Maritime Transportation: Major Oil Spills Occur Infrequently, but
Risks to the Federal Oil Spill Fund Remain (07-SEP-07,		 
GAO-07-1085).							 
                                                                 
When oil spills occur in U.S. waters, federal law places primary 
liability on the vessel owner or operator--that is, the 	 
responsible party--up to a statutory limit. As a supplement to	 
this "polluter pays" approach, a federal Oil Spill Liability	 
Trust Fund administered by the Coast Guard pays for costs when a 
responsible party does not or cannot pay. The Coast Guard and	 
Maritime Transportation Act of 2006 directed GAO to examine	 
spills that cost the responsible party and the Fund at least $1  
million. This report answers three questions: (1) How many major 
spills (i.e., $1 million or more) have occurred since 1990, and  
what is their total cost? (2) What factors affect the cost of	 
spills? and (3) What are the implications of major oil spills for
the Oil Spill Liability Trust Fund? GAO's work to address these  
objectives included analyzing oil spill costs data, interviewing 
federal, state, and private-sector officials, and reviewing Coast
Guard files from selected spills.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-1085					        
    ACCNO:   A75848						        
  TITLE:     Maritime Transportation: Major Oil Spills Occur	      
Infrequently, but Risks to the Federal Oil Spill Fund Remain	 
     DATE:   09/07/2007 
  SUBJECT:   Cost analysis					 
	     Environmental cleanups				 
	     Military cost control				 
	     Oil pollution					 
	     Oil spills 					 
	     Pollution control					 
	     Trust funds					 
	     Risk assessment					 
	     Pollution						 
	     Cost estimates					 
	     Operations and maintenance costs			 
	     Program costs					 
	     Program implementation				 
	     Oil Spill Liability Trust Fund			 

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GAO-07-1085

   

     * [1]Results in Brief
     * [2]Background
     * [3]Oil Spills Costing More than $1 Million Occurred Infrequentl

          * [4]Less Than 2 Percent of Oil Spills Occurring Since 1990 Were
          * [5]Total Cost of Major Spills Ranges from $860 Million to $1.1
          * [6]Costs Vary Widely by Spill and Year

     * [7]Key Factors Affect Oil Spill Costs in Unique Ways

          * [8]Location Impacts Costs in Different Ways
          * [9]Time of Year Has Impact on Local Economies and Response Effo
          * [10]Type of Oil Spilled Impacts the Extent of the Response Effor
          * [11]Other Factors Also Affect Spill Costs

     * [12]Fund Has Been Able to Cover Costs Not Paid by Responsible Pa

          * [13]Further Attention to Limits of Liability Is Needed

               * [14]Some Recent Adjustments to Liability Limits Do Not
                 Reflect t
               * [15]Liability Limits Have Not Been Adjusted for Inflation
               * [16]Certification of Compliance with the New Liability
                 Limits Is

          * [17]Other Challenges Could Also Affect the Fund's Condition

     * [18]Conclusions
     * [19]Recommendations for Executive Action
     * [20]Agency Comments and Our Evaluation
     * [21]Overview
     * [22]Our Categorization of Oil Spill Costs
     * [23]Available Data
     * [24]Universe of Major Oil Spills
     * [25]Data Analysis and Case Studies
     * [26]GAO Contact
     * [27]Staff Acknowledgments
     * [28]GAO's Mission
     * [29]Obtaining Copies of GAO Reports and Testimony

          * [30]Order by Mail or Phone

     * [31]To Report Fraud, Waste, and Abuse in Federal Programs
     * [32]Congressional Relations
     * [33]Public Affairs

Report to Congressional Committees

United States Government Accountability Office

GAO

September 2007

MARITIME TRANSPORTATION

Major Oil Spills Occur Infrequently, but Risks to the Federal Oil Spill
Fund Remain

GAO-07-1085

Contents

Letter 1

Results in Brief 4
Background 6
Oil Spills Costing More than $1 Million Occurred Infrequently Since 1990,
but Estimated Costs Total $860 Million to $1.1 Billion 15
Key Factors Affect Oil Spill Costs in Unique Ways 20
Fund Has Been Able to Cover Costs Not Paid by Responsible Parties, but
Risks Remain 28
Conclusions 34
Recommendations for Executive Action 35
Agency Comments and Our Evaluation 35
Appendix I Scope and Methodology 38
Overview 38
Our Categorization of Oil Spill Costs 38
Available Data 39
Universe of Major Oil Spills 41
Data Analysis and Case Studies 42
Appendix II Comments from the Department of Homeland Security 44
Appendix III GAO Contact and Staff Acknowledgments 46

Tables

Table 1: Types of OPA-Compensable Removal Costs and Damages 12
Table 2: Description of Different Oil Types 25
Table 3: Comparison of Limits of Liability as Established in OPA (1990)
and the Coast Guard and Maritime Transportation Act (2006) 30

Figures

Figure 1: Description of Vessel Types and Current Limits of Liability 8
Figure 2: Oil Spill Liability Trust Fund Expenditures, Fiscal Years,
1990-2006 9
Figure 3: Oil Spill Liability Trust Fund Balance, Fiscal Years 1993-2006
10
Figure 4: Number of Major Oil Spills, by Year, 1990-2006 17
Figure 5: Location and Cost of Major Oil Spills, 1990-2006 18
Figure 6: Average per Spill Costs of Major Oil Spills, by Year, 1990-2006
20
Figure 7: Average per Spill Cost of Major Oil Spills, by Location,
1990-2006 23
Figure 8: Average per Spill Costs of Major Oil Spills, by Time of Year,
1990-2006 24
Figure 9: Average per Spill Costs of Major Oil Spills by Type of Oil,
1990-2006 26
Figure 10: Average Spill Costs and Limits of Liability for Major Oil Spill
Vessels, 1990-2006 31

Abbreviations

Commerce Department of Commerce
DOI Department of the Interior
EPA Environmental Protection Agency
Fund Oil Spill Liability Trust Fund
FWS U.S. Fish and Wildlife Service
NPFC National Pollution Funds Center
NOAA National Oceanographic and Atmospheric Administration
OPA Oil Pollution Act of 1990

This is a work of the U.S. government and is not subject to copyright
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separately.

United States Government Accountability Office
Washington, DC 20548

September 7, 2007

The Honorable Daniel K. Inouye
Chairman
The Honorable Ted Stevens
Vice Chairman
Committee on Commerce, Science, and Transportation
United States Senate

The Honorable James L. Oberstar
Chairman
The Honorable John L. Mica
Ranking Republican Member
Committee on Transportation and Infrastructure
House of Representatives

The potential for an oil spill exists daily across coastal and inland
waters of the United States. In 2005, for example, oil tankers transported
over half of the crude oil that entered the country, and often, barges
move petroleum products to the markets where they are used. The potential
for spills also extends well beyond vessels involved in the petroleum
industry. Cargo, fishing, and other types of vessels also carry
substantial fuel reserves. Accidents, groundings, or collisions can
release this fuel and create substantial damage. Spills can be expensive,
with considerable costs to the federal government and the private sector.
The most expensive spill in U.S. waters, the 1989 Exxon Valdez spill in
Alaska, cost $2.2 billion to clean up, according to ExxonMobil.^1 Less
expensive but still significant spills have occurred since then. For
example, in 2004, the tanker Athos I spilled over 260,000 gallons of crude
oil into the Delaware River; and, according to the Coast Guard, removal
costs and damage claims from this spill have cost more than $120 million
to date.

The framework for addressing and paying for maritime oil spills is
identified in the Oil Pollution Act of 1990 (OPA), which was enacted after
the Exxon Valdez spill. OPA created a "polluter pays" system that places
the primary burden of liability and the costs of oil spills on the vessel
owner or operator who was responsible for the spill--that is, the
responsible party--in return for financial limitations on that liability.
Under this system, the responsible party assumes, up to a specified limit,
the burden of paying for spill costs--which can include both removal costs
(cleaning up the spill) and damage claims (restoring the environment and
payment of compensation to parties that were economically harmed by the
spill). Above the specified limit, the responsible party is no longer
financially liable.^2 To pay costs above the limit of liability, as well
as to pay costs when a responsible party does not pay or cannot be
identified, OPA authorized the Oil Spill Liability Trust Fund (Fund),
which is financed primarily from a per-barrel tax on petroleum products
either produced in the United States or imported from other countries. The
Fund is administered by the National Pollution Funds Center (NPFC) within
the U.S. Coast Guard. The balance in the Fund--about $600 million at the
end of fiscal year 2006--is well below its yearly peak of $1.2 billion in
2000. The decline in the Fund's balance reflects an expiration of the
barrel tax on petroleum in 1994. The tax was not reinstated until 2005.

^1The Exxon Valdez spill ranks as the 35th largest spill by spill volume
for all spills since 1967 on the list of international tanker spills.

While this system is well understood, the costs involved in responding to
oil spills are less clear. Costs paid from the Fund are well documented,
but the party responsible for the spill is not required to report the
costs it incurs. As a result, private-sector and total costs for cleaning
up spills and paying damages are largely unknown to the public. The lack
of information about the cost of spills, the declining Fund balance, and
significant claims made on the Fund--for spills in which the removal costs
and damage claims have exceeded established OPA liability limits--have all
raised concerns about the Fund's long-term viability.

The Coast Guard and Maritime Transportation Act of 2006 directed us to
conduct an assessment of the cost of response activities and claims
related to oil spills from vessels that have occurred since January 1,
1990, for which the total costs and claims paid was at least $1 million
per spill. The mandate required that the report summarize the costs and
claims for oil spills that have occurred since January 1, 1990, that total
at least $1 million per spill, and the source, if known, of each spill for
each year. To fulfill this requirement, we examined--after consultation
with committee staff--the following questions: (1) How many major oil
spills have occurred since 1990 and what have been the total costs of
these spills? (2) What are the factors that affect major oil spill costs?
and (3) What are the implications of major oil spill costs for the Oil
Spill Liability Trust Fund?

^2Responsible parties are liable without limit, however, if the oil
discharge is the result of gross negligence, or a violation of federal
operation, safety, and construction regulations.

