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
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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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
In addition to the contact named above, Nikki Clowers, Assistant
Director; Michele Fejfar; Simon Galed; H. Brandon Haller; David
Hooper; Anne Stevens; Stan Stenersen; and Susan Zimmerman made key
contributions to this report.
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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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