Maritime Transportation: Major Oil Spills Occur Infrequently, but
Risks Remain (18-DEC-07, GAO-08-357T).				 
                                                                 
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. This testimony is based
on GAO's September 2007 report on oil spill costs and select	 
program updates on the recent San Francisco spill. Specifically, 
it answers three questions: (1) How many major spills (i.e., at  
least $1 million) 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?						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-357T					        
    ACCNO:   A79029						        
  TITLE:     Maritime Transportation: Major Oil Spills Occur	      
Infrequently, but Risks Remain					 
     DATE:   12/18/2007 
  SUBJECT:   Cost analysis					 
	     Environmental cleanups				 
	     Military cost control				 
	     Oil pollution					 
	     Oil spills 					 
	     Pollution						 
	     Pollution control					 
	     Risk assessment					 
	     Trust funds					 
	     Cost estimates					 
	     Operations and maintenance costs			 
	     Program costs					 
	     Program implementation				 
	     Oil Spill Liability Trust Fund			 

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GAO-08-357T

   

     * [1]Summary
     * [2]Background
     * [3]Oil Spills Costing At Least $1 Million Occurred Infrequently
     * [4]Key Factors Affect Oil Spill Costs in Unique Ways

          * [5]Location Impacts Costs in Different Ways
          * [6]Time of Year Has Impact on Local Economies and Response Effo
          * [7]Type of Oil Spilled Impacts the Extent of the Response Effor
          * [8]Other Factors Also Affect Spill Costs
          * [9]Key Factors Will Likely Influence Cost of San Francisco Spil

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

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

               * [12]Some Recent Adjustments to Liability Limits Do Not
                 Reflect t

          * [13]Liability Limits Have Not Been Adjusted for Inflation
          * [14]Certification of Compliance with the New Liability Limits Is
          * [15]Other Challenges Could Also Affect the Fund's Condition

     * [16]Concluding Observations
     * [17]Contact Information
     * [18]GAO's Mission
     * [19]Obtaining Copies of GAO Reports and Testimony

          * [20]Order by Mail or Phone

     * [21]To Report Fraud, Waste, and Abuse in Federal Programs
     * [22]Congressional Relations
     * [23]Public Affairs

Testimony

Before the Subcommittee on Oceans, Atmosphere, Fisheries, and Coast Guard,
Committee on Commerce, Science and Transportation, U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery
Expected at 2:30 p.m. EST
Tuesday, December 18, 2007

MARITIME TRANSPORTATION

Major Oil Spills Occur Infrequently, but Risks Remain

Statement of Susan A. Fleming, Director
Physical Infrastructure Issues

GAO-08-357T

Madame Chair and Members of the Subcommittee:

We appreciate the opportunity to be here today to discuss the costs of
major oil spills. As the recent accident in San Francisco Bay illustrates,
the potential for an oil spill exists daily across coastal and inland
waters of the United States. Specifically, on November 7, 2007, a cargo
ship leaving the Port of Oakland struck the San Francisco-Oakland Bay
Bridge, tearing the hull of the ship. As a result, over 50,000 gallons of
heavy oil spilled into the bay.^1 The total cost of cleaning up the spill,
as well as the damage to marine wildlife and fisheries is still
undetermined. As this spill also illustrates, the potential for costly
spills is present for vessels other than tankers and tank barges involved
in the petroleum industry. Cargo, fishing, and other types of vessels also
carry substantial fuel reserves and accidents can release this fuel and
create substantial damage. Spills can be expensive, with considerable
costs to the federal government and the private sector.

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. However, there are 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
peak of $1.2 billion in 2000. The decline in the Fund's balance primarily
reflects an expiration of the barrel tax on petroleum in 1994. The tax was
not reinstated until 2005.

^1As of December 4, 2007, about 20,000 gallons of oil had been recovered.

^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.

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.