To address these questions, we analyzed oil spill removal cost and claims
data from NPFC, the National Oceanic and Atmospheric Administration's
(NOAA) Damage Assessment, Remediation, and Restoration Program, and the
Department of the Interior's (DOI) Natural Resource Damage Assessment and
Restoration Program and the U.S. Fish and Wildlife Service (FWS). We also
analyzed cost data obtained from vessel insurers and in contract with
Environmental Research Consulting.^3 We interviewed NPFC, NOAA, and state
officials responsible for oil spill response, as well as industry experts
and representatives from key industry associations and a vessel owner. In
addition, we selected five oil spills on the basis of the spill's
location, oil type, and spill volume for an in-depth review. During this
review, we interviewed NPFC officials involved in spill response for all
five spills, as well as representatives of private sector companies
involved in the spill and spill response; and we conducted a file review
of NPFC records of the federal oil spill removal activities and costs
associated with spill cleanup. We also reviewed documentation from the
NPFC regarding the Fund balance and vessels' limits of liability. This
report focuses on oil spills that have occurred since the enactment of
OPA--August 18, 1990--for which removal costs and damage claims exceeded
$1 million, and we refer to such spills as major oil spills.^4 Because
private-sector and total costs for cleaning up spills and paying damages
are not centrally tracked and maintained, we obtained the best available
cost data from a variety of sources, as previously described. We then
combined the information that we collected from these various sources to
develop cost estimates for the oil spills. However, because the cost data
are somewhat imprecise and the data we collected vary somewhat by source,
we present the cost estimates in ranges. The lower and higher bounds of
the range represent the low and high end of cost information we obtained.
Based on reviews of data documentation, interviews with relevant
officials, and tests for reasonableness, we determined that the data were
sufficiently reliable for the purposes of our study. We conducted our
review from July 2006 through August 2007 in accordance with generally
accepted government auditing standards. More details regarding our scope
and methodology can be found in appendix I.

^3Environmental Research Consulting is a private consulting firm that
specializes in data analysis, environmental risk assessment, cost
analyses, expert witness research and testimony, and development of
comprehensive databases on oil and chemical spills in service to
regulatory agencies, nongovernmental organizations, and industry.

^4The National Oil and Hazardous Substances Pollution Contingency Plan
states that any oil discharge that poses a substantial threat to public
health or welfare of the United States or the environment or results in
significant public concern shall be classified as a major spill. For the
purposes of this report, however, major spills are defined as spills with
total removal costs and damage claims that exceed $1 million.

Results in Brief

We estimate that since 1990, 51 oil spills have involved removal costs and
damage claims totaling more than $1 million. Collectively, we estimate
that responsible parties and the Fund have paid between approximately $860
million and $1.1 billion to clean up these spills and compensate affected
parties. Responsible parties paid between about 72 to 78 percent of these
costs; the Fund has paid the remainder, or $240 million. The overall cost
for the 51 spills we identified could also increase over time because the
claims adjudication processes can take many years to resolve. The 51
spills we identified, which constitute about 2 percent of all vessel
spills since 1990, varied greatly from year to year in number and cost and
showed no discernible trends in frequency or size.

Three main factors affect the costs of a spill, according to industry
experts and agency officials and the studies we reviewed: the spill's
location, the time of year it occurs, and the type of oil spilled.^5 A
remote location, for example, can increase the cost of a spill because of
the additional expense involved in mounting a remote response. Similarly,
a spill that occurs close to shore rather than further out at sea can
become more expensive because it may involve the use of manual labor to
remove oil from sensitive shoreline habitat. Time also has
situation-specific effects, in that a spill that occurs at a particular
time of year might involve a much greater cost than a spill occurring in
the same place, but at a different time of year. For example, a spill
occurring during fishing or tourist season might carry additional economic
damage, or a spill occurring during a typically stormy season might prove
more expensive because it is more difficult to clean up than one occurring
during a season with generally calmer weather. The specific type of oil
affects costs because the type of oil can affect the amount of cleanup
needed and the amount of natural resource damage incurred. Light oils
naturally dissipate and evaporate quickly--requiring minimal cleanup--but
are highly toxic and create severe environmental impacts. Heavy oils do
not evaporate, and therefore may require intensive structural and
shoreline cleanup; and while they are less toxic than light oils, heavy
oils can harm waterfowl and fur-bearing mammals through coating and
ingestion. Each spill's cost reflects the particular mix of these factors,
and no factor is clearly predictive of the outcome. The 51 major spills we
identified, for example, occurred on all U.S. coasts, across all seasons,
and with all major types of oil; but each spill's particular location,
time, or product contributed to making it expensive.

^5Another potential factor is the size of the spill. Although a larger
spill will require an extensive and expensive cleanup effort, officials
reported that compared with the factors presented here, spill volume is
less important to the costs of oil spill response.

To date, the Fund has been able to cover costs that responsible parties
have not paid, but risks remain. In particular, the Fund is at risk from
claims resulting from spills that significantly exceed responsible
parties' liability limits. The effect of such spills can be seen among the
51 major oil spills we identified: 10 of them exceeded the limit of
liability, resulting in claims of about $252 million on the Fund. In the
Coast Guard and Maritime Transportation Act of 2006, the Congress
increased these liability limits, but additional attention to the limits
appears warranted. First, the liability limits for certain vessel types
may be disproportionately low compared with their historic spill cost. For
example, of the 51 major spills since 1990, 15 resulted from tank barges.
The average cost for these 15 tank barge spills was about $23
million--more than double the average new liability limit ($10.3 million)
for these vessels. The Coast Guard is responsible for adjusting limits of
liability at least every 3 years for significant increases in inflation
and for making recommendations to the Congress on whether adjustments to
limits are necessary to help protect the Fund.^6 In its January 2007
report examining oil spills that exceeded the limits of liability, the
Coast Guard had similar findings on the adequacy of some of the new
limits. However, the Coast Guard did not make explicit recommendations to
the Congress on how the limits should be adjusted. Second, although OPA
has required since 1990 that liability limits be adjusted every 3 years to
account for significant increases in inflation, such adjustments have
never been made. If such adjustments had been made between 1990 and 2006,
claims against the Fund for the 51 major spills would have been reduced by
16 percent, which could have saved the Fund $39 million.

^6OPA has required since 1990 that the President--and through several
delegations to the Secretaries of Transportation and Homeland Security and
a redelegation to the Coast Guard in 2005--adjust liability limits at
least every 3 years to account for significant increases in inflation.
However, the executive branch has never made such adjustments.

We are recommending that the Commandant of the Coast Guard (1) determine
whether and how liability limits should be changed, by vessel type, and
make recommendations about these changes to the Congress and (2) adjust
the limits of liability for vessels every 3 years to reflect changes in
inflation, as appropriate. We provided a copy of this draft for review and
comment to the Departments of Homeland Security (DHS), including the Coast
Guard; Commerce; the Interior (DOI); and Transportation and the
Environmental Protection Agency (EPA). In commenting on a draft of this
report, DHS generally agreed with its contents and agreed with the
recommendations. The written comments from DHS can be found in appendix
II. The Departments of Commerce, Transportation, DOI, and EPA also
provided technical clarifications, which we have incorporated in this
report, as appropriate.

Background

The United States is the world's largest net importer of oil. In 2006, the
United States had net imports of 12.2 million gallons of oil per day, more
than twice as much as Japan and over three times as much as China, the
world's next largest importers. The transport of oil into the United
States occurs primarily by sea with ports throughout the United States
receiving over 40,000 shipments of oil in 2005. In addition, vessels not
transporting oil, such as cargo and freight vessels, fishing vessels, and
passenger ships, often carry tens of thousands of gallons of fuel oil to
power their engines. With over 100,000 commercial vessels navigating U.S.
waters, oil spills are inevitable. Fortunately, however, they are
relatively infrequent and are decreasing. While oil transport and maritime
traffic have continued to increase, the total number of reported spills
has generally declined each year since 1990.

OPA forms the foundation of U.S. maritime policy as it pertains to oil
pollution. OPA was passed in 1990, following the 1989 Exxon Valdez spill
in Alaska, which highlighted the need for greater federal oversight of
maritime oil transport. OPA places the primary burden of liability and the
costs of oil spills on the vessel owner and operator who was responsible
for the spill.^7 This "polluter pays" system provides a deterrent for
vessel owners and operators who spill oil by requiring that they assume
the burden of spill response, natural resource restoration, and
compensation to those damaged by the spill, up to a specified limit of
liability--which is the amount above which responsible parties are no
longer financially liable under certain conditions. For example, if a
vessel's limit of liability is $10 million and a spill resulted in $12
million in costs, the responsible party only has to pay up to $10
million--the Fund will pay for the remaining $2 million.^8 Current limits
of liability, which vary by type of vessel and are determined by a
vessel's gross tonnage, were set by the Congress in 2006. The Coast Guard
is responsible for adjusting limits for significant increases in inflation
and for making recommendations to the Congress on whether adjustments are
necessary to help protect the Fund.^9 OPA also requires that vessel owners
and operators must demonstrate their ability to pay for oil spill response
up to their limit of liability. Specifically, by regulation, with few
exceptions, owners and operators of vessels over 300 gross tons and any
vessels that transship or transfer oil in the Exclusive Economic Zone are
required to have a certificate of financial responsibility that
demonstrates their ability to pay for oil spill response up to their limit
of liability.^10

7OPA applies to oil discharged from vessels or facilities into navigable
waters of the United States and adjoining shorelines. OPA also covers
substantial threats of discharge, even if an actual discharge does not
occur.

^8When responsible parties' costs exceed their limit of liability and the
limit is upheld--because there was no gross negligence or violations of
federal regulations by the vessel owner or operator--the responsible party
is entitled to file a claim on the Fund to be reimbursed for costs in
excess of the limit. NPFC reviews the claim to determine which costs are
OPA-compensable and the responsible party is reimbursed from the Fund.

^9Title VI of the Coast Guard and Maritime Transportation Act of 2006.
Public Law 109-241, S 603 (c)(3).

^1033 C.F.R. S138. The U.S. Exclusive Economic Zone extends 200 nautical
miles offshore.

Figure 1: Description of Vessel Types and Current Limits of Liability

OPA consolidated the liability and compensation provisions of four prior
federal oil pollution initiatives and their respective trust funds into
the Oil Spill Liability Trust Fund and authorized the collection of
revenue and the use of the money, with certain limitations, with regards
to expenditures.^11 The Fund has two major components--the Principal Fund
and the Emergency Fund. The Emergency Fund consists of $50 million
apportioned each year to fund spill response and the initiation of natural
resource damage assessments, which provide the basis for determining the
natural resource restoration needs that address the public's loss and use
of natural resources as a result of a spill. The Principal Fund provides
the funds for third-party and natural resource damage claims, limit of
liability claims, reimbursement of government agencies' removal costs, and
provides for oil spill related appropriations. A number of
agencies--including the Coast Guard, EPA, and DOI--receive an annual
appropriation from the Fund to cover administrative, operational,
personnel, and enforcement costs. From 1990 to 2006, these appropriations
amounted to the Fund's largest expense (see fig. 2).

^11The prior federal laws regarding oil pollution included the Federal
Water Pollution Control Act, the Deepwater Port Act, the Trans-Alaska
Pipeline System Authorization Act, and the Outer Continental Shelf Lands
Act Amendments of 1978. The Congress created the Fund in 1986 but did not
authorize collection of revenue or use of the money until it passed OPA in
1990.

Figure 2: Oil Spill Liability Trust Fund Expenditures, Fiscal Years,
1990-2006

Notes:

Federal research and other programs include appropriations to Department
of Transportation, the Denali Commission, and the Oil Spill Recovery
Institute. The Department of Treasury and the Army Corps of Engineers have
received appropriations, but these account for about 0.10 percent of Fund
expenditures.

