources, including
monitoring systems and spatial planning. Marine scientists have emerged
from the Deepwater Horizon incident with more precise questions to
investigate, as well as a better sense of monitoring needs in the Gulf
of Mexico, which because of its multiple uses and economic value should
be a national priority. To that end, the National Ocean Council, which
the President initiated in July 2010, should work with the responsible
Federal agencies, industry and the scientific community to expand the
Gulf of Mexico Integrated Ocean Observing System, including the
installation and maintenance of an in situ network of instruments
deployed on selected production platforms. Participation in this system
by industry should be regarded as a reasonable part of doing business
in nation's waters.
Coastal and marine spatial planning has the potential to improve
overall efficiency and reduce conflicts among ocean users. Congress
should fund grants for the development of regional planning bodies at
the amount requested by the President in the fiscal year 2011 budget
submitted to Congress. Ocean management should also include more
strategically sited Marine Protected Areas, including but not limited
to National Marine Sanctuaries, which can be used as ``mitigation
banks'' to help offset harm to the marine environment. Given the
economic and cultural importance of fishing in the Gulf region--and the
importance of Gulf seafood to the rest of the country--scientifically
valid measures, such as catch share programs, should be adopted to
prevent overfishing and ensure the continuity of robust fisheries.
ix. the future of offshore drilling
The central lesson to be drawn from the catastrophe is that no less
than an overhauling of both current industry practices and government
oversight is now required. The changes necessary will be transformative
in their depth and breadth, requiring an unbending commitment to safety
by government and industry to displace a culture of complacency.
Drilling in deepwater, however, does not have to be abandoned. It can
be done safely. That is one of the central messages of the Commission's
final report. The Commission's recommendations are intended to do for
the offshore oil and gas industry what new policies and practices have
done for other high risk industries after their disasters. The
Commission believes that the potential for such a transformation to
ensure productive, safe, and responsible offshore drilling is
significant, and provides reason for optimism even in the wake of a
disaster.
The significance of the Deepwater Horizon disaster, however, is
broader than just its relevance to the future of offshore drilling. The
disaster signals the need to consider the broader context of the
nation's patterns of energy production and use, now and in the future--
the elements of America's energy policy. The explosion at the Macondo
well and the ensuing enormous spill--particularly jarring events
because of the belief they could never happen--force a reexamination of
many widely held assumptions about how to reconcile the risks and
benefits of offshore drilling, and a candid reassessment of the
nation's policies for the development of a valuable resource. They also
support a broader reexamination of the nation's overall energy policy.
Important decisions about whether, when, where, and how to engage
in offshore drilling should be made in the context of a national energy
policy that is shaped by economic, security, pace of technology,
safety, and environmental concerns. Offshore drilling will certainly be
an important part of any such policy, but its relative importance today
will not, and should not, be the same a half-century from now. The
nation must begin a transition to a cleaner, more energy-efficient
future. Otherwise, its security and well-being will be increasingly
dependent on diminishing supplies of nonrenewable resources and on
supplies from foreign sources.
Drilling for oil in the Gulf of Mexico, however, is not solely a
matter for U.S. consideration. Both Mexico and Cuba have expressed
interest in deepwater drilling in the Gulf in the near future.
Potential sites are close enough to the United States--Cuba's mainland
lies only 90 miles from Florida's coast and the contemplated wells only
50 miles--that if an accident like the Deepwater Horizon spill occurs,
fisheries, coastal tourism, and other valuable U.S. natural resources
could be put at great risk. It is in our country's national interest to
negotiate now with these neighbors to agree on a common, rigorous set
of standards, a system for regulatory oversight, and operator adherence
to an effective safety culture, along with protocols to cooperate on
containment and response strategies in case of a spill.
Frontier Areas
Our Commission also examined prospects in so called ``frontier
areas.'' On December 1, in the wake of the Deepwater Horizon
experience, Interior Secretary Ken Salazar announced that the
Administration would not proceed with drilling in areas where there are
``no active leases'' during the next 5-year leasing plan. As a result,
exploration and production in certain frontier areas--the eastern Gulf
and off of the Atlantic and Pacific coasts--are deferred. The Secretary
also indicated that plans for 2011 drilling in Alaska's Beaufort Sea
would be subjected to additional environmental assessments.
The major interest in offshore Alaska reflects the likelihood of
finding significant new sources of oil there. The Chukchi and Beaufort
Sea off Alaska's north coast rank behind only the Gulf of Mexico in
estimated domestic resources. But finding and producing those
potentially important supplies of oil offshore Arctic Alaska requires
the utmost care, given the special challenges for oil spill response
and containment, and heightened risks associated with this frontier,
especially its extreme cold, extended seasons of darkness, hurricane-
strength storms, and pervasive fog--all affecting access and working
conditions--and the extraordinary richness of its ecosystems and the
subsistence native communities dependent upon their protection. To deal
with these serious concerns about Arctic oil spill response,
containment and the heightened environmental stakes the Commission
recommends three approaches before the Department of the Interior makes
a determination that drilling in a particular area is appropriate.
First, the Department should ensure that the containment and response
plans proposed by industry are adequate for each stage of development
and that the underlying financial and technical capabilities have been
satisfactorily demonstrated in the Arctic. Second, the Coast Guard and
the oil companies operating in the Arctic should carefully delineate
their respective responsibilities in the event of an accident--
including search and rescue--and then must build and deploy the
necessary capabilities. Third, Congress should provide the resources to
establish Coast Guard capabilities in the Arctic, based on the Guard's
review of gaps in its capacity.
The Arctic is shared by multiple countries, many of which are
considering or conducting oil and gas exploration and development. The
extreme weather conditions and infrastructure difficulties are not
unique to the U.S. Arctic. Damages caused by an oil spill in one part
of the Arctic may not be limited to the waters of the country where it
occurred. As a result, the Commission recommends that strong
international standards related to Arctic oil and gas activities be
established among all the countries of the Arctic. Such standards would
require cooperation and coordination of policies and resources.
Bringing the potentially large oil resources of the Arctic outer
continental shelf into production safely will require an especially
delicate balancing of economic, human, environmental, and technological
factors. Both industry and government will have to demonstrate
standards and a level of performance higher than they have ever
achieved before.
Creating and implementing a national energy policy will require
enormous political effort and leadership--but it would do much to
direct the Nation toward a sounder economy and a safer and more
sustainable environment in the decades to come. Given Americans'
consumption of oil, finding and producing additional domestic supplies
will be required in coming years, no matter what sensible and effective
efforts are made to reduce demand--in response to economic, trade, and
security considerations, and the rising challenge of climate change.
The extent to which offshore drilling contributes to augmenting
that domestic supply depends on rebuilding public faith in existing
offshore energy exploration and production. We have proposed a series
of recommendations that will enable the country and the oil and gas
industry to move forward on this one critical element of U.S. energy
policy: continuing, safe, responsible offshore oil drilling to meet our
nation's energy demands over the next decade and beyond. Our message is
clear: both government and industry must make dramatic changes to
establish the high level of safety in drilling operations on the outer
continental shelf that the American public has the right to expect and
to demand. It is now incumbent upon the Congress, the executive branch,
and the oil and gas industry to take the necessary steps.
Responses by Senator Graham and Mr. Reilly to Additional Questions from
Senator Boxer
1. Question 1. Your Commission's report highlighted the inadequacy
of the current liability system in the Oil Pollution Act, which sets
limits on liability at $75 million per offshore incident.
Under our current system, would local fisherman, tourism businesses
and coastal communities be guaranteed compensation if a future, large-
scale spill were caused by a company with more limited financial
resources than BP? How do limits on liability affect incentives for
safety in offshore drilling?
Response. The Oil Pollution Act currently limits liability and
compensation for damages caused by a spill from an offshore facility in
three ways. First, it caps liability for damages from a spill from an
offshore facility at $75 million per incident. Second, under the Oil
Pollution Act, the highest level of financial responsibility a covered
facility must demonstrate is $150 million. Thus, even though an
offshore facility is potentially liable for damages that exceed $75
million, it is not required to demonstrate actual capacity to pay
damages beyond $150 million. Third, if the responsible party is not
able to compensate all of the damages caused by the spill, the Trust
Fund is available to cover certain damages. However, the amount
authorized per incident is limited to $1 billion.
Thus, in the case of a very large spill, there is no certainty
under current law that a company would have the financial means to
fully compensate fisherman, tourism businesses, and coastal communities
that were victims of the spill. Moreover, the Trust Fund would likely
not provide sufficient backup, and a significant portion of the
injuries caused to individuals and natural resources as well as
government response costs could go uncompensated.