Although we have not assessed the November 2007 San Francisco oil spill in
depth, we have done considerable work looking at the cost of major spills
in recent years and the factors that contribute to making spills
particularly expensive to clean up and mitigate. My remarks today are
intended to provide a context for looking at the nation's approach to
paying the costs of such spills. Specifically, my testimony today focuses
on (1) the number of major oil spills--i.e., spills for which the total
costs and claims paid was at least $1 million--from 1990 to 2006 and the
total costs of these spills, (2) the factors that affect major oil spill
costs, and (3) the implications of major oil spill costs for the Oil Spill
Liability Trust Fund. ^3 My comments are based primarily on our September
2007 report on oil spill costs, which was issued to the Senate Committee
on Commerce, Science, and Transportation and the House Committee on
Transportation and Infrastructure.^4 In preparing our September report, 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 through contract with Environmental Research
Consulting.^5 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. 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 report. We also conducted additional
research and interviewed NPFC officials to update our September 2007
report's findings and to gather information on the recent oil spill in San
Francisco Bay. We conducted this work in December 2007 in accordance with
generally accepted government auditing standards.

^3The 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 our work, however, we defined major spills as spills with
total removal costs and damage claims that exceed $1 million.

^4GAO, Maritime Transportation: Major Oil Spills Occur Infrequently, but
Risks to the Federal Oil Spill Fund Remain, [24]GAO-07-1085 (Washington,
D.C.: Sept. 7, 2007). 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.

Summary

We estimate that from 1990 to 2006, 51 oil spills have involved removal
costs and damage claims totaling at least $1 million. Collectively, from
public and nonpublic sources, 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 from 1990 to 2006,
varied greatly from year to year in number and cost and showed no
discernible trends in frequency or size. All vessel types were involved
with the 51 major spills we identified--with cargo/freight vessels and
tank barges involved with 30 of the 51 spills.

^5Environmental 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.

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.^6 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. Lighter oils
such as gasoline or diesel fuels dissipate and evaporate
quickly--requiring minimal cleanup--but are highly toxic and create severe
environmental impacts. Heavier oils such as crude oil 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. Although the total costs of the San Francisco
spill are unknown, some of the same key factors such as location and oil
type will likely have an impact on the costs of the spill.

^6Another 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 for two main reasons, 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 Congress on
whether adjustments to limits are necessary to help protect the Fund.^7 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 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. The Coast Guard, which has been delegated the authority to adjust
limits for significant increases in inflation, has not indicated whether
it will exercise its authority to adjust liability limits in the future.
Aside from 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.

^7OPA 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.

In our September 2007 report, we recommended 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. The Department of
Homeland Security (DHS), including the Coast Guard, generally agreed with
the report's contents and agreed with the recommendations. To date, the
Commandant of the Coast Guard has not implemented these recommendations.

Background

With more than 100,000 commercial vessels navigating U.S. waters and 12.2
million barrels of oil being imported into the United States each day,
some oil spills in domestic waters are inevitable. Fortunately, however,
spills 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 places the primary burden of liability and the costs of oil spills on
the vessel owner and operator who were responsible for the spill.^8 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. (See fig. 1 for the limits of liability by vessel
type.) 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.^9
The Coast Guard is responsible for adjusting limits for significant
increases in inflation and for making recommendations to Congress on
whether other
adjustments are necessary to help protect the Fund.^10 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.^11

^8OPA 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.

^9When 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.

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 regard to
expenditures.^12 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. 2). 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.^13 As a result, the Fund balance was
$604.4 million at the end of fiscal year 2006.^14 The Energy Policy Act of
2005 reinstated the barrel tax beginning in April 2006.^15 With the barrel
tax once again in place, NPFC anticipates that the Fund will be able to
cover potential noncatastrophic liabilities.

^10Title VI of the Coast Guard and Maritime Transportation Act of 2006.
Public Law 109-241, S 603 (c)(3).