Percentages do not sum to 100 percent due to rounding.

The Fund's balance has generally declined from 1995 through 2006, and
since fiscal year 2003, its balance has been less than the authorized
limit on federal expenditures for the response to a single spill, which is
currently set at $1 billion (see fig. 3). The balance has declined, in
part, because the Fund's main source of revenue--a $0.05 per barrel tax on
U.S. produced and imported oil--was not collected for most of the time
between 1993 and 2006.^12 As a result, the Fund balance was $604.4 million
at the end of fiscal year 2006.^13 The Energy Policy Act of 2005
reinstated the barrel tax beginning in April 2006.^14 With the barrel tax
once again in place, NPFC anticipates that the Fund will be able to cover
its projected noncatastrophic liabilities.

^12The tax expired in December 1994. Besides the barrel tax, the Fund also
receives revenue in the form of interest on the Fund's principal and fines
and penalties.

Figure 3: Oil Spill Liability Trust Fund Balance, Fiscal Years 1993-2006

Note: The Fund balance increase in 2000 was largely due to a transfer of
$181.8 million from the Trans-Alaska Pipeline Liability Fund.

OPA also defines the costs for which responsible parties are liable and
for the costs for which the Fund is made available for compensation in the
event that the responsible party does not pay or is not identified. These
costs, or "OPA compensable" costs, are of two main types:

^13Recent related GAO products include GAO, U.S. Coast Guard National
Pollution Funds Center: Improvements Are Needed in Internal Control Over
Disbursements, [34]GAO-04-340R (Washington, D.C.: Jan. 13, 2004) and GAO,
U.S. Coast Guard National Pollution Funds Center: Claims Payment Process
Was Functioning Effectively, but Additional Controls Are Needed to Reduce
the Risk of Improper Payments, [35]GAO-04-114R (Washington, D.C.: Oct. 3,
2003).

^14The Energy Policy Act of 2005. Public Law 109-58 S1361. The barrel tax
is scheduled to be in place until 2014.

           o Removal costs: Removal costs are incurred by the federal
           government or any other entity taking approved action to respond
           to, contain, and clean up the spill. For example, removal costs
           include the equipment used in the response--skimmers to pull oil
           from the water, booms to contain the oil, planes for aerial
           observation--as well as salaries and travel and lodging costs for
           responders.
           o Damages caused by the oil spill: OPA-compensable damages cover a
           wide range of both actual and potential adverse impacts from an
           oil spill, for which a claim may be made to either the responsible
           party or the Fund. (Table 1 provides a brief definition of
           OPA-compensable removal costs and damages.) Claims include natural
           resource damage claims filed by trustees, claims for uncompensated
           removal costs and third-party damage claims for lost or damaged
           property and lost profits, among other things.^15

^15OPA authorizes the United States, states, and Indian tribes to act on
behalf of the public as natural resource trustees for natural resources
under their respective trusteeship. Trustees often have information and
technical expertise about the biological effects of pollution, as well as
the location of sensitive species and habitats that can assist the federal
on-scene coordinator in characterizing the nature and extent of
site-related contamination and impacts. Federal Trustees include Commerce,
DOI, the Departments of Agriculture, Defense, Energy, and other agencies
authorized to manage or protect natural resources.

Table 1: Types of OPA-Compensable Removal Costs and Damages

Removal costs                                                              
Removal of oil            Costs for the containment and removal of oil     
                             from water and shorelines including contract     
                             services (such as cleanup contractors and        
                             incident management support) and the equipment   
                             used for removal.                                
Disposal                  Costs for the proper disposal of recovered oil   
                             and oily debris.                                 
Personnel                 Costs for government personnel and temporary     
                             government employees hired for the duration of   
                             the spill response, including costs for          
                             monitoring the activities of the responsible     
                             parties.                                         
Prevention                Costs for the prevention or minimization of a    
                             substantial threat of an oil spill.              
Damages                                                                    
Natural resources         Federal, state, foreign, or Indian tribe         
                             trustees can claim damages for injury to, or     
                             destruction of, and loss of, or loss of use of,  
                             natural resources, including the reasonable      
                             costs of assessing the damage.                   
Real or personal property Damages for injury to, or economic losses        
                             resulting from destruction of, real or personal  
                             property, such as boats or docks.                
Subsistence use           Damages for loss of subsistence use of natural   
                             resources, without regard to the ownership or    
                             management of the resources.                     
Government revenues,      The federal, state, or local government can      
profits, and earning      claim damages for the loss of taxes, royalties,  
capacity                  rents, fees, or profits. Companies can claim     
                             damages for loss of profits or impairment of     
                             earning capacity.                                
Public services           States and local governments can recover costs   
                             for providing increased public services during   
                             or after an oil spill response, including        
                             protection from fire, safety, or health hazards. 

Source: GAO summary of the Oil Pollution Act of 1990 (33 U.S.C. S 2702
(b)).

The Fund also covers costs when responsible parties cannot be located or
do not pay their liabilities. NPFC encounters cases where the source of
the spill, and therefore the responsible party is unknown, or where the
responsible party does not have the ability to pay. In other cases, since
the cost recovery can take a period of years, the responsible party may be
bankrupt or dissolved. Based on our analysis of NPFC records, excluding
spills with limit of liability claims, the recovery rate for costs from
the 51 major oil spills since 1990 is 65 percent, which means that
responsible parties have paid 65 percent of costs. The 35 percent of
nonreimbursed costs to the Fund for these major spills have amounted to
$53.9 million.

Response to large oil spills is typically a cooperative effort between the
public and private sector, and there are numerous players who participate
in responding to and paying for oil spills. To manage the response effort,
the responsible party, the Coast Guard, EPA, and the pertinent state and
local agencies form the unified command, which implements and manages the
spill response.^16 Beyond the response operations, there are other
stakeholders, such as accountants who are involved in documenting and
accounting for costs, and receiving and processing claims. In addition,
insurers and underwriters provide financial backing to the responsible
party. The players involved in responding to and/or paying for major spill
response are as follows:^17

           o Government agencies: The lead federal authority, or Federal
           On-Scene Coordinator, in conducting a spill response is usually
           the nearest Coast Guard Sector and is headed by the Coast Guard
           Captain of the Port.^18 The Federal On-Scene Coordinator directs
           response efforts and coordinates all other efforts at the scene of
           an oil spill. Additionally, the on-scene coordinator issues
           pollution removal funding authorizations--guarantees that the
           agency will receive reimbursement for performing response
           activities--to obtain services and assistance from other
           government agencies. Other federal agencies may also be involved.
           NOAA provides scientific support, monitoring and predicting the
           movement of oil, and conducting environmental assessments of the
           impacted area. The federal, state, and tribal trustees join
           together to perform a natural resource damage assessment, if
           necessary. Within the Coast Guard, the NPFC is responsible for
           disbursing funds to the Federal On-Scene Coordinator for oil spill
           removal activities and seeking reimbursement from responsible
           parties for federal costs. Additionally, regional governmental
           entities that are affected by the spill--both state and local--as
           well as tribal government officials or representatives may
           participate in the unified command and contribute to the response
           effort, which is paid for by the responsible party or are
           reimbursed by the responsible party or the Fund.^19 
			  
^16The Incident Command System (ICS) is a standardized response management
system that is part of the National Interagency Incident Management
System. The ICS is organizationally flexible so that it can expand and
contract to accommodate spill responses of various sizes. The ICS
typically consists of four sections: operations, planning, logistics, and
finance/administration.

^17For a full description of the organizational structure and procedures
for preparing for and responding to discharges of oil, see The National
Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. S 300.

^18Although this report focuses on vessels, and most vessel spills are in
the Coast Guard zone of jurisdiction, EPA is the lead on-scene coordinator
in the inland zone, and the Coast Guard is lead on-scene coordinator in
the coastal zone.			  

^19State governments can seek reimbursement directly from responsible
parties or from the Fund. State officials in Alaska, California, New York,
Rhode Island, Texas, and Washington said that state agencies recover
almost all of their costs, either directly from responsible parties or
from the NPFC. Officials in Texas said that the reimbursement rate for oil
spill costs may be as high as 98 percent.

           o Responsible parties: OPA stipulates that both the vessel owner
           and operator are ultimately liable for the costs of the spill and
           the cleanup effort. The Coast Guard has final determination on
           what actions must be taken in a spill response, and the
           responsible party may form part of the unified command--along with
           the Federal On-Scene Coordinator and pertinent state and local
           agencies--to manage the spill response. The responsible parties
           rely on other entities to evaluate the spill effects and the
           resulting compensation. Responsible parties hire environmental and
           scientific support staff, specialized claims adjustors to
           adjudicate third-party claims, public relations firms, and legal
           representation to file and defend limit of liability claims on the
           Fund, as well as serve as counsel throughout the spill response.
           o Qualified individuals: Federal regulations require that vessels
           carrying oil as cargo have an incident response plan and, as part
           of the plan, they appoint a qualified individual who acts with
           full authority to obligate funds required to carry out response
           activities. The qualified individual acts as a liaison with the
           Federal On-Scene Coordinator and is responsible for activating the
           incident response plan.
           o Oil spill response organizations: These organizations are
           private companies that perform oil spill cleanup, such as skimming
           and disposal of oil. Many of the companies have contractual
           agreements with responsible parties and the Coast Guard. The
           agreements, called basic ordering agreements, provide for
           prearranged pricing, response personnel, and equipment in the
           event of an oil spill.
           o Insurers: Responsible parties often have multiple layers of
           primary and excess insurance coverage, which pays oil spill costs
           and claims. Pollution liability coverage for large vessels is
           often underwritten by not-for-profit mutual insurance
           organizations. The organizations act as a collective of ship
           owners, who insure themselves, at-cost. The primary insurers of
           commercial vessels in U.S. waters are the Water Quality Insurance
           Syndicate, an organization providing pollution liability insurance
           to over 40,000 vessels, and the International Group of P & I
           Clubs, 13 protection and indemnity organizations that provide
           insurance primarily to foreign-flagged large vessels.^20
			  
			  Oil Spills Costing More than $1 Million Occurred Infrequently Since
			  1990, but Estimated Costs Total $860 Million to $1.1 Billion

           On the basis of information we were able to assemble about
           responsible parties' expenditures and payments from the Fund, we
           estimate that 51 oil spills involving removal costs and damage
           claims totaling $1 million or more have occurred since 1990. In
           all, the Fund spent $240 million on these spills, and the
           responsible parties themselves spent about $620 million to $840
           million, for a total of $860 million to $1.1 billion. The number
           of spills and their costs varied from year to year and showed no
           discernable trends in either frequency or cost.
			  