To the extent that a liability scheme provides incentives to
internalize costs, the comparatively low $75 million cap distorts
companies' incentives to engage in practices that prevent spills. This
point has been made by numerous economists who have reviewed the Oil
Pollution Act liability cap. Under basic economic theory, companies
that have the potential to cause significant harm should pay for the
costs they inflict. However, the incentive argument is somewhat
diminished by the fact that there are significant limitations on the
scope of the liability cap's applicability: Caps do not apply to
removal costs, damage claims under State law, and penalty actions, and
they do not apply where there has been gross negligence, willful
misconduct, or violation of applicable Federal safety, construction, or
operation regulation.
Question 2. In addition to highlighting the problems with existing
liability limits, your report suggested options for increasing
liability while protecting small, independent operators.
One recommendation was the establishment of a shared insurance pool
that would allow offshore drilling operators to share risk.
Can you discuss how such a proposal could ensure that victims of an
oil spill are fully compensated for damages while providing a way for
drilling operators, particularly small and independent operators, to
remain economically competitive?
Response. Substantial increases in financial responsibility
requirements and liability caps would make it difficult for many
smaller, independent operators--who are generally not in a position to
self-insure--to purchase insurance to cover damages from a spill. With
a mutual insurance pool, however, companies engaged in offshore
drilling would pay premiums into a pool, which would pay out damages in
the event of an oil spill. Premiums could be tied to the level of risk
posed by an individual company's activities, so that smaller firms
operating in shallow, less risky environments would not be required to
pay excessively high premiums. This option would allow companies to
demonstrate financial responsibility for the cost of spills.
Question 3. The ecosystems of the Gulf Coast are both
environmentally and economically important. A large portion of the
nation's seafood comes from the Gulf Coast. In addition, Gulf of Mexico
fisheries support billions of dollars in annual sales and hundreds of
thousands of jobs. The Commission's report called on Congress to
dedicate 80 percent of Clean Water Act penalties to the long-term
restoration of the Gulf's ecosystems.
Can you explain why this proposal is important for the long-term
recovery of the Gulf Coast? Why is it important to establish a science-
based decisionmaking body to guide restoration efforts?
Response. The Gulf suffers from continual degradation due to years
of pipelines and canals built by industry, channeling of the
Mississippi River Delta for shipping, building of levees for flood
prevention, and nutrients flowing down the Mississippi River. Numerous
ecosystem challenges faced the Gulf before the oil spill, and even more
so now: Barrier islands and shorelines are eroding, and essential
habitats in coastal bays and estuaries have been lost or degraded due
to pollution, changes in freshwater inflows, or overfishing. The result
is a rapidly disappearing Gulf landscape, with wetlands vanishing at
the rate of a football field about every 38 minutes and a massive
``dead zone.''
To truly address this continual degradation, Congress must dedicate
a sustained stream of funding to restoration. Lack of sustained funding
has hampered and undermined restoration efforts to date. Estimates are
that Gulf Coast restoration will cost $15-$20 billion over 30 years.
The Clean Water Act litigation presents an important opportunity to
direct funding, at the scale needed, to the critical need for
restoration in the Gulf.
Restoration decisions that are rooted in good science will result
in project selection and funding allocations that are more likely to
lead to an effective, region-wide restoration strategy. It will also
advance transparency in decisionmaking and enhance credibility with the
public.
Question 4. The Commission's report notes that the technology
available for cleaning up oil spills has improved only incrementally
since 1990 when Congress passed the Oil Pollution Act in response to
the Exxon Valdez disaster.
What can be done to improve oil spill research by both the Federal
Government and the private sector so that technologies for cleaning up
oil spills and minimizing damages continue to improve?
Response. Mandatory funding for oil spill research and development
should be a top priority. Government and industry were caught
completely unprepared. The technology used to fight the Deepwater
Horizon spill was largely the same as the technology used to fight the
Exxon Valdez spill, and the response suffered as a result. Under the
Oil Pollution Act, Congress authorized up to $28 million for oil spill
research, but not even half of this amount has ever been appropriated.
Since the Exxon Valdez spill, funding has averaged only roughly $10
million per year. By removing oil spill research and development
funding from the ordinary appropriations process, Congress can avoid
the experience that followed Exxon Valdez, when support for response
research and development quickly decreased as memory of the spill
faded.
With agencies, industry, and entrepreneurs intent on developing
response technologies for the first time in 20 years, promising
technologies were developed during the Deepwater Horizon spill response
period. We believe it is crucial to capitalize on this recent activity
and interest. As such, the Commission also recommended establishing an
advisory board, made up of experts from relevant Federal agencies as
well as from professional societies, academia, industry, and non-
governmental organizations, to develop a research agenda and roadmap.
Response by Senator Graham and Mr. Reilly to an Additional Question
from Senator Carper
Question. In the Commission's report and in your testimony today,
you cite the need to increase the limit on per-incident payouts from
the Oil Spill Liability Trust Fund. As you know, under current law the
per-incident payout limit is $1 billion. On Friday, the Obama
administration submitted the tenth bill to BP and the other Responsible
Parties for response and recovery operations related to the BP/
Deepwater Horizon Oil Spill. The first nine bills have been quickly
paid by BP. These ten bills total about $694 million that has been paid
out by the Oil Spill Liability Trust Fund. Given that figure, we are
quickly approaching that $1 billion limit. What concerns do you have
about reaching that $1 billion threshold and who would foot the bill if
we did indeed reach it? Second, while the report suggests that Congress
should increase the payout limit, a specific policy or dollar figure
isn't offered. Do you have any thoughts or suggestions as to what
specific action you believe Congress should take?
Response. Our hope is that Congress would take the steps necessary
to continue funding any remaining clean-up activities and ensure that
victims are compensated even if the payout limit is reached, especially
in light of the fact that BP has reimbursed the trust fund for its
expenditures.
The fact that we are approaching this limit underscores the need
for Congress to act on this issue. Because of the complexity of this
issue and its linkage to liability caps for individual companies,
however, the Commission did not recommend a particular amount.
Response by Senator Graham to an Additional Question from
Senator Lautenberg
Question. In your written testimony, you call on industry to update
its voluntary standards.
The Chemical Safety Board has a long history of conducting
independent and technically sophisticated investigations into
industrial accidents--and then making recommendations to improve
standards. However, the Commission has refused to turn over documents
critical to the CSB's investigation of the oil spill.
Will you work with the Chemical Safety Board to provide better
access to evidence in your possession?
Response. Throughout most of the Commission's tenure, the
Commission and its staff enjoyed a constructive relationship with the
Chemical Safety Board--one marked by mutual cooperation. However, on
February 25, 2011, the Chemical Safety Board submitted a subpoena to
the Commission that was of such an extraordinary scope_covering
millions of pages of documents and hundreds of thousands of emails_that
compliance would have taken at least many weeks if not months.
The Commission was required by Executive Order to terminate within
60 days of the release of its report. The Commission received the
subpoena just 2 weeks before our scheduled closing. Any effort at
compliance would have wholly disrupted the remaining Commission staffs
essential obligation to close the Commission down completely by March
11, 2011, including compliance with government recordkeeping
requirements, as required by the President's Executive Order
establishing the Commission. It is not clear to us why the Chemical
Safety Board, without any advance notice, chose just days before the
Commission ceased to operate to submit a subpoena, let alone a subpoena
of such an extraordinary scope and wholly inconsistent with the
temporal bounds of the Commission's existence.
Even more important, however, is the fact that the subpoena raised
many important legal issues that needed to be resolved prior to
compliance but that could not be resolved in the little time then
remaining. Several of these legal issues had implications far beyond
the scope and expertise of this Commission and needed to be resolved in
the first instance by other parts of the Executive Branch, particularly
the Department of Justice. For instance, the Chemical Safety Board's
subpoena raised the legal issue whether one executive branch agency
(the Chemical Safety Board) could compel the production of documents
from another executive branch agency through the use of a subpoena.
This issue involved internal executive branch legal policy that did not
relate to the Commission's charter or expertise.
In addition, the subpoena further raised the issue whether
compliance with the subpoena would violate the Executive Order
establishing the Commission. That Order states that ``The Commission
shall ensure that it does not interfere with or disrupt any ongoing or
anticipated civil or criminal investigation or law enforcement
activities or any effort to recover response costs or damages arising
out of the Deepwater Horizon explosion, fire, and oil spill.''