^1133 C.F.R. S138. The U.S. Exclusive Economic Zone extends 200 nautical
miles offshore.

^12The 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. Congress created the Fund in 1986 but did not
authorize collection of revenue or use of the money until it passed OPA in
1990.

^13The 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.

^14Recent related GAO products include GAO, U.S. Coast Guard National
Pollution Funds Center: Improvements Are Needed in Internal Control Over
Disbursements, [25]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, [26]GAO-04-114R (Washington, D.C.: Oct. 3,
2003).

^15The Energy Policy Act of 2005. Public Law 109-58 S1361. The barrel tax
is scheduled to be in place until 2014.

Figure 2: 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 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:

           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. 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.^16

           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 become bankrupt or
           dissolved. Based on our analysis of NPFC records, responsible
           parties have reimbursed the majority--about 65 percent--of the
           Fund's costs for the 51 spills.^17

           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.^18 Appendix I contains additional information on the
           parties involved in spill response.
			  
			  Oil Spills Costing At Least $1 Million Occurred Infrequently Between
			  1990 and 2006, 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 at least $1 million have occurred from 1990 to
           2006. During this period, 3,389 oil spills occurred in which one
           or more parties sought reimbursement from the Fund. The 51 major
           spills represent less than 2 percent of this total.^19 As figure 3
           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.

^16OPA 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.

^17Our analysis excluded the spills with limit of liability claims.

^18The 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.

Figure 3: 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 and involved a range of
vessel types. The spills occurred on the Atlantic, Gulf, and Pacific
coasts and include spills both in open coastal waters and inland
waterways. In addition, as figure 4 shows, 30 of the 51 spills involved
cargo/freight vessels and tank barges, 12 involved fishing and other types
of vessels, and 9 involved tanker vessels.

^19We established the universe of major oil spills from 1990 to 2006,
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 vessels insurers, and in contract with Environmental Research
Consulting.

Figure 4: Major Oil Spills From 1990 to 2006, By Vessel Type

The total cost of the 51 spills cannot be precisely determined because
private-sector expenditures are not tracked,^20 the various parties
involved in covering these costs do not categorize them uniformly, and
spills costs are somewhat fluid and accrue over time. 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.

^20Under 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.

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 Trust 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 of these 51 spills varied widely by spill, and therefore, by
           year (see fig. 5). 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 5: 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.^21 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. In ways that
are unique to each spill, these factors can affect the breadth and
difficulty of the response effort or the extent of damage that requires
mitigation.

^21Another 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.

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.
           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.
           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.
			  
			  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 clean-up, or because there are
           stricter standards for clean up, which increase the costs.

           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.
			  
			  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. 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 1).

Table 1:  Description of Different Oil Types

In  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.

Oil type: Very light oils; (Jet fuels, gasoline); 
Removal and response: Highly volatile (they will evaporate within 1-2 
days). It is rarely possible to clean up the oil from such spills; 
Environmental impact: Highly toxic: Can cause severe impacts to 
shoreline resources. 

Oil type: Light oils; (Diesel, No. 2 fuel oil, light crudes); 
Removal and response: Moderately volatile, but will leave a residue 
after a few days. Cleanup can be very effective for these spills; 
Environmental impact: Moderately toxic: Has the potential to create 
long-term contamination of shoreline resources. 

Oil type: Medium oils; (Most crude oils); 
Removal and response: Some oil (about one-third) will evaporate in 24 
hours. Cleanup most effective if conducted quickly; 
Environmental impact: Less toxic: Oil contamination of shoreline can be 
severe and long-term, and can have significant impacts to waterfowl and 
fur-bearing mammals. 

Oil type: Heavy oils; (Heavy crude oils, No. 6 fuel oil, bunker C 
fuel); 
Removal and response: Little or no oil will evaporate. Cleanup is 
difficult; 
Environmental impact: Less toxic: Heavy contamination of shoreline 
resources is likely, with severe impacts to waterfowl and fur-bearing 
mammals through coating and ingestion. 