			  Less Than 2 Percent of Oil Spills Occurring Since 1990 Were Major
			  Spills

           Less than 2 percent of oil spills from vessels, since 1990, had
           removal costs and damage claims of $1 million or greater. Each
           year, there are thousands of incident reports called into the
           National Response Center that claim oil or oil-like substances
           have been spilled from vessels sailing in coastal or inland waters
           in the United States^21---but only a small percentage of these
           reported incidents are oil spills from vessels that received
           federal reimbursement for response efforts. Specifically, there
           have been 3,389 oil spills from vessels that sought reimbursement
           from the Fund for response efforts. Of these spills, we estimate
           that 51 were major oil spills.^22 As figure 4 shows, there are no
           discernable trends in the number of major oil spills that occur
           each year. The highest number of spills was seven in 1996; the
           lowest number was zero in 2006.
			  
^20These 13 organizations are American Steamship Owners Mutual Protection
and Indemnity Association, Inc.; Assuranceforeningen Gard;
Assuranceforeningen Skuld; the Britannia Steam Ship Insurance Association
Limited; the Japan Ship Owners' Mutual Protection & Indemnity Association;
the London Steam-Ship Owners' Mutual Insurance Association Limited; the
North of England Protection and Indemnity Association, Limited; the
Shipowners' Mutual Protection and Indemnity Association (Luxembourg); the
Standard Steamship Owners' Protection and Indemnity Association (Bermuda),
Limited; the Steamship Mutual Underwriting Association (Bermuda), Limited;
the Swedish Club; United Kingdom Mutual Steam Ship Assurance Association
(Bermuda), Limited; and the West of England Ship Owners Mutual Insurance
Association (Luxembourg).

^21The primary function of the National Response Center is to serve as the
sole national point of contact for reporting all oil, chemical,
radiological, biological, and etiological discharges into the environment
anywhere in the United States and its territories.	

^22We established the universe of major oil spills since 1990, based on
available public and private sector data in consultation with NPFC,
Environmental Research Consulting, and other industry experts.
Additionally, we gathered removal costs and damage claims data from
federal agencies involved in spill response, claims payments, and
conducting natural resource damage assessments (Coast Guard, NOAA, DOI,
and FWS); and to the best of our ability, we gathered private-sector cost
data from vessel insurers, and in contract with Environmental Research
Consulting. For more information on our scope and methodology, see
appendix I.

Figure 4: Number of Major Oil Spills, by Year, 1990-2006

Note: Because spill costs accrue over time, there may have been vessel
spills in 2006 for which costs will exceed $1 million in the future.

These 51 spills occurred in a variety of locations. As figure 5 shows, the
spills occurred on the Atlantic, Gulf, and Pacific coasts and include
spills both in open coastal waters and more confined waterways.

Figure 5: Location and Cost of Major Oil Spills, 1990-2006

Note: Due to space constraints, two major oil spills that occurred in the
Pacific are not pictured on this map.

Total Cost of Major Spills Ranges from $860 Million to $1.1 Billion, and
Responsible Parties Pay the Majority of Costs

The total cost of the 51 spills cannot be precisely determined, for
several reasons:

           o Private-sector expenditures are not tracked: The NPFC tracks
           federal removal costs expended by the Fund for Coast Guard and
           other federal agencies' spill response efforts, but it does not
           oversee costs incurred by the private sector. There is also no
           legal requirement in place that requires responsible parties to
           disclose costs incurred for responding to a spill.^23 
			  
^23Under regulation S-K, 17 C.F.R. 229, companies that are publicly traded
must disclose any outstanding liabilities, including liabilities such as
oil spill removal costs or claims made against the company for natural
resource or third-party damages incurred. However, many vessel owners or
operators are not publicly traded companies.

           o The various parties involved in covering these costs do not
           categorize them uniformly: For example, one vessel insurer we
           spoke with separates total spill costs by removal costs (for
           immediate spill cleanup) and loss adjustment expenses, which
           contain all other expenses, including legal fees. In contrast, the
           NPFC tracks removal costs and damage claims in terms of the
           statutory definitions delineated in OPA.
           o Spill costs are somewhat fluid and accrue over time: In
           particular, the natural resource and third-party damage claims
           adjudication processes can take many years to complete. Moreover,
           it can take many months or years to determine the full effect of a
           spill to natural resources and to determine the costs and extent
           of the natural resource injury and the appropriate restoration
           needed to repair the damage. For example, natural resource damage
           claims were recently paid for a spill that occurred near Puerto
           Rico in 1991, over 16 years ago.

           Because spill cost data are somewhat imprecise and the data we
           collected vary somewhat by source, the results described below
           will be reported in ranges, in which various data sources are
           combined together. The lower and higher bounds of the range
           represent the low and high end of cost information we obtained.

           Our analysis of these 51 spills shows their total cost was
           approximately $1 billion--ranging from $860 million to $1.1
           billion. This amount breaks down by source as follows:

           o Amount paid out of the Fund: Because the NPFC tracks and reports
           all Fund expenditures, the amount paid from the Fund can be
           reported as an actual amount, not an estimate. For these 51
           spills, the Fund paid a total of $239.5 million.
           o Amount paid by responsible parties: Because of the lack of
           precise information about amounts paid by responsible parties and
           the differences in how they categorize their costs, this portion
           of the expenditures must be presented as an estimate. Based on the
           data we were able to obtain and analyze, responsible parties spent
           between $620 million and $840 million. Even at the low end of the
           range, this amount is nearly triple the expenditure from the Fund.
			  
			  Costs Vary Widely by Spill and Year

           Costs of these 51 spills varied widely by spill, and therefore, by
           year (see fig. 6). For example, 1994 and 2004 both had four spills
           during the year, but the average cost per spill in 1994 was about
           $30 million, while the average cost per spill in 2004 was between
           $71 million and $96 million. Just as there was no discernible
           trend in the frequency of these major spills, there is no
           discernible trend in their cost. Although the substantial increase
           in 2004 may look like an upward trend, 2004 may be an anomaly that
           reflects the unique character of two of the four spills that
           occurred that year. These two spills accounted for 98 percent of
           the year's costs.

Figure 6: Average per Spill Costs of Major Oil Spills, by Year, 1990-2006

Note: Because we are reporting costs from multiple sources of data, the
data were combined and grouped into cost ranges. In some cases, however,
there was only one cost estimate. In those cases, we present the amount as
a single cost estimate.

Key Factors Affect Oil Spill Costs in Unique Ways

Location, time of year, and type of oil are key factors affecting oil
spill costs, according to industry experts, agency officials, and our
analysis of spills. Data on the 51 major spills show that spills occurred
on all U.S. coasts, across all seasons, and for all oil types. In ways
that are unique to each spill, however, each of these factors can affect
the breadth and difficulty of the response effort or the extent of damage
that requires mitigation. For example, spills that occur in remote areas
can make response difficult in terms of mobilizing responders and
equipment, as well as complicating the logistics of removing oil--all of
which can increase the costs. Officials also identified two other factors
that may influence oil spill costs to a lesser extent--the effectiveness
of the spill response and the level of public interest in a spill.

Location Impacts Costs in Different Ways

The location of a spill can have a large bearing on spill costs because it
will determine the extent of response needed, as well as the degree of
damage to the environment and local economies. According to state
officials with whom we spoke and industry experts, there are three primary
characteristics of location that affect costs:

           o Remoteness: For spills that occur in remote areas, spill
           response can be particularly difficult in terms of mobilizing
           responders and equipment, and they can complicate the logistics of
           removing oil from the water--all of which can increase the costs
           of a spill. For example, a 2001 spill in Alaska's Prince William
           Sound--which occurred approximately 40 miles from Valdez,
           AK--resulted in considerable removal costs after a fishing vessel
           hit a rock and sank to a depth of approximately 1,000 feet.
           Response took many days and several million dollars to contain the
           oil that was still in the vessel, but the effort was eventually
           abandoned because it was too difficult from that depth.^24 
           o Proximity to shore: There are also significant costs associated
           with spills that occur close to shore. Contamination of shoreline
           areas has a considerable bearing on the costs of spills as such
           spills can require manual labor to remove oil from the shoreline
           and sensitive habitats. The extent of damage is also affected by
           the specific shoreline location. For example, spills that occur in
           marshes and swamps with little water movement are likely to incur
           more severe impacts than flowing water. A September 2002 spill
           from a cargo vessel in the Cooper River near the harbor in
           Charleston, SC, spread oil across 30 miles of a variety of
           shoreline types. The spill resulted in the oiling of a number of
           shorebirds and a temporary disruption to recreational
           shrimp-baiting in area waters, among other things. As of July
           2007, a settlement for natural resource damages associated with
           the spill was still pending.
			  
24Officials from the state of Alaska told us that although costs to
mobilize crews and equipment to respond to spills in Alaska are generally
higher due to its remote nature, in this case, response crews were already
nearby responding to a previous spill, which resulted in mobilization and
equipment costs that were lower than would have been expected.

           o Proximity to economic centers: Spills that occur in the
           proximity of economic centers can also result in increased costs
           when local services are disrupted. A spill near a port can
           interrupt the flow of goods, necessitating an expeditious response
           in order to resume business activities, which could increase
           removal costs. Additionally, spills that disrupt economic
           activities can result in expensive third-party damage claims. For
           example, after approximately 250,000 gallons of oil spilled from a
           tanker in the Delaware River in 2004, a large nuclear plant in the
           vicinity was forced to suspend activity for more than a week. The
           plant is seeking reimbursement for $57 million in lost profits.^25

           Overall, for the 51 major oil spills, location had the greatest
           effect on costs for spills that occurred in the waters of the
           Caribbean, followed by the East Coast, Alaska, and the Gulf
           states.^26 (See fig. 7). The range of average per spill costs for
           the spills that occurred in the East Coast locations ranged from
           about $27 million to over $37 million, higher than the average
           costs in any other region besides the two spills in Caribbean. The
           high spill costs in the East Coast locations were caused by
           several spills in that geographic area that had considerably
           higher costs. Specifically, four of the eight most expensive
           spills occurred on the waters off the East Coast.^27
			  
^25CRS: Oil Spills in U.S. Coastal Waters: Background, Governance, and
Issues for Congress, (Apr. 24, 2007). Testimony of Rear Admiral Thomas
Gilmour (U.S. Coast Guard), in U.S. Congress, House Committee on
Transportation and Infrastructure, Subcommittee on Coast Guard and
Maritime Transportation, Implementation of the Oil Pollution Act,
hearings, 109th Cong., 2nd sess., (Apr. 27, 2006).

^26For the purposes of this report, we used the following geographic
classifications to group the major oil spills. Inland refers to spills
that occurred on U.S. navigable waters within the continental United
States; Pacific refers to spills that occurred in or around Hawaii,
American Samoa, and Saipan; West Coast refers to spills that occurred
along the coasts of California, Oregon, and Washington; East Coast refers
to spills that occurred along the east coast of the United States,
including Florida's Atlantic Coast; Caribbean refers to spills in U.S.
territorial waters of the Caribbean Sea; Gulf States refers to spills that
occurred along the coasts of the states bordering the Gulf of Mexico,
including the Gulf Coast of Florida; and Alaska refers to spills that
occurred in Alaskan coastal waters.