Executive Order No. 13543, Section 4(d). The Chemical Safety Board's
subpoena demanded documents that were potentially relevant to the kind
of ``civil or criminal investigation or law enforcement activities''
referred to by the Executive Order. The Commission could not fairly
determine in the exceedingly short time existing between the time the
subpoena was submitted and the Commission's closing date of March 11th
whether release of all these documents would in any way ``interfere
with or disrupt'' those activities. Indeed, the Executive Order
expressly required the Commission to ``consult with the Department of
Justice concerning the Commission's activities to avoid any risk of
such interference or disruption.'' For that reason, as required by its
Charter the Commission provided all of its documents to the Department
of Energy upon closing on March 11th and notified the Department of
Justice of the receipt of the subpoena and the legal issues that it
raised.
The Commission ceased all operations on March 11, 2011. At that
time, all Commission documents were turned over to the custody of the
Department of Energy. There is, accordingly, no Commission or
Commission staff that can work with the Chemical Safety Board on these
issues. The Chemical Safety Board needs therefore to contact the
Department of Energy and the Department of Justice.
Responses by Senator Graham and Mr. Reilly to Additional Questions from
Senator Inhofe
Question 1. One of the overarching purposes of the National
Environmental Policy Act (NEPA) is to, quote, ``create and maintain
conditions under which man and nature can exist in productive harmony,
and fulfill the social, economic, and other requirements of present and
future generations of Americans.''
Certainly, one component of that is ensuring that our activities
take into account environmental impacts--and that we minimize those
impacts to the extent practicable. Implied in that, though, is that we
can actually move forward with planned activities, such as, in this
case, offshore energy production. In other words, there isn't a
conflict between environmental protection and offshore energy
production.
Yet certain environmental are manufacturing that conflict
and using NEPA as a legal tool to stop offshore production_indeed, all
energy production they don't like. How can we make NEPA work more
efficiently, so that we can fully account for the environmental
impacts, but do so in a way that doesn't unnecessarily delay projects,
especially offshore projects?
Response. The Commission has stated that it does not believe
offshore drilling should be abandoned. It can proceed safely and in a
way that protects our environment. The Commission's recommendations are
aimed at improving safety and environmental protection so that drilling
can proceed. And in fact, the Commission recommended several steps the
Department of Interior could take to improve its NEPA review process
and provide greater efficiency, transparency, and consistency.
First, the Commission recommended that Interior develop and make
public a formal NEPA handbook that provides consistent guidelines for
applying NEPA in an appropriate manner. A Government Accountability
Office report released just prior to the Deepwater Horizon spill noted
that the lack of formal guidance leaves the process for meeting NEPA
requirements ill-defined. Such guidance and clarity will allow Interior
staff to more quickly and efficiently move through the NEPA process.
The Commission also recommended reforms to the practices of ``area-
wide leasing'' and the use of ``tiering.'' In particular, in less well-
explored areas, Interior should reduce the size of the lease sales so
that more meaningful environmental reviews can be undertaken. It is
especially important this be done before substantial private-sector
commitments are made to purchase leases. Better environmental reviews
conducted on a finer geographic scale are less likely to face
challenges later in the permitting process.
Question 2. Evidence used by the Commission to demonstrate an
industry-wide ``systemic'' problem was the ``loss of well control''
statistic showing 79 such incidences since 1996. How minor can an event
be to qualify as a ``loss of well control''? How many of these ``loss
of well control'' situations resulted in major spills? Even if all 79
events, considering 14,000 deepwater wells have been drilled, does that
demonstrate a systemic problem?
Response. We do not claim that any of the other loss of well
control incidents resulted in a major oil spill. At least three,
however, resulted in fatalities, which is clearly serious. The
significance of the many other ``loss of well control'' incidents,
moreover, is that they confirm the riskiness of drilling.
A loss of well control does not, by itself, indicate that an
operator was engaging in unsafe drilling practices. Some risk is
inevitable in offshore drilling, especially in deep water. The purpose
of the chart in the report describing the 79 incidents of loss of well
control is not to suggest that each of those incidents demonstrates
unsafe drilling practices. It is instead simply to document the
inherent risks of offshore drilling, and to underscore the need to
ensure that government and industry have the best possible safeguards
in place so that incidents do not result in the kind of major disaster
that occurred with the Macondo well blowout.
Question 3. Senator Graham, with 14,000 deepwater wells drilled
previously without a major incident before Macondo, wouldn't it be fair
to say that the industry-wide capacity to prevent this type of incident
was systemic?
Response (Senator Graham). Of course, the industry has drilled many
thousands of wells safely, and we commend them for this overall record.
Nonetheless, offshore oil exploration and production has, over the past
two decades, consistently moved into deeper waters, thereby increasing
the risks of drilling. And in coming years, the industry expects to
move into ``ultra-deepwater,'' which will require even more diligence
to avoid a Macondo-type blowout. Our recommendations are aimed at
ensuring regulatory practices and standards reflect the risk associated
with these types of environments.
The Commission's final report makes clear that many companies have
exemplary safety records. The basis for the Commission's conclusion
that the offshore drilling industry suffered from a ``systemic''
problem was based on the nature of the mistakes that the Commission
found were the cause of the Macondo well blowout and rig explosion, as
well as the identity of those making the mistakes. The Commission did
not discover one or two isolated mistakes, but a pattern of repeated
mistakes in well-drilling operations that revealed a fundamental
failure of risk management and safe drilling practices by three of the
companies working on the Deepwater Horizon. They included the largest
operator of deepwater drills in the Gulf (BP); the largest supplier of
cement for all deepwater wells, not just to BP but to all operations in
the Gulf (Halliburton); and the largest operator of deepwater drilling
rigs in the Gulf that services not just BP but all major operators
(Transocean).
Question 4. Does the Commission feel that the industry, through its
own affirmative actions, has addressed many of the issues related to
proper spill response through its creation of a deepwater spill
containment system?
Response. We applaud the industry for the many steps they have
taken in response to the spill, including the creation of the Marine
Well Containment Corporation and the Helix spill containment system, as
well as the establishment of a new industry-sponsored safety
organization under the auspices of the American Petroleum Institute.
However, we note that after the Exxon Valdez spill, the industry
created the Marine Spill Response Corporation--an industry nonprofit
initiative dedicated to maintaining response capabilities and
responding to spills. Over time, industry funding for the Marine Spill
Response Corporation declined, and there was a clear failure by the
industry to innovate and find new methods to clean up oil. Industry
must implement specific policies and procedures to monitor these new
institutions and guarantee their long-term readiness as well as funding
and investment levels.
Question 5. What would the potential pitfalls be to allowing
liability to extend beyond the lease holders who are typically the
operators?
Response. The Commission did not examine in detail the question of
whether liability should extend beyond operators. However, a research
paper prepared for the Commission by Professor Thomas Merrill of
Colombia Law School notes the following:
[The Comprehensive Environmental Response Compensation and
Liability Act (CERCLA or Superfund)] has been plagued, especially in
its early years, by squabbling among potentially responsible parties
over who would assume the burden of cleaning up waste sites. The
emphasis in the Oil Pollution Act on identifying one responsible party
for each incident was likely driven by a desire to avoid these sorts of
problems. In particular, Congress appears to have concluded that the
process of filing claims and obtaining damages for spills would be
greatly expedited by having one responsible party for each incident.
Singling out one responsible party also greatly simplifies the
administrative process of certifying that producers have complied with
the requirement of demonstrating financial responsibility. Not
surprisingly, therefore, Department of the Interior regulations provide
that each covered offshore facility ``must have a single designated
applicant.''
While we do not have a particular position on this issue, the
Commission's research suggests that any effort to extend liability
requirements beyond the operator should be undertaken only after
Congress has carefully weighed both the potential advantages and
disadvantages of such changes.
Question 6. Mr. Reilly, I have heard you talk about how impressed
you have been with the Shell proposal to drill in Alaska. Can you
please elaborate on what aspects of it impress you the most?
Response (Mr. Reilly). Speaking for myself and not the Commission,
I found several impressive aspects. First, it should be noted that
Shell has experience drilling in the Arctic. They drilled several
exploration wells in the Beaufort and Chukchi Sea in the late 1980's,
and they have worked with Russia over the past 15 years on sub-arctic
offshore oil development. It should also be noted that Beaufort and
Chukchi are shallow water plays, with relatively well understood
formations and pressure conditions--these are not considered ``risky''
wells.
In addition, Shell has assembled a state-of-the-art system of
response and containment equipment that can deploy within an hour.