Source: NOAA.

Lighter oils such as jet fuels, gasoline, and diesel fuel dissipate and
evaporate quickly, and as such, often require minimal cleanup. However,
these oils are highly toxic and can severely affect the environment 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.^22 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.

Heavier oils, such as crude oils and other heavy petroleum products are
less toxic than lighter oils but can also have severe environmental
impacts. Medium and heavy oils do not evaporate much, even during
favorable weather conditions, 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 clean
up, 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.^23 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.

Other Factors Also Affect Spill Costs

Some industry experts cited two other factors as also affecting costs
incurred during a spill.

           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 said the level of experience of
           those involved in the incident command is critical to the
           effectiveness of spill response. For example, they said 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. Several officials 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.
			  
^22National Research Council of the National Academies, Oil in the Sea
III: Inputs, Fates, and Effects (Washington, D.C.: 2003).

^23Lightering 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 Public interest: Several officials with whom we spoke stated
           that the 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.
			  
			  Key Factors Will Likely Influence Cost of San Francisco Spill

           The total costs of the San Francisco spill are currently unknown.
           According to NPFC officials, as of December 4, 2007, the Unified
           Command estimated that $48 million had been spent on the response,
           which includes approximately $2.2 million from the Fund.^24 The
           total costs will not likely be known for a while, as it can take
           many months or years to determine the full effect of a spill on
           natural resources and to determine the costs and extent of the
           natural resource damage. Our work for this testimony did not
           include a thorough evaluation of the factors affecting the spill.
           However, some of the same key factors that have influenced the
           cost of 51 major oil spills will likely have an effect on the
           costs in the San Francisco spill. For example, the spill occurred
           in an area close to shore, which caused the closing of as many as
           22 beaches, according to Coast Guard officials. A weather-related
           factor was that the spill occurred during dense fog, which
           complicated efforts to determine how much of an area the spill
           covered. Moreover, the cargo ship spilled a heavy
           oil--specifically intermediate fuel oil--that requires
           particularly intensive shoreline and structural clean-up, and
           harmed scores of birds and marine mammals through coating and
           ingestion.^25 Concerns have also been raised about the
           effectiveness of the spill response and incident command, another
           of the factors cited as contributing to increased costs. The
           National Transportation Safety Board, the Coast Guard, as well as
           other government agencies, are currently investigating the details
           of the accident and the subsequent response.
			  
^24According to NPFC officials, the OPA limit of liability for this
vessel, if the limit applies under the circumstances of the spill, is
approximately $61.8 million.

^25Intermediate fuel oil is a common diesel fuel used to power marine
vessels.

           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. Specifically,
           the current 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. Aside from issues related to limits of
           liability, the Fund faces other potential drains on its resources,
           including ongoing claims from existing spills.
			  
			  Further Attention to Limits of Liability Is Needed

           The Fund has been able to cover costs from major spills that
           responsible parties have not paid, but additional focus on limits
           of liability is warranted. 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. Major oil spills that exceed a vessel's limit of
           liability are infrequent, but their impact on the Fund can be
           significant. Ten of the 51 major oil spills that occurred since
           1990 resulted in limit-of-liability claims on the Fund.^26 These
           limit-of-liability claims totaled more than $252 million and
           ranged from less than $1 million to more than $100 million.
           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.^27

           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.
			  
^26Additional 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.

^27This 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.

             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 2 for a comparison of amounts by vessel
           category).^28 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.

Table 2: Comparison of Limits of Liability as Established in OPA (1990)
and the Coast Guard and Maritime Transportation Act (2006)

Vessel types: Single-hull tankers and tank barges; 
1990 Limit of liability: Vessels greater than 3,000 gross tons: the 
greater of $1,200 per gross ton or $10 million; 
2006 Limit of liability: Vessels greater than 3,000 gross tons: the 
greater of $3,000 per gross ton or $22 million. 