^27This does not mean that spills that occur on the East Coast will
necessarily be more expensive. Rather, only among these 51 spills, the
particular location of East Coast spills had a sizeable effect.			  

Figure 7: Average per Spill Cost of Major Oil Spills, by Location,
1990-2006

Note: Because we are reporting costs from multiple sources of data, the
data were combined and grouped into cost ranges. In some cases, however,
there was only one cost estimate. In those cases, we present the amount as
a single cost estimate.

Time of Year Has Impact on Local Economies and Response Efforts

The time of year in which a spill occurs can also affect spill costs--in
particular, impacting local economies and response efforts. According to
several state and private-sector officials with whom we spoke, spills that
disrupt seasonal events that are critical for local economies can result
in considerable expenses. For example, spills in the spring months in
areas of the country that rely on revenue from tourism may incur
additional removal costs in order to expedite spill cleanup, or because
there are stricter standards for cleanup, which increase the costs. This
situation occurred in March of 1996 when a tank barge spilled
approximately 176,000 gallons of fuel oil along the coast of Texas.
Because the spill occurred during the annual spring break tourist season,
the time frames for cleaning up the spill were truncated, and the
standards of cleanliness were elevated. Both of these factors contributed
to higher removal costs, according to state officials we interviewed.

The time of year in which a spill occurs also affects response efforts
because of possible inclement weather conditions. For example, spills that
occur during the winter months in areas of the country that experience
harsh winter conditions can result in higher removal costs because of the
increased difficulty in mobilizing equipment and personnel to respond to a
spill in inclement weather. According to a state official knowledgeable
about a January 1996 spill along the coast of Rhode Island, extremely cold
and stormy weather made response efforts very difficult.

Although the 51 spills occurred during all seasons of the year, they were
most prevalent in the fall and winter months, with 20 spills occurring in
the fall and 13 spills during the winter, compared with 9 spills in the
spring and 9 in the summer months.^28 On a per-spill basis, the cost range
for the 51 spills was highest in the fall (see fig. 8).

Figure 8: Average per Spill Costs of Major Oil Spills, by Time of Year,
1990-2006

Note: Because we are reporting costs from multiple sources of data, the
data were combined and grouped into cost ranges. In some cases, however,
there was only one cost estimate. In those cases, we present the amount as
a single cost estimate.

Type of Oil Spilled Impacts the Extent of the Response Effort and the Amount of
Damage

The type of oil spilled affects the degree to which oil can be cleaned up
and removed, as well as the nature of the natural resource damage caused
by the spill--both of which can significantly impact the costs associated
with an oil spill. The different types of oil can be grouped into four
categories, each with its own set of impacts on spill response and the
environment (see table 2). For example, lighter oils such as jet fuels,
gasoline, and diesel dissipate quickly, but they are highly toxic, whereas
heavier oils such as crude oils and other heavy petroleum products do not
dissipate much and, while less toxic, can have severe environmental
impacts.

^28We categorized the "times of year" as fall: September to November;
winter: December to February; spring: March to May; and summer: June to
August.

Table 2: Description of Different Oil Types

Oil type^a          Removal and response    Environmental impact           
Very light oils     Highly volatile (they   Highly toxic: Can cause severe 
(Jet fuels,         will evaporate within   impacts to shoreline           
gasoline)           1-2 days). It is rarely resources.                     
                       possible to clean up                                   
                       the oil from such                                      
                       spills.                                                
Light oils (Diesel, Moderately volatile,    Moderately toxic: Has the      
No. 2 fuel oil,     but will leave a        potential to create long-term  
light crudes)       residue after a few     contamination of shoreline     
                       days. Cleanup can be    resources.                     
                       very effective for                                     
                       these spills.                                          
Medium oils (Most   Some oil (about         Less toxic: Oil contamination  
crude oils)         one-third) will         of shoreline can be severe and 
                       evaporate in 24 hours.  long-term, and can have        
                       Cleanup most effective  significant impacts to         
                       if conducted quickly.   waterfowl and fur-bearing      
                                               mammals.                       
Heavy oils (Heavy   Little or no oil will   Less toxic: Heavy              
crude oils, No. 6   evaporate. Cleanup is   contamination of shoreline     
fuel oil, bunker C  difficult.              resources is likely, with      
fuel)                                       severe impacts to waterfowl    
                                               and fur-bearing mammals        
                                               through coating and ingestion. 

Source: NOAA.

^aIn general, oil types differ from each other in three ways:
viscosity--oil's resistance to flow, volatility--how quickly the oil
evaporates in the air, and toxicity--how poisonous the oil is to people
and other organisms.

Very light and light oils naturally dissipate and evaporate quickly, and
as such, often require minimal cleanup. However, light oils that are
highly toxic can result in severe impacts to the environment, particularly
if conditions for evaporation are unfavorable. For instance, in 1996, a
tank barge that was carrying home-heating oil grounded in the middle of a
storm near Point Judith, Rhode Island, spilling approximately 828,000
gallons of heating oil (light oil). Although this oil might dissipate
quickly under normal circumstances, heavy wave conditions caused an
estimated 80 percent of the release to mix with water, with only about 12
percent evaporating and 10 percent staying on the surface of the water.^29
The natural resource damages alone were estimated at $18 million, due to
the death of approximately 9 million lobsters, 27 million clams and crabs,
and over 4 million fish.

Medium and heavy oils do not evaporate much, even during favorable weather
conditions, and thus, can result in significant contamination of shoreline
areas. Medium and heavy oils have a high density and can blanket
structures they come in contact with--boats and fishing gear, for
example--as well as the shoreline, creating severe environmental impacts
to these areas, and harming waterfowl and fur-bearing mammals through
coating and ingestion. Additionally, heavy oils can sink, creating
prolonged contamination of the sea bed and tar balls that sink to the
ocean floor and scatter along beaches. These spills can require intensive
shoreline and structural cleanup, which is time consuming and expensive.
For example, in 1995, a tanker spilled approximately 38,000 gallons of
heavy fuel oil into the Gulf of Mexico when it collided with another
tanker as it prepared to lighter its oil to another ship.^30 Less than 1
percent (210 gallons) of the oil was recovered from the sea, and as a
result, recovery efforts on the beaches of Matagorda and South Padre
Islands were labor intensive, as hundreds of workers had to manually pick
up tar balls with shovels. The total removal costs for the spill were
estimated at $7 million.

^29National Research Council of the National Academies, Oil in the Sea
III: Inputs, Fates, and Effects (Washington, D.C.: 2003). Numbers do not
add to 100 percent due to rounding.

Spills involving heavy oil were the most prevalent among the 51 spills; 21
of the 51 major oil spills were from heavy oils. On a per-spill basis,
costs among the 51 spills, varied by type of oil, but the cost ranges for
medium and heavy oils were higher than light and very light oils (see fig.
9).

Figure 9: Average per Spill Costs of Major Oil Spills by Type of Oil,
1990-2006

Note: Because we are reporting costs from multiple sources of data, the
data were combined and grouped into cost ranges. In some cases, however,
there was only one cost estimate. In those cases, we present the amount as
a single cost estimate.

Other Factors Also Affect Spill Costs

Although available evidence points to location, time of year, and type of
oil spilled as key factors affecting spill costs, some industry experts
reported that the effectiveness of the spill response and the level of the
public interest can also impact the costs incurred during a spill.

^30Lightering is the process of transferring oil at sea from a very large
or ultra-large carrier to smaller tankers that are capable of entering the
port.

           o Effectiveness of spill response: Some private-sector officials
           stated that the effectiveness of spill response can impact the
           cost of cleanup. The longer it takes to assemble and conduct the
           spill response, the more likely it is that the oil will move with
           changing tides and currents and affect a greater area, which can
           increase costs. Some officials also stated that the level of
           experience of those involved in the incident command is critical
           to the effectiveness of spill response, and they can greatly
           affect spill costs. For example, poor decision making during a
           spill response could lead to the deployment of unnecessary
           response equipment, or worse, not enough equipment to respond to a
           spill. In particular, several private-sector officials with whom
           we spoke expressed concern that Coast Guard officials are
           increasingly inexperienced in handling spill response, in part
           because the Coast Guard's mission has been increased to include
           homeland security initiatives. Additionally, another noted that
           response companies, in general, have less experience in dealing
           with spill response and less familiarity with the local geography
           of the area affected by the spill, which can be critical to
           determining which spill response techniques are most effective in
           a given area. They attributed the limited experience to the
           overall decline in the number of spills in recent years. Further,
           one private-sector official noted that response companies can no
           longer afford to specialize in cleaning up spills alone, given the
           relatively low number of spills, and thus, the quality,
           effectiveness, and level of expertise and experience diminish over
           time.
           o Public interest: Several officials with whom we spoke stated
           that level of public attention placed on a spill creates pressure
           on parties to take action and can increase costs. They also noted
           that the level of public interest can increase the standards of
           cleanliness expected, which may increase removal costs. For
           example, several officials noted that a spill along the Texas
           coast in February 1995 resulted in increased public attention
           because it occurred close to peak tourist season. In addition to
           raising the standards of cleanliness at the beaches to a much
           higher level than normal because of tourist season, certain
           response activities were completed for primarily aesthetic
           reasons, both of which increased the removal costs, according to
           state officials.
			  
			  Fund Has Been Able to Cover Costs Not Paid by Responsible Parties,
			  but Risks Remain

           The Fund has been able to cover costs from major spills that
           responsible parties have not paid, but risks remain. Although
           liability limits were increased in 2006, the liability limits for
           certain vessel types, notably tank barges, may be
           disproportionately low relative to costs associated with such
           spills. There is also no assurance that vessel owners and
           operators are able to financially cover these new limits, because
           the Coast Guard has not yet issued regulations for satisfying
           financial responsibility requirements. In addition, although OPA
           calls for periodic increases in liability limits to account for
           significant increases in inflation, such increases have never been
           made. We estimate that not making such adjustments in the past
           potentially cost the Fund $39 million between 1990 and 2006.
           Besides issues related to limits of liability, the Fund faces
           other potential drains on its resources, including ongoing claims
           from existing spills, claims related to already-sunken vessels
           that may begin to leak oil, and the threat of a catastrophic spill
           such as occurred with the Exxon Valdez in 1989.
			  
			  Further Attention to Limits of Liability Is Needed

           Major oil spills that exceed the vessel's limit of liability are
           infrequent, but their impact on the Fund could be significant.
           Limits of liability are the amount, under certain circumstances,
           above which responsible parties are no longer financially liable
           for spill removal costs and damage claims. If the responsible
           party's costs exceed the limit of liability, they can make a claim
           against the Fund for the amount above the limit. Of the 51 major
           oil spills that occurred since 1990, 10 spills resulted in limit
           of liability claims on the Fund.^31 The limit of liability claims
           of these 10 spills ranged from less than $1 million to over $100
           million, and totaled over $252 million in claims on the Fund.
           Limit of liability claims will continue to have a pronounced
           effect on the Fund. NPFC estimates that 74 percent of claims under
           adjudication that were outstanding as of January 2007 were for
           spills in which the limit of liability had been exceeded. The
           amount of these claims under adjudication was $217 million.^32
			  
^31Additional spills had costs in excess of the vessel's limit of
liability, but either the limit was not upheld or no claim was filed by
the responsible party.