These include helicopters, barges, boats, boom, skimmers, and other
needed equipment, and they have sponsored a substantial amount of
scientific research in the region. While I certainly believe that
additional scientific assessment on the environment is needed as we
move forward with drilling in the Arctic, as well as additional R&D on
responding to spills in those conditions, in my view Shell is committed
to ensuring they can effectively deal with a spill in this region.
Finally, it is clear that other countries, including Russia, intend
to move forward with drilling in the Arctic. The United States must
take the lead in this area, and develop the gold standard for safe,
environmentally responsible energy exploration and production in the
Arctic.
Question 7. The administration is continuing with the moratorium to
this day, only having permitted a handful of deepwater wells which were
not new permits, but were both being drilled at the time of the BP
spill. Given two of you opposed the moratorium, and that industry has
affirmatively taken significant steps to improve containment
capabilities in the case a spill should ever happen again, isn't it
about time to start issuing new permits in the Gulf and producing our
own resources?
Response. It is true that both of us opposed the moratorium for
various reasons. However, we do not believe that Administration wants
to permanently shut down offshore drilling in the Gulf. The President
has made clear in his public remarks, and his remarks to us privately,
that he supports offshore drilling. And the President once again stated
the importance of offshore drilling to America's energy security in his
speech at Georgetown on March 30th. Interior has issued several
deepwater drilling permits since the companies finalized and submitted
their containment plans in mid-February. And nearly 50 new permits for
shallow water wells have been issue over the past several months.
Again, while we disagreed with the moratorium, the pace of permitting
appears to be picking up in our view.
We also call on Congress to ensure that the Bureau of Ocean Energy
Management, Regulation, and Enforcement is adequately funded, so that
they have the staff and resources needed to efficiently process new
permits and provide the best possible oversight of the industry. The
Commission recommended creating a mechanism for offshore oil and gas
operators to provide ongoing and regular funding of the agencies
regulating offshore drilling through industry fees, similar to the way
other regulatory agencies are funded (for example, the Federal
Communications Commission). Given our current budget woes, and
substantial oil industry profits, this is simply a common-sense way to
address this pressing need.
Senator Boxer. Thank you so much. I am glad you raised
dispersants because I was going to ask a question but you
really kind of answered it.
What I am going to do, because the vote has started, is
just ask, anyone who wants to stay, just ask one question. So,
let me start it and we will get through as many as we can.
The one thing that will stick with me forever is BP's
permit application. When they were asked to describe the
likelihood of a spill and the likelihood that it would cause
damage, it was shocking. It just said, absolutely impossible.
Basically, that is what they said. Now, I read it here, I had
it blown up.
So, it worries me that we have these forms people fill out
and they do not really take it seriously. Did the Commission
talk about the response plans? Do you find them just
universally lacking credibility or do some do better than
others? I would ask each of you and that is my question.
Senator Graham. We use the term in our report that many of
these failures were systemic, that is they were not peculiar to
BP, they were reflective of an industry culture. Certainly
there is no area in which that is more true than the response
plans. Few, if any, of the response plans, particularly for
deep water drilling, were effective in addressing the issues
that would be faced or were credible in the statement of the
resources available to carry out effective containment and
response.
So, one of our major recommendations, which is primarily in
the hands of the Department of the Interior under its
responsibility to condition to permits to drill in the first
instance, is that there be much greater attention to oil spill
response to the specific area in which that response will be
called upon, because it is a lot different responding at 500
feet than at 15,000 feet, and that there are credible
technologies ready to be deployed to limit the discharge to the
extent possible.
Senator Boxer. So, so if I could just cut through this
because of time problems, basically you have a situation where
a company, in this case, said something that was not true, and
the Interior Department under both Administrations, I think,
just rubber stamped it. So, you are saying that it is up to the
Interior Department to be more rigorous in examining these
permit applications. Is that right?
Senator Graham. Yes. Senator Vitter made some comments
which Mr. Reilly and I have considerable sympathy for about the
moratorium and the delays in getting new excavation underway.
From what I gather, the principle reason for that delay has
been exactly this one, that the Department was not satisfied
with the response plans and would not issue permits until it
became satisfied----
Senator Boxer. Well, good for them. Why on earth would they
not, if they are responsible for the next spill? So, good for
them and good for you.
Senator Graham. It has now issued two permits----
Senator Boxer. Yes, they have begun----
Senator Inhofe. We are going to have to kind of move on to
a question each----
Senator Boxer. Yes, Senator, go ahead.
Senator Inhofe. Let me first of all say it is very unusual
that I have two good friends as witnesses. That does not happen
very often. So, I am glad you are here.
Let me just quote from the Commission's Chief Counsel's
report, just one or two sentences here. What the investigation
makes clear above all else is that management failures, not
mechanical failures, were the ultimate source of the disaster.
In clear, precise and unflinching detail the report lays out
the confusion, lack of communication, disorganization and
inattention to crucial safety issues and test results that led
to deaths of 11 men and the largest offshore spill of our
Nation's history. It goes on and we have other statements that
were made. Mr. Reilly, you had said that a good operator is in
charge of everything that happens and is extremely rigorous
with respect to policing contractors.
My question would simply be this. I think you made it very
clear, Senator, that if we demonstrate the capability to
respond to a spill, would both of you agree that we should
start issuing permits, deep water drilling permits, in the
Gulf, those conditions being met? I think, Mr. Reilly, you had
made the statement that you think the moratorium should be
lifted up in Alaska. Should it be lifted there, too?
Mr. Reilly. We have, I think both of us made clear,
personally, that we thought the moratorium, insofar as it
penalized companies that were not in any way implicated in the
spill, responsible companies that had good environmental and
safety records, went on too long. That was very difficult to
understand and so, in that sense, I would agree with that.
Senator Inhofe. Alright. Thank you, sir.
Senator Graham. Let me just supplement what Bill said.
Senator Boxer. Senator, do it quickly if you can, because
the vote awaits us. Remember those days, Bob?
Senator Graham. Absolutely. Oil spill response plans are a
critical part of the decision as to whether to permit or not.
But they are not the only factor that needs to be taken into
consideration.
Senator Boxer. Senator Cardin.
Senator Cardin. I am just going to put on the record this
question and I really would like your help.
I conducted a hearing as the Subcommittee Chairman of the
Water and Wildlife Subcommittee dealing with the damage
assessment issue, trying to get an understanding as to what we
are looking at. The difficulty is that a lot of the damage may
be hidden for decades to come. As we saw in the Exxon Valdez,
the lingering impacts can be great.
We are using technologies to do water column sampling that
I am not sure is necessarily the best techniques and I welcome
your thoughts on it. There has been some work done by the
National Aquarium in Baltimore along with Mote Marine in
Florida to look at more sophisticated sampling techniques so
that we can get a more accurate assessment of the damages that
have been done.
My major concern is whether we have the best scientific
information available to assess the long-term needs for
remedial work so we get it done accurately. Because once we
sign off on this, we are not going to be able to have the
resources necessary if in the future we find out that there is
more damage than we anticipated with our early surveys.
So, any help you could be in directing us to make sure that
we have the process in place to get the best science
information and sort of think out of the box on this a little
bit because sometimes the current relationships do not lead to
the best protection to the public.
Mr. Reilly. Senator, I would respond to that by saying two
things. First of all, the Commission gives a very high priority
to science and to the need for continuing scientific
examination of the impacts on the Gulf. We recognize that it is
going to take time to be definitive about those.
But that leads me to my second point. The settlement moneys
that were agreed after the Exxon Valdez provided a very
significant amount of money for 10 years of ongoing scientific
research monitoring. The only reason we know about so many of
the impacts that this spill had and the fact that there is
still is substrate of oil crude on many of the beaches is
because of that scientific research and the funding that was
included in the settlement to provide for it. I would
strongly----
Senator Cardin. My last point is that there is conflicting
information now about the quality of the sea bottom and I just
would urge us to make sure that we are as comprehensive as
possible in the way we----
Senator Boxer. I am sorry to interrupt. We have like 3
minutes remaining to vote. Thank you very much.
When we come back, Senator Lautenberg has some very
interesting show and tell with his something over there. I do
not even know where he has gotten that from. But I will let him
take over.
We will be back. We thank you for your contribution to this
great Nation and to one of the greatest challenges we face. We
just, to become energy independent, to do this in a way that is
safe as, again, as we see what is happening over in Japan, our
heart goes out and that feeling of just not being able to
control things.
Americans, we are people who like to be able to control
things. When every day we watched BP explode there in the
ocean, we had no sense that we could do anything about it. So,
we really need to follow your advice. Speaking for myself as
Chairman of this committee, which Senator Graham was a very
proud member of, remember those days, Bob, I am going to follow
your lead and follow your advice.