Vessel types: Single-hull tankers and tank barges; 
1990 Limit of liability: Vessels less than or equal to 3,000 gross 
tons: the greater of $1,200 per gross ton or $2 million; 
2006 Limit of liability: Vessels less than or equal to 3,000 gross 
tons: the greater of $3,000 per gross ton or $6 million. 

Vessel types: Single-hull tankers and tank barges; 
1990 Limit of liability: (Single and double-hull tankers and tank 
barges); 
2006 Limit of liability: [Empty].

Vessel types: Double-hull tankers and tank barges; 
1990 Limit of liability: Vessels greater than 3,000 gross tons: the 
greater of $1,200 per gross ton or $10 million; 
2006 Limit of liability: Vessels greater than 3,000 gross tons: the 
greater of $1,900 per gross ton or $16 million. 

Vessel types: Double-hull tankers and tank barges; 
1990 Limit of liability: Vessels less than or equal to 3,000 gross 
tons: the greater of $1,200 per gross ton or $2 million; 
2006 Limit of liability: Vessel types: Vessels less than or equal to 
3,000 gross tons: the greater of $1,900 per gross ton or $4 million. 

Vessel types: Double-hull tankers and tank barges; 
1990 Limit of liability: (Single and double-hull tankers and tank 
barges); 
2006 Limit of liability: [Empty]. 

Vessel types: All other vessels: Cargo vessels, fishing vessels, 
passenger ships; 
1990 Limit of liability: The greater of $600 per gross ton or $500,000; 
2006 Limit of liability: The greater of $950 per gross ton or $800,000. 

Source: Coast Guard and Maritime Transportation Act of 2006.

^28OPA 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.

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. As figure 6
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.^29
Similarly, the 15 major spills involving cargo/freight vessels had an
average spill cost of $67 million, which was lower than both the 1990 and
2006 limits of liability.

^29The 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 6: 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.^30 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 non tank 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.^31 However, the Coast Guard did not recommend explicit changes to
achieve either that 50/50 standard or some other division of
responsibility.

^30U.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.^32 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.^33 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.^34

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.

^31We did not assess the reasonableness of adopting such a standard in
determining liability limits.

^32The 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.

^33Congress 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.

^34OPA 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.

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.^35 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 they said they could not be certain they would meet this goal.

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.^36 For example, 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 1000
           sunken vessels that pose a threat of oil discharge.^37 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 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.^38 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.
			  
^35According 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.

^36Federal 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.			

           Concluding Observations

           In conclusion, 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. However, 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 for spills that exceed the
           responsible parties' limits of liability. Further, to date,
           liability limits have not been regularly 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. Without such actions, oil spills with
           costs exceeding the responsible parties' limits of liability will
           continue to place the Fund at risk. Given these concerns, in our
           September 2007 report, we recommended 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 significant changes in inflation,
           as appropriate. DHS, including the Coast Guard, generally agreed
           with the report's contents and agreed with the recommendations. To
           date, the Commandant of the Coast Guard has not implemented these
           recommendations.
			  
^37Michel, 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.

^38The 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.

           Madame Chair this concludes my statement. I would be pleased to
           answer any questions that you or other Members of the Subcommittee
           may have at this time.
			  
			  Contact Information

           For further information on this testimony, please contact Susan
           Fleming at (202) 512-2834 or [27][email protected] . Individuals
           making contributions to this testimony include Nikki Clowers,
           Assistant Director; Simon Galed; Stan Stenersen; and Susan
           Zimmerman.
			  
			  Appendix I: Information on Spill Response

           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.^1 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: ^2

           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.^3 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.^4

^1The 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.

^2For 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.

^3Although 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 Coast Guard is lead on-scene coordinator in the
coastal zone.

^4State 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.

           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.

           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.

           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.