^32This figure is based on all spills with claims on the Fund, currently
under adjudication, not just the 51 major spills. U.S. Coast Guard, Report
on Oil Pollution Act Liability Limits, (Jan. 5, 2007). Like our report,
the Coast Guard's report was prepared in response to a provision in the
Coast Guard and Maritime Transportation Act.

           We identified three areas in which further attention to these
           liability limits appears warranted: the appropriateness of some
           current liability limits, the need to adjust limits periodically
           in the future to account for significant increases in inflation,
           and the need for updated regulations for ensuring vessel owners
           and operators are able to financially cover their new limits.
			  
			    Some Recent Adjustments to Liability Limits Do Not Reflect the
				 Cost of Major Spills

           The Coast Guard and Maritime Transportation Act of 2006
           significantly increased the limits of liability from the limits
           set by OPA in 1990. Both laws base the liability on a specified
           amount per gross ton of vessel volume, with different amounts for
           vessels that transport oil commodities (tankers and tank barges)
           than for vessels that carry oil as a fuel (such as cargo vessels,
           fishing vessels, and passenger ships). The 2006 act raised both
           the per-ton and the required minimum amounts, differentiating
           between vessels with a double hull, which helps prevent oil spills
           resulting from collision or grounding, and vessels without a
           double hull (see table 3 for a comparison of amounts by vessel
           category).^33 For example, the liability limit for single-hull
           vessels larger than 3,000 gross tons was increased from the
           greater of $1,200 per gross ton or $10 million to the greater of
           $3,000 per gross ton or $22 million.
			  
^33OPA requires that all tank vessels (greater than 5,000 gross tons)
constructed (or that undergo major conversions) under contracts awarded
after June 30, 1990, operating in U.S. navigable waters must have double
hulls. Of the 51 major oil spills, all 24 major spills from tank vessels
(tankers and tank barges) involved single-hull vessels.

Table 3: Comparison of Limits of Liability as Established in OPA (1990)
and the Coast Guard and Maritime Transportation Act (2006)

Vessel types           1990 Limit of liability     2006 Limit of liability 
Single-hull tankers    Vessels greater than 3,000  Vessels greater than    
and tank barges        gross tons: the greater of  3,000 gross tons: the   
                          $1,200 per gross ton or $10 greater of $3,000 per   
                          million.                    gross ton or $22        
                                                      million.                
                          Vessels less than or equal  Vessels less than or    
                          to 3,000 gross tons: the    equal to 3,000 gross    
                          greater of $1,200 per gross tons: the greater of    
                          ton or $2 million.          $3,000 per gross ton or 
                                                      $6 million.             
                          (Single and double-hull                             
                          tankers and tank barges.)                           
Double-hull tankers    Vessels greater than 3,000  Vessels greater than    
and tank barges        gross tons: the greater of  3,000 gross tons: the   
                          $1,200 per gross ton or $10 greater of $1,900 per   
                          million.                    gross ton or $16        
                                                      million.                
                          Vessels less than or equal  Vessels less than or    
                          to 3,000 gross tons: the    equal to 3,000 gross    
                          greater of $1,200 per gross tons: the greater of    
                          ton or $2 million.          $1,900 per gross ton or 
                                                      $4 million.             
                          (Single and double-hull                             
                          tankers and tank barges.)                           
All other vessels:     The greater of $600 per     The greater of $950 per 
Cargo vessels, fishing gross ton or $500,000.      gross ton or $800,000.  
vessels, passenger                                                         
ships                                                                      

Source: Coast Guard and Maritime Transportation Act of 2006.

Our analysis of the 51 spills showed that the average spill cost for some
types of vessels, particularly tank barges, was higher than the limit of
liability, including the new limits established in 2006. We separated the
vessels involved in the 51 spills into four types (tankers, tank barges,
cargo and freight ships, and other vessels such as fishing boats);
determined the average spill costs for each type of vessel; and compared
the costs with the average limit of liability for these same vessels under
both the 1990 and 2006 limits. As figure 10 shows, the 15 tank barge
spills and the 12 fishing/other vessel spills had average costs greater
than both the 1990 and 2006 limits of liability. For example, for tank
barges, the average cost of $23 million was higher than the average limit
of liability of $4.1 million under the 1990 limits and $10.3 million under
the new 2006 limits. The nine spills involving tankers, by comparison, had
average spill costs of $34 million, which was considerably lower than the
average limit of liability of $77 million under the 1990 limits and $187
million under the new 2006 limits.^34

34The average limits of liability for the spills involving tankers are
much greater than the average liability for tank barges because the
liability is based on the volume of the vessel, and tankers generally have
much higher volumes than tank barges.

Figure 10: Average Spill Costs and Limits of Liability for Major Oil Spill
Vessels, 1990-2006

In a January 2007 report examining spills in which the limits of liability
had been exceeded, the Coast Guard had similar findings on the adequacy of
some of the new limits.^35 Based on an analysis of 40 spills in which
costs had exceeded the responsible party's liability limit since 1991, the
Coast Guard found that the Fund's responsibility would be greatest for
spills involving tank barges, where the Fund would be responsible for
paying 69 percent of costs. The Coast Guard concluded that increasing
liability limits for tank barges and nontank vessels--cargo, freight, and
fishing vessels--over 300 gross tons would positively impact the Fund
balance. With regard to making specific adjustments, the Coast Guard said
dividing costs equally between the responsible parties and the Fund was a
reasonable standard to apply in determining the adequacy of liability
limits.^36 However, the Coast Guard did not recommend explicit changes to
achieve either that 50/50 standard or some other division of
responsibility.

^35U.S. Coast Guard, Report on Oil Pollution Act Liability Limits, (Jan.
5, 2007).

  Liability Limits Have Not Been Adjusted for Inflation

Although OPA requires adjusting liability limits to account for
significant increases in inflation, no adjustments to the limits were made
between 1990 and 2006, when the Congress raised the limits in the Coast
Guard and Maritime Transportation Act. During those years, the Consumer
Price Index rose approximately 54 percent.^37 OPA requires the President,
who has delegated responsibility to the Coast Guard, through the Secretary
of Homeland Security, to issue regulations not less often than every 3
years to adjust the limits of liability to reflect significant increases
in the Consumer Price Index.^38 We asked Coast Guard officials why no
adjustments were made between 1990 and 2006. Coast Guard officials stated
that they could not speculate on behalf of other agencies as to why no
adjustments had been made prior to 2005 when the delegation to the Coast
Guard was made.

The decision to leave limits unchanged had financial implications for the
Fund. Raising the liability limits to account for inflation would have the
effect of reducing payments from the Fund, because responsible parties
would be responsible for paying costs up to the higher liability limit.
Not making adjustments during this 16-year period thus had the effect of
increasing the Fund's financial liability. Our analysis showed that if the
1990 liability limits had been adjusted for inflation during the 16-year
period, claims against the Fund for the 51 major oil spills would have
been reduced 16 percent, from $252 million to $213 million. This would
have meant a savings of $39 million for the Fund.

  Certification of Compliance with the New Liability Limits Is Not in Place

Certificates of Financial Responsibility have not been adjusted to reflect
the new liability limits. The Coast Guard requires Certificates of
Financial Responsibility, with few exceptions, for vessels over 300 gross
tons or any vessels that are lightering or transshipping oil in the
Exclusive Economic Zone as a legal certification that vessel owners and
operators have the financial resources to fund spill response up to the
vessel's limit of liability. Currently, Certificate of Financial
Responsibility requirements are consistent with the 1990 limits of
liability and, therefore, there is no assurance that responsible parties
have the financial resources to cover their increased liability.^39 The
Coast Guard is currently making Certificates of Financial Responsibility
consistent with current limits of liability. The Coast Guard plans to
initiate a rule making to issue new Certificate of Financial
Responsibility requirements. Coast Guard officials indicated their goal is
to publish a Notice of Proposed Rulemaking by the end of 2007, but the
officials said they could not be certain they would meet this goal.

^36We did not assess the reasonableness of adopting such a standard in
determining liability limits.

^37The new limits, which increased an average of 125 percent for the 51
vessels involved in major oil spills, were substantially higher than the
rise in inflation during the period.

^38Congress reiterated this requirement in the Coast Guard and Maritime
Transportation Act by requiring that regulations be issued 3 years after
the enactment of the act (July 11, 2006) and every 3 years afterward to
adjust the limits of liability to reflect significant increases in the
Consumer Price Index.

Other Challenges Could Also Affect the Fund's Condition

The Fund also faces several other potential challenges that could affect
its financial condition:

           o Additional claims could be made on spills that have already been
           cleaned up: Natural resource damage claims can be made on the Fund
           for years after a spill has been cleaned up. The official natural
           resource damage assessment conducted by trustees can take years to
           complete, and once it is completed, claims can be submitted to the
           NPFC for up to 3 years thereafter.^40 For example, the NPFC
           recently received and paid a natural resource damage claim for a
           spill in U.S. waters in the Caribbean that occurred in 1991.

           o Costs and claims may occur on spills from previously sunken
           vessels that discharge oil in the future: Previously sunken
           vessels that are submerged and in threat of discharging oil
           represent an ongoing liability to the Fund. There are over 1,000
           sunken vessels that pose a threat of oil discharge.^41 These
           potential spills are particularly problematic because, in many
           cases, there is no viable responsible party that would be liable
           for removal costs. Therefore, the full cost burden of oil spilled
           from these vessels would likely be paid by the Fund.
			  

           o Spills may occur without an identifiable source and therefore,
           no responsible party: Mystery spills also have a sustained impact
           on the Fund, because costs for spills without an identifiable
           source--and therefore no responsible party--may be paid out of the
           Fund. Although mystery spills are a concern, the total cost to the
           Fund from mystery spills was lower than the costs of known vessel
           spills in 2001 through 2004. Additionally, none of the 51 major
           oil spills was the result of a discharge from an unknown source.
           o A catastrophic spill could strain the Fund's resources: Since
           the 1989 Exxon Valdez spill, which was the impetus for authorizing
           the Fund's usage, no oil spill has come close to matching its
           costs.^42 Cleanup costs for the Exxon Valdez alone totaled about
           $2.2 billion, according to the vessel's owner. By comparison, the
           51 major oil spills since 1990 cost, in total, between $860
           million and $1.1 billion. The Fund is currently authorized to pay
           out a maximum of $1 billion on a single spill. Although the Fund
           has been successful thus far in covering costs that responsible
           parties did not pay, it may not be sufficient to pay such costs
           for a spill that has catastrophic consequences.
			  