So, stand by. We will take a break. There are two votes and
we will be back.
[Recess.]
Senator Lautenberg [Presiding]. The committee is restarting
and I think we have already done the nice things, so you will
forgive me if I do not repeat them. Is that all right, Bob?
Senator Graham. That is fine.
Senator Lautenberg. Anyway, thanks very much for hanging
in. Each of you knows the routine here and what we have to go
through to keep on top of everything.
Mr. Reilly brought up the subject of dispersants and I want
to continue there. But since the Chairman let the cat out of
the bag, this is what I brought with me. It was a gift. I do
not think it was from a friendly person, but it is water from
the Gulf. As ugly as it is, that is not the key issue.
The key issue is the long-term effect of something that is
as threatening as this appears to be. We certainly would not
want it on our beaches or anywhere in our, in the things that
our children had contact with. But that is the truth. The
ugliness simply emphasizes the high risk of having these spills
in front of us on a regular basis.
Today, I am introducing my Safe Dispersants Act which would
require advanced testing of dispersants and disclosure of the
ingredients in those products. Now, EPA Administrator Jackson
testified last year that such a change in the law is essential.
I would ask each of you for your thought on whether or not
better testing of chemical dispersants can be of value and what
should we do about them?
Mr. Reilly. Well, this is a subject I have been long
interested in, Senator. The issue of dispersants was a major
concern of mine in Alaska in Prince William Sound and it was
very, as it always is, strongly favored by the responsible
party there and also supported by the Coast Guard at the time.
I did not permit dispersants to be used in the sensitive
areas of Prince William Sound essentially on the advice that I
was given that to use a dispersant, essentially, is to
distribute materials into the water column and make it
unavoidable to fish that happen to be swimming through there.
We had salmon fry that were expected to be released from four
hatcheries and they would have encountered the oil and the
dispersants, the combination in the water column, had we used
it in those areas where they intended to migrate down to the
ocean.
We later sampled the fish and discovered that they had swum
right under the oil and there was no indication of any contact
or any fish tissue that they had encountered. So, that proved
to be a good decision.
So, I came into this experience with a strong prejudice
against the use of dispersants. I had tended to see them as a
cosmetic device, keeps it out of sight but concentrates it in a
place where it may do more damage.
We looked at that issue very carefully and concluded that
there was a responsible decision made by the EPA Administrator
to permit the dispersants to be used, and she obviously
anguished over that decision, given the sensitivity of the
marshes, to make the call that she would favor or that we would
favor as a matter of policy the protection of the marshes which
the dispersants did effect over the possible impact, long term,
probably, on fish and fish larva.
I have not seen anything that would dispute that. However,
I would strongly support your initiative to determine in
advance of the use of dispersants what we know about them, how
effective they are, corrects it, it had, I think, according to
one table I looked at, a 55 effectiveness number, and I
wondered whether that was the best that one could get under the
circumstances. It happened to be available in sufficient
supplies, I know, and it had been pre-approved, pre-authorized,
by EPA though the volume in which it was used was never
contemplated before.
So, all of these questions, I think, need to be addressed
and particularly the issue of dispersants used in the icy
waters of the Arctic where they are likely to respond very
differently, have very different effects, and perhaps be less
effective or maybe even more so, but if they are persistent,
possibly even do more damage.
Senator Lautenberg. So, examining what the results are
using dispersants, that it is essential, critical if I might
emphasize, that we find out more about what is really in there
and what the long-term damage might be.
Mr. Reilly. I agree.
Senator Lautenberg. I thank you very much and I will move
along. What is the order, Senator Cardin, Senator Alexander is
next in line here. So, Senator Alexander.
Senator Graham. Senator Lautenberg, could I just add one
more point to what Bill has said? It is also critical that we
test these dispersants not just for surface distribution, which
has been their traditional use, but also for deep water
purposes. They were used for that in the Gulf and that may have
been one of the most anguishing decisions because nobody had
done any research as to what were the consequences of releasing
dispersants at 5,000 feet. So, there are a broad range of
issues to which the research that you have referred need to be
applied.
Senator Lautenberg. Thank you very much.
Senator Alexander.
Senator Alexander. Thanks, Mr. Chairman.
Thank you, again, for your hard work and for your long
service to our country.
Did you consider whether it would be a good idea for the
oil industry to self-insure in the way the nuclear industry
does? As we look at what is happening in Japan, which, and we
are grateful for the fact that in our country, as I mentioned
earlier, we have 104 nuclear reactors, we have not had a death,
nobody was hurt at Three Mile Island. Our nuclear navy has
traveled to Mars and back a couple of times without a death in
connection with a reactor.
But as we look for, and maybe one reason for that is the
Price-Anderson Act which requires all of the nuclear operators
to have, I think it is about $110 million of, be responsible
for $110 million of damage if there is an accident at any
reactor. In addition to the private insurance they have, I
suppose if you are going to be responsible as a nuclear
operator for an accident at any reactor you would keep a fairly
close watch on what your competitors are doing so you would not
be out that money.
Would it help if in the oil industry that everybody who
drilled in the Gulf would be responsible for any accident?
Would that help change the culture within the industry that you
write about in your report?
Senator Graham. Senator, speaking personally, I do not know
the answer to that question. We touched on the issue of
liability and it was obvious to us that the 1990 standard was
no longer adequate, just on the most basic inflation factors.
We then recommended a number of alternatives that might be
considered, one of which was close to what you have just
outlined, the nuclear industry.
I might say that throughout our discussions, we were very
impressed with INPO, which is the organization that has been
established by the commercial nuclear power industry of the
United States as a means of improving the level of safety
throughout the 104 plants in the United States and that the
offshore oil industry should take cognizance of some of the
steps that the nuclear industry has taken. The one that you
have suggested may be another area in which that should occur.
Mr. Reilly. Senator, you might wish to look at the British
system, which has a system like that where the industry is
required to make contributions to an organization which then
has, I think, $250 million available to it in the event of a
spill that can cover what a particular responsible party may
not be able to cover.
I was impressed in our conversations about liability how
one has to be careful to not create a system in which a company
might decide well, if they are insured, maybe they are a little
less rigorous or anxious about safety than they might otherwise
be. That is something that was raised by the insurance industry
with us. That there are, possibly, inadvertent consequences to
setting premiums at certain levels.
I had the sense that the majors basically do consider that
they self-insure, that is the companies on the size scale of
BP----
Senator Alexander. But the point is that they would be
responsible for their competitor's oil spill.
Mr. Reilly. I understand. There probably would be some
resistance to that on the part of some of the majors, but the
direction----
Senator Alexander. It might make them more interested in, I
mean, what I am getting at, and I think I have just less than a
minute, you are right about the practices that you found placed
the culture of the entire industry in doubt. Well, was BP an
outlier? Were they playing fast and loose? Were other offshore
drillers more conservative and, if that were the case, if the
other offshore drillers were responsible, were actually liable
for a spill by any competitor that was playing faster and
looser with its practices, would that tend to help create safer
practices?
Mr. Reilly. Well, what they now know, Senator, is that they
were liable because they all got shut down. One hopes that is a
sufficient wake up call to cause them to create the kind of
institution that we talked about, which is modeled on INPO, as
Senator Graham said, that causes everybody to be able to police
and hold accountable all of the players.
It is certainly true that there was a sense in the industry
that BP was a problem company, that it was challenged from the
point of view of safety, and I know of two CEOs who actually
went to the CEO of BP and tried to get some changes made,
without success. They had no means to do that in any formal
sense, in any rigorous sense that would force compliance. With
the right kind of institute, an insurance could play a part in
it and certainly third party auditing with policing you could
possibly protect everybody against an outlier who is capable of
implementing them all.
Senator Alexander. Thank you, Mr. Chairman. I think that is
a very important statement.
Senator Lautenberg. Thank you. Senator Whitehouse, you are
next.
Senator Whitehouse. Thank you, Chairman. Thank you,
gentlemen, for your hard work in this cause. I appreciate it
very much.
I am interested in the phenomenon of regulatory capture, or
agency capture. It has been written about for near on 100 years
now, very distinguished folks, the leaders of administrative
law, Nobel Prize winning economists, Presidents of the United
States, leaders of significant educational institutions and
foundations have over and over again described it. When I was
in law school, it was taught both in my administrative law
class and in my law and economics class.
