The New Republic

Is the Senate capable of passing anything these days? It turns out that even Harry Reid's stripped-down, near-skeletal energy bill might not survive a Republican filibuster. Here's The Hill's Darren Goode

Republican leaders said Wednesday they cannot support the bill in its current form—mainly due to language retroactively removing a liability cap for oil-and-gas producers—and also want assurances they can offer amendments.

What's this liability fight all about? A quick recap. If a big, wealthy oil giant like BP has one of its rigs go up in flames, and millions of gallons of oil start spurting into the ocean, then the company has to foot the bill for all direct clean-up costs. But that still leaves all the indirect damage to, say, fisheries and wildlife habitats in the area. In that case, under current law, an offshore rig operator is only liable for the first $75 million in damages. After that, the feds pick up the tab, via the Oil Spill Liability Trust Fund paid for by a tiny tax on oil (amounting to one-tenth of 1 percent of the price). Trouble is, that trust fund is pretty tiny—it had about $1.6 billion in it at the start of the Deepwater Horizon disaster—which means the federal government is picking up the rest of the tab.

Reid's energy bill would remove this liability cap entirely (and it would apply retroactively, so it would hit BP). If an oil spill causes billions and billions of dollars in damage to surrounding areas, then the company at fault has to pony up those billions and billions of dollars. If that means bankruptcy, then so be it. Now, oil executives like ConocoPhillips' Jim Mulva are warning that this would force virtually all smaller firms out of the Gulf of Mexico—there's just no way they could get insurance to pay those unlimited costs. And, while many bigger firms might continue to operate in the area, the financial risks could push a great deal of offshore-drilling activity elsewhere—to places like Ghana or the Black Sea.

Republicans, in turn, have offered up a more subtle alternative. Under their proposal, the president could set varying liability limits on individual companies based on factors such as the depth of the drilling project or the company's safety record. Beyond that, the costs of the spill would be shared by all companies drilling offshore, up to $20 billion. And after that, the remainder of the costs are paid out of the oil-spill trust fund. This is all similar to how the Price-Anderson Act deals with nuclear-accident liability. (Meanwhile, a few oil-friendly Democrats like Mary Landrieu and Mark Begich are trying to find a compromise between the two proposals.)

There are arguments for both approaches, but it's a little ironic to see that Republicans are basically proposing a socialized insurance system for oil companies, while Democrats want to leave them to the not-so-tender mercies of the free market. Funny how that works.

(Flickr photo credit: Kris Kros)

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