Louisiana is the 800-pound gorilla in BP oil spill litigation.
In a settlement or in a trial, the price that the state of Louisiana may demand from BP could potentially be more that the oil giant can afford. Or, at least that is the contention of some observers.
Louisiana officials contend that the cost of restoring the state’s beaches, wetlands and other natural resources will far exceed widely reported estimates that BP will pay $15 billion to $20 billion to settle federal and state civil claims.
“The dollars that have been reported in the press, there is absolutely no way that you could reconcile that level of funding with the liability that BP has outstanding,” said Garret Graves, executive assistant to Louisiana Gov. Bobby Jindal for coastal activities. “There is no way you can stand up before the people in the Gulf and try to defend those numbers, when you look at what is happening and the natural resource injuries.”
Those injuries are a big part of what could drive up damages due Louisiana, under a provision of the Oil Pollution Act of 1990 that requires a polluter to fund the expense of restoring the environment to its prior condition.
One bone of contention is the amount of oil that came out of the blown Macondo wellhead. The US government contends the well spewed at least 4.9 million barrels (approximately 200 million gallons) of crude. BP disputes the claim, but has not settled on an actual amount released, which is the key factor in an assessment of damages - a dollar figure is attached to each uncontained gallon.
BP officials say, however, that they are ready to defend the company's position in court.
“BP will vigorously defend against those claims, which must be tethered to reality and based on actual environmental and economic damages,” said Scott Dean, a company spokesman.
Graves declined to say how much Louisiana is seeking for its natural resource claims, but cited fines for other oil spills in the last 20 years for comparison.
The settlement for the 1989 Exxon Valdez tanker spill in Alaska’s Prince William Sound came to $5,842 per barrel adjusted for inflation, Graves said.
At that rate, based on the government’s Gulf spill estimate, parties responsible would owe more than $28 billion for natural resource damages alone.
Additional damages to natural resources would be added to the fines under the Clean Water Act, with a higher price tag assessed if gross negligence is found. (I would think that any incident that has already accrued criminal charges could be considered "gross negligence", right?)
The 4.9 billion barrel estimate could yield additional fines under the Clean Water Act of $5 to $20 billion.
But David Uhlmann, a former head of the Justice Department’s environmental-crimes section, says the dollar amount may not reach the levels Louisiana officials demand.
“The natural resources damage claim is likely to be in the single-digit billions, not the double-digit billions,” Uhlmann said. “BP is a very wealthy company but they do not have unlimited resources, and it’s not realistic to expect BP to agree to pay anywhere close to $20 billion for natural resource damages. You can’t extract in settlement negotiations sums of money that a court would never award if the case went to trial and BP lost on every claim.”
In contrast to Clean Water Act fines, natural resources damages are tied an assessment of the actual costs associated with restoring an environment harmed by a spill.
“Under the Clean Water Act, the civil penalties are just that – penalties,” said Blaine LeCesne, a tort law professor at Loyola University, who has closely followed the case. “But the natural resource fines are remedial – they are used to pay for damages.”
One of the drawbacks, as in the Exxon Valdez spill, is that the scope of the total environmental impact may take years to develop. Numerous environmental studies have been undertaken to measure the spill’s effect on animals from microorganisms to whales, and on air and water quality, which would be used to calculate the cost to restore Louisiana's coast. The state is also demanding a “re-opener” agreement, which would give them the right to ask for more money at a later date if additional money is needed for restoration.
In addition to potential environmental impact settlement monies, Louisiana is also making punitive damage claims based on maritime laws, and alleging it lost more than $1 billion in tax revenue as a result of diminished economic activity.
While these claims could add up to a startling total, LeCesne said the individual components all have a strong legal basis, and probably are complicating efforts at negotiating a global settlement between BP and federal and state governments.
“The cost of restoring coastline which has eroded at an accelerated rate, the destruction of the wetlands, the effects on the wildlife and the potential long term effects on the fishing industry – those are very expensive propositions,” LeCesne said.
Well, if you go into negotiations asking for way more than you expect to get, you might come out with more that you'd hoped for.
Wonder what plans Mississippi, Alabama, and Florida might have in the works?
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