^39According to the NPFC, while liable parties are not required to
establish an ability to pay at the higher amended limits until the
certificate of financial responsibility rule is published as required by
OPA, those parties are liable for the higher amounts.

^40Federal response costs for spills that resulted from hurricanes Katrina
and Rita were paid from the Stafford Act Disaster Relief Funds. However,
private parties can seek reimbursement from the Fund for cleanup costs and
damages in the future. According to NPFC, it is difficult to estimate
future liabilities to the Fund as a result of hurricanes Katrina and Rita,
but as of July 2007, there are no claims pending in connection with these
hurricanes.			  

           Conclusions
			  
           The "polluter pays" system established under OPA has been
           generally effective in ensuring that responsible parties pay the
           costs of responding to spills and compensating those affected.
           Given that responsible parties' liability is not unlimited, the
           Fund remains an important source of funding for both response and
           damage compensation, and its viability is important. The Fund has
           been able to meet all of its obligations, helped in part by the
           absence of any spills of catastrophic size. This favorable result,
           however, is no guarantee of similar success in the future. Even
           moderate spills can be very expensive, especially if they occur in
           sensitive locations or at certain times of the year.
			  
^41Michel, J., D. Etkin, T. Gilbert, J. Waldron, C. Blocksidge, and R.
Urban; 2005. Potentially Polluting Wrecks in Marine Waters: An Issue Paper
Prepared for the 2005 International Oil Spill Conference.

^42The ExxonValdez only discharged about 20 percent of the oil it was
carrying. A catastrophic spill from a vessel could result in costs that
exceed those of the Exxon Valdez, particularly if the entire contents of a
tanker were released in a `worst-case discharge' scenario.

           Increases in some liability limits appear warranted to help ensure
           that the "polluter pays" principle is carried out in practice. For
           certain vessel types, such as tank barges, current liability
           limits appear disproportionately low relative to their historic
           spill costs. The Coast Guard has reached a similar conclusion but
           so far has stopped short of making explicit recommendations to the
           Congress about what the limits should be. Absent such
           recommendations, the Fund may continue to pay tens of millions of
           dollars for spills that exceed the responsible parties' limits of
           liability. As the agency responsible for the Fund, it is important
           that the Coast Guard regularly assess whether and how the limits
           of liability for all vessel types should be adjusted--and
           recommends a course of action to the Congress on the adjustments
           that are warranted. Further, to date, liability limits have not
           been adjusted for significant changes in inflation. Consequently,
           the Fund was exposed to about $39 million in liability claims for
           the 51 major spills between 1990 and 2006 that could have been
           saved if the limits had been adjusted for inflation. Authority to
           make such adjustments was specifically designated to the Coast
           Guard in 2005, and with this clear authority, it is important for
           the Coast Guard to periodically adjust the limits of liability for
           inflation, as well. Without such actions, oil spills with costs
           exceeding the responsible parties' limits of liability will
           continue to place the Fund at risk.
			  
			  Recommendations for Executive Action

           To improve and sustain the balance of Oil Spill Liability Trust
           Fund, we recommend that the Commandant of the Coast Guard take the
           following two actions:

           o Determine whether and how liability limits should be changed, by
           vessel type, and make specific recommendations about these changes
           to the Congress
           o Adjust the limits of liability for vessels every 3 years to
           reflect significant changes in inflation, as appropriate.
			  
			  Agency Comments and Our Evaluation

           We provided a draft of this report to the Department of Homeland
           Security (DHS), including the Coast Guard and NPFC, for review and
           comment. DHS provided written comments, which are reprinted in
           appendix II. In its letter, DHS agreed with both recommendations.
           Regarding our recommendation that the Coast Guard review limits of
           liability by vessel type and make recommendations to the Congress,
           DHS stated that it has met the intent of the recommendation by
           issuing the first of its annual reports, in January 2007, on
           limits of liability. As stated in our report, however, our concern
           is that the current annual report made no specific recommendations
           to the Congress regarding liability limit adjustments. Therefore,
           we continue to recommend that in its next annual report to the
           Congress on limits of liability, the Coast Guard make explicit
           recommendations, by vessel type, on how such limits should be
           adjusted. Regarding our recommendation that the Coast Guard adjust
           the limits of liability for vessels every 3 years to reflect
           significant changes in inflation, DHS stated that the Coast Guard
           will make adjustments to limits as appropriate. In response to
           other concerns that DHS expressed, we modified the report to
           clarify the Coast Guard's responsibility for adjusting liability
           limits in response to Consumer Price Index increases, and to deal
           with the Coast Guard's concern that the report not imply that
           responsible parties' liability is unlimited.

           In addition, we provided a draft report to several other
           agencies--the Departments of Commerce, Transportation, DOI and
           EPA--for review and comment, because some of the information in
           the report was obtained from these agencies and related to their
           responsibilities. The agencies provided technical clarifications,
           which we have incorporated in this report, as appropriate.

           We are sending copies of this report to the Departments of
           Homeland Security, including the Coast Guard; Transportation,
           Commerce, DOI, and EPA; and appropriate congressional committees.
           We will also make copies available to others upon request. In
           addition, the report will be available at no charge on the GAO Web
           site at [36]http://www.gao.gov .

           If you have any questions about this report, please contact me at
           [37][email protected] or (202) 512-4431. Contact points for our
           Offices of Congressional Relations and Public Affairs may be found
           on the last page of this report. Key contributors to this report
           are listed in appendix III.

           Susan A. Fleming
			  Director, Physical Infrastructure Issues
			  
			  Appendix I: Scope and Methodology
			  
			  Overview

           To address our objectives, we analyzed oil spill removal cost and
           claims data from the National Pollution Funds Center (NPFC); the
           National Oceanic and Atmospheric Administration's (NOAA) Damage
           Assessment, Remediation, and Restoration Program; and the
           Department of the Interior's (DOI) Natural Resource Damage
           Assessment and Restoration Program; and the U.S. Fish and Wildlife
           Service (FWS). We also analyzed data obtained from vessel
           insurers, and in contract with Environmental Research
           Consulting.^1 We interviewed NPFC and NOAA officials and state
           officials responsible for oil spill response, as well as industry
           experts and representatives from key industry associations and a
           vessel operator. In addition, we selected five oil spills that
           represented a variety of factors such as geography, oil type, and
           spill volume for an in-depth review. During this review, we
           interviewed NPFC officials involved in spill response for all five
           spills, as well as representatives of private-sector companies
           involved in the spill and spill response; we also conducted a file
           review of NPFC records of the federal response activities and
           costs associated with spill cleanup. We also reviewed
           documentation from the NPFC regarding the Fund balance and
           vessels' limits of liability. Based on reviews of data
           documentation, interviews with relevant officials, and tests for
           reasonableness, we determined that the data were sufficiently
           reliable for the purposes of our study. This report focuses on oil
           spills that have occurred since the enactment of OPA--August 18,
           1990--for which removal costs and damage claims exceeded $1
           million, and we refer to such spills as major oil spills. We
           conducted our review from July 2006 through August 2007 in
           accordance with generally accepted government auditing standards.
			  
			  Our Categorization of Oil Spill Costs

           For the purposes of this review, we included removal (or response)
           costs and damage claims that are considered OPA compensable; that
           is, the OPA-stipulated reimbursable costs that are incurred for
           oil pollution removal activities when oil is discharged into the
           navigable waters, adjoining shorelines, and the Exclusive Economic
           Zone of the United States, as well as costs incurred to prevent or
           mitigate the substantial threat of such an oil discharge. OPA
           compensable removal costs include containment and removal oil from
           water and shorelines; prevention or minimization of a substantial
           threat of discharge; contract services (e.g., cleanup contractors,
           incident management support, and wildlife rehabilitation);
           equipment used in removals; chemical testing required to identify
           the type and source of oil; proper disposal of recovered oil and
           oily debris; costs for government personnel and temporary
           government employees hired for the duration of the spill response,
           including costs for monitoring the activities of responsible
           parties; completion of documentation; and identification of
           responsible parties. OPA compensable damage claims include
           uncompensated removal costs, damages to natural resources, damages
           to real or personal property, loss of subsistence use of natural
           resources, loss of profits or earning capacity, loss of government
           revenues, and increased cost of public services.^2
			  
^1Environmental Research Consulting is a private consulting firm that
specializes in data analysis, environmental risk assessment, cost
analyses, expert witness research and testimony, and development of
comprehensive databases on oil and chemical spills in service to
regulatory agencies, nongovernmental organizations, and industry.

           Available Data

           In order to present the best available data on spill costs, we
           gathered cost information from a number of sources, including
           federal agencies, vessel insurance companies and other
           private-sector companies involved in oil spill response, and
           Environmental Research Consulting--a private consultant.

           o Federal agencies: We gathered federal data on OPA compensable
           oil spill removal costs from the NPFC. Additionally, we gathered
           federal data on OPA compensable third-party damage claims from the
           NPFC, and natural resource damage claims from NOAA's Damage
           Assessment, Remediation, and Restoration Program, DOI's Natural
           Resource Damage Assessment and Restoration Program, and FWS.
           o Insurers and other private-sector companies: We collected the
           best available data for OPA-compensable removal costs and damage
           claims from private-sector sources, including vessel insurers such
           as the Water Quality Insurance Syndicate and the International
           Group of Protection and Indemnity Clubs; oil spill response
           organizations, including the Alaska Chadux Corporation and Moran
           Environmental Recovery; and a vessel operator. We made many
           attempts to contact and interview the responsible parties involved
           in the five spills we reviewed in-depth. One was willing to speak
           to GAO directly.
			  
           o Environmental Research Consulting: Environmental Research
           Consulting is a consulting firm that specializes in data analysis,
           environmental risk assessment, cost analyses, and the development
           of comprehensive databases on oil/chemical spills and spill costs.
           Environmental Research Consulting supplied cost estimates based on
           reviews of court documents, published reports, interviews with
           responsible parties, and other parties involved with major oil
           spills. In addition, Environmental Research Consulting verified
           its data collection by relying exclusively on known documented
           costs, as opposed to estimated costs. Environmental Research
           Consulting, therefore, did not include general estimates of spill
           costs, which can be inaccurate.
			  
^2Additionally, a responsible party may also submit claims to the NPFC if
the total of all removal cost and damage claims is more than the
responsible party's statutory liability limit or if the spill was caused
solely by a third party, an act of God, or an act of war.

           A complete and accurate accounting of total oil spill costs for
           all oil spills is unknown, primarily because there is no uniform
           mechanism to track responsible party spill costs, and there are no
           requirements that private sector keep or maintain cost records.
           The NPFC tracks federal costs to the Coast Guard and other federal
           agencies, which are later reimbursed by the Fund, but does not
           oversee costs incurred by the private sector. There is also no
           legal requirement in place that requires responsible parties to
           disclose costs incurred for responding to a spill.^3 We cannot be
           certain that all private-sector cost information we gathered
           included only OPA- compensable costs. However, we explicitly
           outline which costs are included in our review. Furthermore,
           private-sector data were obtained primarily from insurance
           companies, and one official told us that insurance coverage for
           pollution liability usually defines compensable losses in the same
           manner as OPA. For instance, while responsible parties incur costs
           ancillary to the spill response, such as public relations and
           legal fees, these costs are not generally paid by oil spill
           insurance policies. In addition, spill costs are somewhat fluid
           and accrue over time, making it sometimes difficult to account for
           the entire cost of a spill at a given time. In particular, the
           natural resource and third-party damage claims adjudication
           processes can take many years to complete.