It seems that we have had very telling examples of agency
capture in our recent history, whether it is the Mine Safety
and Health Administration or the SEC authorizing 30 times
leverage at the request of its regulated industry, which I
think had a lot to do with economic meltdown or, and I think
perhaps most trenchantly for our purposes here in this hearing,
MMS.
One of the things that concerns me is that, although the
doctrine of regulatory capture is accepted in the discipline of
economics and the discipline of administrative law, and has
been for decades now, it is basically part of the sort of
background understanding of those disciplines, we, in Congress,
have never undertaken any kind of a substantive effort to
address it. We wait until there is a disaster, a catastrophe,
and then we raise hell with the agency that was responsible and
then, as if it was a one-time thing that just happened to
strike us like lightning, we go on to the next one.
But now we have seen probably the worst environmental
incident, certainly the worst oil spill in our history as a
country. We have seen one of the worst economic and financial
collapses. Do you think that it is time that we started to
consider the problem of agency capture, or regulatory capture,
more systemically, so that we can get ahead of the next
disaster? Who knows where the next disaster is?
There are all sorts of corners of the Federal Government
that get very little public attention but are immensely
important to the industries that they regulate and who knows
what is going on in those dark corners? What, a, do you think
that there is an agency capture issue at the heart of what went
wrong in the Gulf and b, do you think it is a recurring enough
problem, or a significant enough problem, that we should start
looking forward and not just backward at trying to prevent
agency capture in the future?
Senator Graham. Senator, the answer is yes and yes. If you
did a case study of agency capture, I believe that the MMS
would be a good place to start. There is a well documented
history of the coziness of price chipping, including some
really despicable personal behavior. I agree that this is not
peculiar to the offshore oil industry. This is a recurring
phenomenon.
We made some specific recommendations as to how to try to
mitigate that as it relates to this industry. One of those was
that the entity within the Department of the Interior which has
the responsibility for safety should be independent. We defined
independent as having a director who served a term of years
rather than at the pleasure of either the Secretary of the
Department or the President so that that person would feel that
their job was not at risk if they did not lower the standard of
safety.
That will require congressional action. The Department of
the Interior has already taken administrative action to
separate the function of collecting royalties from the function
of safety, which is a good step but we think insufficient in
terms of its long-term viability.
Senator Whitehouse. But how do you get the next one? I
actually agree with what you have recommended with respect to
MMS itself, but what if it is Bureau of Land Management
someplace? What if it is forestry? What if it is contracting in
the Defense Department? I mean, we do not seem to have a
systemic way for having somebody scout around the executive
branch of Government and say, whoops, there are some real red
flags in this agency, we ought to take a look there.
Mr. Reilly. Could I add to what Senator Graham said? I
think that the place I would begin, before the hearings, is
looking at the statutes themselves. In the case of MMS, the
statute was conflicted. It gave them a conflicted mandate. It
said you are supposed to increase offshore oil and gas
development and leasing revenues, and you are supposed to
attend to safety and environment.
When the moneys got to as high as $18 billion a year, in
2008, and they are typically anywhere from 6 to 12 or so,
needless to say, money wagged that dog. It turned out to be, as
three MMS Directors said to us, the controlling concern that
they had. In personnel decisions, all sort of things were made
that had the implication that revenue is really what your job
is about.
So, the statute would have invited trouble in our view.
That, I do not know if that is as true for BLM statutes. There
is no organic act, as you know, for MMS. I would begin by
looking to see whether the incentives that have been created in
the statute are clear and protect against that kind of capture.
Senator Whitehouse. Thank you.
Senator Lautenberg. Thank you very much. What I am going to
do, time has flown, I will call on Senator Vitter next, but I
want to restrict this to 3 minutes each. We have been joined by
Senator Sessions. We will keep the record open for written
questions. So, with that, Senator Vitter.
Senator Vitter. Thank you, Mr. Chair.
Thank you again for your specific recommendation about
Clean Water Act fines related to the event. I just want to
underscore, particularly for my colleagues, you all
specifically recommended that we legislate and dedicate 80
percent of the Clean Water Act fines related to this event to
Gulf restoration. Is that correct?
Senator Graham. Yes, Senator, and it is our understanding
that if the Congress does not do so, then these funds would go
into the Oil Spill Liability Fund.
Senator Vitter. Right. It is also correct that the
Administration, although I do not think they have used a
specific 80 percent figure, supports the same notion. Is that
correct?
Senator Graham. That is correct.
Senator Vitter. OK. Now, the Clean Water Act, as I
understand it, is about environmental impact. So, is it fair
that we would use that money and designate that money in terms
of dealing with the environmental impact of the event?
Senator Graham. We certainly felt that not only was it fair
but that it was urgent that the deterioration of the Gulf is at
such a pace that if we wait another 20 or 30 years, it may be
irredeemable. This is a rare opportunity to do something that
will have very positive long-term impacts on an extremely
important part of the United States of America.
Senator Vitter. Right.
Mr. Reilly. I would just add that we set out a number of
criteria for making that judgment, among which is whether
national policy and national interests were involved. Well, the
national policy, particularly agriculture policy, has
contributed greatly to the degradation of the Gulf and to the
hypoxia. Dredging policies and activities of the Corps of
Engineers have had substantial impacts on the marshes and the
ecology as well.
The oil and gas industry, which is very much a consequence
of our energy policy and our approvals of activities there, are
also responsible for a number of dredging activities and canals
that have not been necessary to service the industry.
All of those make very clear that the country itself, the
Nation, is implicated in this and it has a national interest in
correcting it.
Senator Vitter. Right. Beyond the 80 percent dedication,
when it gets to implementing that and using that money, how
would you all suggest we structure that in a way, I would hope
it is in a way that uses objective criteria, objective factors,
about the environmental impacts of the event?
Senator Graham. We certainly agree with that objective. We
feel that there is a model that has a lot of history and value
in terms of answering the question of how to organize and that
is the model that was used in Alaska. Now, Alaska is a somewhat
easier situation because you only had one State whereas you
have five States in the Gulf of Mexico.
But we think that some of the principles that came out of
that, one was that there should be a balance of Federal and
State interest, two, that the group should have the obligation
of developing a comprehensive plan first and then allocation of
resources should be to execute on that plan, three, that it
should be a long-term commitment as Bill said earlier, in
Alaska it has lasted now for more than 20 years because many of
the impacts of this event are not going to be known even in the
next decade.
So, those are some principles that have proven effective
and just, I might add one more, in Alaska they made extensive
use of local citizens groups to assess specific regional
impacts or impacts to a particular part of the environment or
economy of Alaska. I think that is another important principle.
Senator Vitter. Thank you.
Senator Lautenberg. Thanks very much. Senator Sessions, we
welcome you to the committee and invite you to give your
questions. I would ask unanimous consent than at no longer than
4 minutes after you start that the committee be adjourned and
that you close the committee down.
Senator Sessions. Mr. Chairman, reserving the right to
object, I would say Senator Alexander, I do not know if he has
permanently left or not, but if he arrived, would it be OK----
Senator Lautenberg. Well, he has already had a round
before.
Senator Sessions [presiding]. OK. I see. Thank you then,
that will be fine.
Senator Graham and Mr. Reilly, thank you very much for your
service in working on this report. I believe this accident
should not have happened. I do not think it is the kind of
thing that is part of some risk that is certain to have
happened. I believe there was a series of errors and that they
should not have happened.
I also believe that we should have had a better response
capability, that things that had to be constructed, it seems to
me they should have been constructed in advance because this
was, some saw there was always some possibility that an event
like this could occur. This frustrated us about that.
BP is, I am not here to criticize them, they are a secular
institution, they are out to make money and they do not make
money if they make these kinds of mistakes. I know they did not
want to make this kind of mistake but I do believe they have
responsibility under law and under legal precedent to pay.
They made an indication that they would do so but we are
having, Senator Graham, a good bit of frustration in my people
along our coast and I think the Northwest Florida Coast, that
particularly small businesses who can show clearly how their
businesses were damaged as a result of this spill, that Mr.
Feinberg and his team are slow in processing those claims and
some of them are on the verge of losing their business,
actually some have closed.
Have you had an opportunity to examine that and hear any of
those complaints?
Senator Graham. Well, we have certainly heard the
complaints. One of the first things that our Commission did was
visit the five affected States and then have our first meeting
in New Orleans, which was essentially a listening meeting. We
said little but heard a lot from dozens a people who were
effected by this and the issue of the promptness with which
particularly what I would describe as emergency claims were
being processed was a point of criticism. I know in Florida
there has been a gubernatorially-appointed group that has been
monitoring that and they have reported to me regularly on the
progress.
