[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 

=======================================================================

                                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



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                               __________


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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

                              ----------                              


                       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.]

                                 
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