           Based on consultation with committee staff, we agreed to present
           the best available data for major oil spills between 1990 and
           2006, and we determined that the data gathered were sufficiently
           reliable for the purposes of our study. Because of the imprecise
           nature of oil spill cost data, and the use of multiple sources of
           data, the data described in this report were combined and grouped
           into cost ranges. Using ranges of costs to provide upper and lower
           estimates of total costs and damage claims allows us to report
           data on major oil spills from all reliable sources.
			  
^3Under regulation S-K, 17 C.F.R. 229, companies that are publicly traded
must disclose any outstanding liabilities, including liabilities such as
oil spill removal costs or claims made against the company for natural
resource or third-party damages incurred. However, many vessel owners or
operators are not publicly traded companies.	

           Universe of Major Oil Spills

           To establish the universe of vessel spills that have exceeded $1
           million in total removal costs and damage claims since 1990, we
           used--in consultation with oil spill experts--a combination of
           readily available data and reasoned estimation. Since federal
           government cost data are available, we first established an
           estimate of the probable share of spill costs between the federal
           government and the private sector to determine what amount of
           federal costs might roughly indicate the total costs were over $1
           million. We interviewed Environmental Research Consulting, as well
           as agency officials from the NPFC and NOAA, to determine a
           reasonable estimated share of costs between the private and public
           sectors. The officials with whom we spoke estimated that in
           general, at least 90 percent of all spill costs are typically paid
           by the private sector. Based on that estimation, any spill with at
           least $100,000 in federal oil spill removal costs and damage
           claims probably cost at least $1 million in total---that is, 90
           percent of the total costs being paid by the private sector, and
           the remaining 10 percent paid by the public sector. Therefore, we
           initially examined all spills with at least $100,000 in federal
           oil spill removal costs and damage claims. We obtained these data
           on federal oil spill removal costs and damage claim payments from
           the NPFC.

           Of 3,389 federally managed spills since 1990, there were
           approximately 184 spills where the federal costs exceeded
           $100,000. From this group of spills, we limited our review to
           spills that occurred after the enactment of OPA on August 18,
           1990. Additionally, we omitted (1) spill events in which costs
           were incurred by the federal government for measures to prevent a
           spill although no oil was actually spilled and (2) spills of fewer
           than 100 gallons, where, according to the NPFC, the likelihood of
           costs exceeding $1 million was minimal.^4 Lastly, in consultation
           with Environmental Research Consulting, we used estimated spill
           costs and additional research to determine spills that were
           unlikely to have had total costs and claims above $1 million.
           Through this process, we concluded that since the enactment of
           OPA, 51 spills have had costs and claims that have exceeded $1
           million.

^4The Coast Guard categorizes instances, in which no oil was actually
spilled, as an oil spill when the Fund is used to pay for actions taken to
prevent a spill from occurring.

           Data Analysis and Case Studies

           To assess the costs of oil spills based on various factors, we
           collected data from federal government, private sector, and a
           consultant, and combined the data into ranges. In addition to
           collecting data on removal costs and damage claims, we collected
           additional information on major oil spills. We categorized and
           grouped spill costs based on the vessel type, time of year,
           location, and oil type to look for discernable trends in costs
           based on these characteristics. We collected information on the
           limits of liability of the vessels at the time of the spill and
           the limits of liability for vessels after changes in liability
           limits in the Coast Guard and Maritime Transportation Act of 2006.
           In addition, to analyze the effects of inflation on the Fund and
           liability limits, using the Consumer Price Index, we calculated
           what the limits of liability would have been at the time of each
           spill if the OPA-stipulated limits had been adjusted for
           inflation. We used the Consumer Price Index as the basis for
           inflationary measures because OPA states that limits should be
           adjusted for "significant increases in the Consumer Price Index."

           In reporting spill cost data by year and by certain categories, we
           use ranges, including the best available data. For certain
           statistics, such as the public-sector/private-sector cost share,
           where costs are aggregated for all spills, we calculated
           percentages based on the mid-point of the cost ranges. To test the
           reliability of using the mid-point of the ranges, we performed a
           sensitivity test, analyzing the effects of using mid-point versus
           the top and bottom of the cost range. We determined that
           presenting the certain figures based on the mid-point of the
           ranges is reliable and provides the clearest representation of the
           data.

           To supplement our data analysis and in order to determine the
           factors that affect the costs of major oil spills, we interviewed
           officials from the NPFC, NOAA, and EPA regarding the factors that
           affect major oil spill costs. We also interviewed state officials
           responsible for oil spill response from Alaska, California, New
           York, Rhode Island, Texas, and Washington to determine the types
           of costs incurred by states when responding to oil spills and the
           factors that affect major oil spills costs. Additionally, we
           interviewed industry experts and a vessel insurer about the
           factors that affect major oil spill costs. To determine the
           implications of major oil spills on the Fund, we interviewed
           agency officials from the NPFC and the Coast Guard as well as
           vessel insurers and industry experts to get the private sector's
           perspective on the major oil spills' impact on the Fund. In
           addition, we reviewed recent Coast Guard reports to Congress on
           the status of the Fund and limits of liability.^5

           Lastly, we conducted in-depth reviews of five oil spills. The
           spills were selected to represent a variety of factors that
           potentially affect the costs of spills--geography, oil type, and
           spill volume. During this review, we interviewed the NPFC case
           officers who were involved with each spill, state agency
           officials; insurance companies; and private-sector companies, such
           as oil spill response organizations that were involved in the
           spill and the spill response. To the best of our ability, we
           attempted to interview the responsible parties involved in each
           spill. We were able to speak with one vessel operator. Our
           interviews were designed to gain perspectives on the response
           effort for each spill, the factors that contributed to the cost of
           the spill, and what actual costs were incurred by the responsible
           party. Finally, we also conducted a file review of NPFC records of
           federal response activities, removal costs, and damage claims made
           to the Fund for each of the five spills we reviewed in-depth.

           We conducted our review from July 2006 through August 2007 in
           accordance with generally accepted government auditing standards,
           including standards for data reliability.
			  
^5U.S. Coast Guard, Report on Oil Pollution Act Liability Limits,( Jan. 5,
2007); U.S. Coast Guard, Oil Spill Liability Trust Fund (OSLTF) Funding
for Oil Spills, (January 2006); U.S. Coast Guard, Report on Implementation
of the Oil Pollution Act of 1990, (May 2005).

           Appendix II: Comments from the Department of Homeland Security
			  
			  Appendix III: GAO Contact and Staff Acknowledgments
			  
			  GAO Contact

           Susan Fleming, (202) 512-4431 or [email protected]
			  
			  Staff Acknowledgments

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           Director; Michele Fejfar; Simon Galed; H. Brandon Haller; David
           Hooper; Anne Stevens; Stan Stenersen; and Susan Zimmerman made key
           contributions to this report.
			  
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[44]www.gao.gov/cgi-bin/getrpt?GAO-07-1085 .

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Highlights of [45]GAO-07-1085 , a report to congressional committees

September 2007

MARITIME TRANSPORTATION

Major Oil Spills Occur Infrequently, but Risks to the Federal Oil Spill
Fund Remain

When oil spills occur in U.S. waters, federal law places primary liability
on the vessel owner or operator--that is, the responsible party--up to a
statutory limit. As a supplement to this "polluter pays" approach, a
federal Oil Spill Liability Trust Fund administered by the Coast Guard
pays for costs when a responsible party does not or cannot pay.

The Coast Guard and Maritime Transportation Act of 2006 directed GAO to
examine spills that cost the responsible party and the Fund at least $1
million. This report answers three questions: (1) How many major spills
(i.e., $1 million or more) have occurred since 1990, and what is their
total cost? (2) What factors affect the cost of spills? and (3) What are
the implications of major oil spills for the Oil Spill Liability Trust
Fund? GAO's work to address these objectives included analyzing oil spill
costs data, interviewing federal, state, and private-sector officials, and
reviewing Coast Guard files from selected spills.

[46]What GAO Recommends

GAO recommends that the Coast Guard (1) determine whether and how
liability limits should be changed, by vessel type, and make
recommendations about these changes to the Congress and (2) adjust the
limits of liability for vessels every 3 years to reflect changes in
inflation, as appropriate.

DHS officials generally agreed with the contents and agreed with the
recommendations in this report.

On the basis of cost information collected from a variety of sources, GAO
estimates that 51 spills with costs above $1 million have occurred since
1990 and that responsible parties and the federal Oil Spill Liability
Trust Fund (Fund) have spent between about $860 million and $1.1 billion
for oil spill removal costs and compensation for damages (e.g., lost
profits and natural resource damages). Responsible parties paid between
about 72 percent and 78 percent of these costs; the Fund has paid the
remainder. Since removal costs and damage claims may stretch out over many
years, the costs of the spills could rise. The 51 spills, which constitute
about 2 percent of all vessel spills since 1990, varied greatly from year
to year in number and cost.

Three main factors affect the cost of spills: a spill's location, the time
of year, and the type of oil spilled. Spills that occur in remote areas,
for example, can increase costs involved in mobilizing responders and
equipment. Similarly, a spill occurring during tourist or fishing season
might produce substantial compensation claims, while a spill occurring
during another time of year may not be as costly. The type of oil affects
costs in various ways: fuels like gasoline or diesel fuel may dissipate
quickly but are extremely toxic to fish and plants, while crude oil is
less toxic but harder to clean up. Each spill's cost reflects a unique mix
of these factors.

To date, the Fund has been able to cover costs from major spills that
responsible parties have not paid, but risks remain. Specifically, the
Coast Guard and Maritime Transportation Act of 2006 increased liability
limits, but GAO's analysis shows the new limit for tank barges remains low
relative to the average cost of such spills. Since 1990, the Oil Pollution
Act required that liability limits be adjusted above the limits set forth
in statute for significant increases in inflation, but such changes have
never been made. Not making such adjustments between 1990 and 2006
potentially shifted an estimated $39 million in costs from responsible
parties to the Fund.

Location and Cost of Major Oil Spills, 1990-2006

References

Visible links
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-04-340R
  35. http://www.gao.gov/cgi-bin/getrpt?GAO-04-114R
  36. http://www.gao.gov/
  37. mailto:[email protected]
  38. http://www.gao.gov/
  39. http://www.gao.gov/
  40. http://www.gao.gov/fraudnet/fraudnet.htm
  41. mailto:[email protected]
  42. mailto:[email protected]
  43. mailto:[email protected]
  44. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1085
  45. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1085
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