I would suggest this would be a topic that would be
appropriate for this or some other Senatorial Committee to
review. Our Commission went out of business on March 11th so we
are sort of over the hill at this stage.
Senator Sessions. Well, only as a man of the committee. Mr.
Reilly, do you want to comment on that, if you did?
Mr. Reilly. No, I think that, we did not really try to
second guess Feinberg, Senator. We had enough on our plate in
the 6-months that we had and it was still early days to make
any definitive judgments.
I experienced, with you, particularly was struck by the
poignancy of the Vietnamese fishermen who had no livelihood,
did not have the language, and simply we were standing in line
at 4 o'clock in the morning before Catholic Charities to get
$100 food baskets. Those are very tragic stories.
There was even some question about whether they went out to
records for previous years' fish take, a lot of them,
subsistence people, some of them, would be able to present
compelling evidence of their entitlement. We heard a lot of sad
stories.
I know I have experienced in the north an unwillingness to
serve seafood. When I asked were the oysters in New York from
the Gulf, I was proudly assured by the waitress that no, they
would not serve seafood from the Gulf. This was as late as late
October. So, I understand very much those concerns and I think
Mr. Feinberg does, too. I think he has a tough job.
Senator Sessions. Well, he does have a tough job. He is a
capable person and he has responded to some of our concerns and
has changed policies on it. But I just would say that we have a
large backlog, I think, of some deserving, particularly smaller
businesses, that do deserve prompt response. He will be well
compensated for his work and he is, in essence, hired by BP, so
it is not as if he is from the Government and there to help us.
I mean, he has a responsibility to try to serve his masters. I
just would say that that is a concern and would share it with
you.
We have had a good record of production safety in the Gulf.
There have been 42,000 wells, over 2,500 deep wells, and more
than 14,000 deepwater wells worldwide. So, I do not think there
is a record that demonstrates incapability of producing oil and
gas safely.
One of the things I noticed, and we have all sort of jumped
on the bandwagon to be critical, but we do not want to
misrepresent the dangers and the circumstances. I was a little
uneasy about your report that noted that there is a fatality
rate of four to one between the loss of lives in our Gulf and
worldwide production. But I noticed that if you took out two
aviation accidents, it would be 1.3 to 1, which is higher than
the world average but not a lot higher than the world average,
not of four to one. Do you think it is fair to consider the
aviation accidents? Because your report would suggest that is
the result of some sort of oil explosion or event of some kind.
Mr. Reilly. Senator, on those numbers, we had strong
anecdotal evidence that the accident rate, the incident rate,
is much higher in the Gulf in addition to the fatality rate.
The reality is that the Interior Department has not been
enforcing the rule that these incidents be reported. I do not
think it has collected those numbers since 2006. So, there is a
lack of reliable information on lost work days, total
recordables, and the usual metrics for all of that in the Gulf.
I would just say, though, we have been criticized for some
of the determination that this was a systemic accident, a
systemic problem, or that this is an aura of complacency
affecting the industry. I would turn those numbers a little bit
around and say yes, we have had 2,500 deepwater wells, which
makes it even more hard to understand how the Chairman of BP
could have told me the first week of my appointment that we
have no effective sub-sea containment capability. I was
startled by that at the time.
Senator Sessions. I was, too. That, to me, was one of the
more startling events in this whole process because a good sub-
sea response capability could perhaps have been successful in
very short order. Is that right?
Mr. Reilly. Yes, it could, and we are assured now that they
do have this capability----
Senator Sessions. Let us talk about that. That is so
important and I am not, I am glad to hear you authoritatively
address it because I have not gotten myself the authoritative
answer that I would like to have. You believe that the
containment capability that is present now, it if had been
deployed in a matter of days or weeks, could have capped that
well?
Mr. Reilly. Yes. There are two parts to it. The first is an
effective determination of the flow rate because the failure to
get the flow rate right is the reason that they tried a lot of
things that did not work. They had no idea that they were
dealing with the force that they were confronting. But Marcia
McNutt, the head of the U.S. Geological Survey, has assured
that we now have the capability to assess and determine the
flow rate relatively promptly.
We also have containment capability that should be
prepared, ready, basically it is the containment capability
that finally was successful, the top hat containment
capability, and that that would be deployed in a matter of days
and possibly 2 weeks to staunch any serious spill that we
encounter.
Senator Sessions. I believe that is reassuring to those of
us who believe, as a matter of national interest, we should
produce oil and gas from the Gulf. I just believe it is a
matter of national interest when you see the, well, that we
export to buy oil from abroad creating from this industry 1,000
jobs in Alabama, 200,000 along the Gulf Coast. These are high
paying jobs and they are producing wealth for the State and the
Federal Government in terms of the royalties that are paid.
So, I guess I am troubled that we are moving slowly on our
permitting new production. I do believe the United States is in
an economic period of challenge and productivity is important.
Energy costs as low as possible are important and much domestic
energy is important.
I think your report is so valuable. I know you took it
seriously. I thank both of you for it. Florida, I think, and
Alabama particularly have such a tourist industry. It is not,
there were economic losses that are absolutely indisputable
along that coast and one of the things we are concerned about
is getting proper compensation.
I guess my time is up and I would glad to hear any final
words the two of you have.
Senator Graham. Well, I would just say, I could not agree
more with your comments, Senator, that this is a very important
industry for America. One-third of our oil and gas is coming
out of the Gulf of Mexico. The consequences of a shutdown of
this would be indescribable.
For this industry, however, to continue to have the public
support, we need to achieve and be the standard of the world in
safety. We are not there yet. We can be there. The statistic
that you cited was not a worldwide statistic but a North Sea
statistic, the comparison. The reason that we used that is that
we are dealing with two very sophisticated countries, the U.K.
and Norway in the North Sea. Many of the companies that are in
the Gulf are also in the North Sea. The North Sea, if anything,
is a more formidable environment than the Gulf of Mexico.
So, our concern was that there was such a gap between those
two areas in terms of their safety record and some of the
standards that have been applied in the past which we think can
be easily and without great cost or disruption applied in the
Gulf of Mexico. So, we think the long-term well-being of this
industry is very much tied to its commitment to being the
safest application of offshore oil activities in the world an
attainable goal.
Senator Sessions. Well said.
Mr. Reilly. I would just add, Senator, that the most
important recommendation that the commission made directly to
industry was the establishment of a safety organization modeled
on those of the chemical industry and the nuclear power
industry after their catastrophes.
I understand that a decision will be made and reported
later this week on whether they intend to go forward with such
an enterprise. I think if they do they will show that they
really have understood the magnitude of this challenge and will
have a system in place to correct a number or the problems that
we identified, including that fatality history and that
accident history. They will be able to police one another to
identify and agree upon best practices to carry out third-party
audits and have a means of influencing companies that may be
specially challenged from the point of view of safety as BP
clearly was before this event.
So, I think that could be one of the most promising things
that comes out of all of this. It is a salient recommendation
of our Commission, and the prospects, I think, are reasonably
good that it will happen.
Senator Sessions. Well, thank you very much and I really do
appreciate your evaluation because I know it is independent and
honest that we now have a capability that we did not have to
respond to a blowout like this in an effective way. There are
always dangers out there but it gives us more confidence.
In addition to that, the series of events that led up to
this explosion, surely the policies that you have recommended
and that are already being undertaken, frankly, would eliminate
the likelihood of an event ever occurring to begin with, which
is the best way to proceed.
So, I do think we are moving along better and I hope that
we can gain the confidence, the industry can gain the
confidence of the American people because this is a valuable
resource that the Nation needs at this point in time.
Now, we have a new Chairman. Under the UC we have, we are
supposed to, I would propound that the previous UC be vitiated
and would be allowed to proceed.
Senator Carper. Reserving the right to object----
[Laughter.]
Senator Carper. I just want to be able to ask some
questions.
Senator Sessions. Well, I will allow you to do so. Senator
Lautenberg had proposed that after my UC, that after I
completed, the committee would adjourn.
Senator Carper. I do not object.
Senator Sessions. Very good.
Senator Carper [presiding]. That would be great. I would
ask unanimous consent that I be allowed to ask a question or
two of our colleagues. Thank you for your courtesy.
It is very nice to see you. I just want to start off by
saying thank you for all the good that you continue to do with
your lives. It is nice to know that there is a life, a
productive life and a full life, after politics. I am grateful
to both of you for your continued service to our country.