           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.^5

           At the federal level, the National Oil and Hazardous Substances
           Pollution Contingency Plan provides the framework for responding
           to oil spills.^6 At the port level, each port has an Area
           Contingency Plan, developed by a committee of local stakeholders,
           that calls for a response that is coordinated with both
           higher-level federal plans and lower-level facility and vessel
           plans. The federal plans designate the Coast Guard as the primary
           agency to respond to oil spills on water. The Coast Guard has a
           National Strike Force to provide assistance to efforts by the
           local Coast Guard and other agencies.^7 The Coast Guard also has
           an exercise program--known as the Spills of National Significance
           exercise program--to test national level response capabilities.
           This program is focused on exercising the entire response system
           as the local, regional and national level using large-scale, high
           probability oil and hazardous material incidents that result from
           unintentional causes such as maritime accidents or natural
           disasters. The most recent program exercise, in June 2007, tested
           the response and recovery to an oil and hazardous materials
           release in the wake of a large scale earthquake in the Mississippi
           and Ohio river valleys.
			  
^5These 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; the West of England Ship Owners Mutual Insurance
Association (Luxembourg).
			  
^6The National Oil and Hazardous Substances Pollution Contingency Plan is
a part of a larger plan known as the National Response Plan which covers a
wide variety of contingencies that include natural disasters, major
disasters, and terrorist attacks.

^7The National Strike Force was established in 1973. Originally comprised
of three 17-member strike teams, today's National Strike Force totals over
200 active duty, civilian, and reserve Coast Guard personnel for three
distinct regions--the Atlantic, Gulf and Pacific.

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To view the full product, including the scope
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Highlights of [35]GAO-08-357T , a testimony to the Subcommittee on Oceans,
Atmosphere, Fisheries, and Coast Guard, Committee on Commerce, Science,
and Transportation, U.S. Senate

December 18, 2007

MARITIME TRANSPORTATION

Major Oil Spills Occur Infrequently, but Risks 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.

This testimony is based on GAO's September 2007 report on oil spill costs
and select program updates on the recent San Francisco spill.
Specifically, it answers three questions: (1) How many major spills (i.e.,
at least $1 million) 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?

[36]What GAO Recommends

In our September 2007 report, we recommended that 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 significant changes in inflation, as
appropriate. The Department of Homeland Security, including the Coast
Guard, generally agreed with these recommendations.

On the basis of cost information collected from a variety of sources, GAO
estimates that 51 spills with costs of at least $1 million have occurred
from 1990 to 2006 and that responsible parties and the federal Oil Spill
Liability Trust Fund (Fund) have spent between $860 million and $1.1
billion for oil spill removal costs and compensation for damages (e.g.,
lost profits and natural resource damages). Since removal costs and damage
claims may stretch out over many years, the costs of the spills could
rise. The 51 spills varied greatly from year to year in number and cost.
All vessel types were involved with the 51 major spills GAO identified,
with cargo/freight vessels and tank barges involved with 30 of the 51
spills.

According to industry and agency officials, 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.
The total costs of the recent San Francisco oil spill are unknown, but
these identified factors are likely to influence the costs.

To date, the Fund has been able to cover costs from major spills that
responsible parties have not paid, but risks remain. Specifically, GAO's
analysis shows that the new 2006 limits of liability for tank barges
remain low relative to the average cost of such spills. Since 1990, the
Oil Pollution Act (OPA) 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
  24. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1085
  25. http://www.gao.gov/cgi-bin/getrpt?GAO-04-340R
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-04-114R
  27. mailto:[email protected]
  28. http://www.gao.gov/
  29. http://www.gao.gov/
  30. http://www.gao.gov/fraudnet/fraudnet.htm
  31. mailto:[email protected]
  32. mailto:[email protected]
  33. mailto:[email protected]
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-08-357T
  35. http://www.gao.gov/cgi-bin/getrpt?GAO-08-357T
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