I am not sure which of you did this but one of you, I
believe, in your testimony, actually mentioned that I think the
Commission recommends that the Council of Environmental Quality
and the Department of Interior revise and strengthen NEPA
policies. I think I just wanted to know what specific actions
do you believe are needed to strengthen NEPA such that the
environmental impacts of offshore oil, offshore gas projects,
are better assessed and what can we do here in the legislative
branch to make sure that NEPA is adequately improved?
Mr. Reilly. Senator, some years ago at the beginning of the
implementation of the National Environmental Policy Act, I
wrote the guidelines with Tim Atkinson, our General Counsel of
the Council for Environmental Quality, for the implementation
of Section 1022(c), the Environmental Impact Statement part of
it. We were first of all distressed to see that the approaches
taken by the Interior Department in leasing, area wide leasing,
tiering and categorical exclusions, did not, in our view,
provide an adequate opportunity for specific assessment of
environmental consequences that might ensue from decisions.
I think that the implications of that are that the area
wide leasing has typically comprehended too large an area, that
there has been a sense that once written, an impact statement
has been done and therefore nothing further, or at least
nothing of the elaborateness of a real impact statement be
necessary, even though there is a much more specific
understanding of what will happen, what the impact will be,
what the potential consequences may be, maybe a species,
different species, or different ecologically that will be
affected.
Categorical exclusions, in our view, were over utilized,
and some of these problems are being addressed, both by the
Council on Environmental Quality and by the Interior
Department. It remains to be seen how that new process works.
But I was just disappointed, as a student of NEPA, to see
that it seemed to have played a much lesser role than it should
have. I will go further and say, in the testimony of the
Chairman of the Council of Environmental Quality, we heard that
she did not consider that there was a role for the Council with
respect to the decision to broaden the coastal area that was
open to leasing because there was no specific Federal action.
It was when specific leases were granted that NEPA would kick
in.
My reaction to that was that, first of all, I would have
expected under the statute that the principle advisor on the
environment in the Executive Branch, who is the Chairman of the
Council, would have been consulted on that decision. She made
clear that she had not been.
There is another section of NEPA, 101, that establishes
national policy of the United States to give a high priority to
protection of the environment and the resources and so forth
that seems to me not to have the attention and understanding
and support that it should have. I would single it out and I
would also, and I know in my time on the Council of
Environmental Quality, Russell Train, who was my boss, would
have been consulted on such a decision and would have thought
it appropriate and even necessary that he be consulted on it.
So, there is an understanding of NEPA, I think, that can be
improved and processes in the regulations that can be
strengthened.
Senator Carper. Great. Thank you. Senator Graham, I have
one more question. Thank you for that response very much. One
more question and then we are going to let you guys escape and
go back and get on with your lives.
Our country, I am told, accounts for more than 20 percent
of global oil consumption. I do not know if that is going up or
down or if it is a stable number, but it is a lot. That is some
19 million barrels per day, I understand, that is consumed
right here in our country.
However, about 70 percent of the oil that we consume in the
U.S. comes from other countries, some of which are
undemocratic, unstable. We see that play out every day in
Libya, although the amount that we receive from them is small.
It is all fungible in the end.
The BP oil spill is evidence of the environmental and the
economic consequence, an impact of our oil dependence. I say to
a lot of people, every 5 years we get a wake-up call, we get a
message, we ignore it, and how often do we have to be reminded
that we need to develop our energy independence and do it in a
way that creates jobs, economic opportunity and actually cleans
up our environment? How foolish can we be here? We have been
warned or given that message one more time. I hope this time we
actually do something with it.
Do you believe that it is in our Nation's best interests to
reduce our consumption of oil? I think I might know what you
might say, but from both domestic and foreign sources, and if
so, give us a couple of quick examples of how you think what we
are doing actually makes sense and some more things that we
ought to do.
Senator Graham. Well, the answer is yes. Let me just give
you some further statistics. The United States is using about
22 percent of all the petroleum lifted around the world. As you
say, it is approximately 19 million barrels a day. We sit on
top of about 1.5 percent of the proven reserves in the world.
Those are unsustainable statistics.
Now, people will argue that the proven reserves is a soft
number. It may well be, but it is the only number that we have
and if we are going to try to make intelligent policy
decisions, I think it is important.
I calculated that at the current rate of our consumption,
if we were to go totally independent, that is, rely on our
remaining proven reserves to meet our needs, we would lift the
last drop of oil in the United States in approximately the year
2031. If we were to maintain our current allocation, which is
actually 48 percent domestic, 52 percent foreign, we would
reach that same last drop in about the year 2064. So, we can
see the end of the horizon.
There are some events that are in the news today which I
think indicate just one of the consequences of that. Bahrain
has become the last, most recent country to have reached that
zero amount of petroleum. I think that fact, and the fact that
the people understand what the economic consequences of that
shift in Bahrain's economic future, have been contributing
causes to the unrest that is going on there today.
I believe that we should be wise enough to manage what we
have left in a manner that will stretch those dates that I gave
as long as possible, at least as long as it is going to take us
to make the transition from a heavily fossil fuel dependent
America to a significantly less fossil fuel using America.
You asked for some specific things. I would say probably
the single most important thing that we could do to reduce our
dependence on oil, because today 70 percent of those 19 million
barrels are being used for it, is our vehicles. If we could get
a significant percentage of our vehicles off petroleum and onto
electricity or other alternatives, that would have a dramatic
impact on our oil consumption, as well as our environment by
reducing the emission of chemicals that contribute to global
warming. So, that is where I would put my emphasis.
Senator Carper. Thank you. As you know, we passed, I
believe you may have still been serving in December, we passed
the first update that we have had in CAFE in so many years, a
couple of years ago, 35, 36 mile fleet average per gallon, and
I think our target date was 2020. The President has updated
that and moved it ahead by 4 years.
It is interesting to see the auto companies, I was at the
Detroit Auto Show back in January, comparing the kinds of cars,
trucks, and vans that I saw and the power trains and so forth,
consider what I saw now to 5 years ago, night and day, just
night and day in terms of what we were thinking about doing,
like, 5 years ago and what it is today. It is very, very
encouraging.
Our GM plant in Delaware closed about a year, a year and a
half ago, sadly. We were the last State on the East Coast to
have any auto assembly operation from Maine to Florida. We lost
our Chrysler plant and our GM plant within, like, months of
each other. The GM plant is going to be reopened next year.
They will be building a new vehicle, a couple of vehicles built
by Fisker, a new startup, and Henry Fisker is a great auto
designer, some of the most beautiful cars I have ever seen, and
they will get about 80 miles per gallon.
Our friends at GM are building the Volt. They initially are
going to do 10,000 this year, they are going to do 50,000 this
year, they are going to do 200,000 next year. So, we are
heading in the right direction. Our tax policy, as you know, is
to try to incentivize people to do that. One thing that they
are considering doing at GM, they are interested in natural
gas. They are interested in being able to convert especially
heavier equipment from diesel to natural gas.
I would like to ask for maybe a 1-minute comment, if you
would, Mr. Reilly. The use of natural gas, there is a lingering
concern a number of people have about the fracking and what
that, the potential stress to the environment that could pose.
Could you just give us 60 seconds on that issue, please?
Mr. Reilly. I am not an expert on fracking, Senator, but my
impression is that it can be done safely and securely and is by
a number of operators. The number of incidents that have been
noted where it has gotten into the groundwater, which it should
not do, are limited to a relatively small number of operators
and my sense is that this is an industry that would do very
well to figure out how to police those operators lest it get
them all in trouble and find that they have been discredited
and then are subject to onerous constraints. It might even be
necessary to regulate this on a more uniform basis to make sure
that the casings, the designs, a lot of the kinds of things
that exist in the oil and gas industry are tended to much more
professionally.
The surface water impacts are a second set of concerns and
I was surprised to read the recent stories in the New York
Times about radioactive water and things of that sort. I just
do not know how serious those are and have in mind to talk to
people at EPA about what they really think about it. But I know
the EPA Administrator has indicated that they will take a very
close look at this and begin to consider responses to it. I
think that based upon what we know, that is a good idea.
Natural gas is, I would think, an ideal intermediate field
of choice for the United States. It is much less in carbon
emissions than coal, it can support power, our powerplants,
mine cycle of natural gas would be an improvement over coal
plants that are shutting down, some of the oldest ones, as a
consequence of EPA regulations, and I think that is very much
in the national interest. So, this is something I hope we can
be more careful about.
Senator Carper. Our thanks to both of you. Thanks so much
for your time and for your testimony and your responses to our
questions. Again, thanks for your continued service to our
country.
With that, not hearing any objection, this hearing is
adjourned.
[Whereupon, at 12 p.m., the committee was adjourned.]