A precedent for Deepwater Horizon
Jeff R Branick
Last year, Jefferson County Commissioners Court marked the 25th anniversary of the Exxon Valdez with a resolution urging that “environmental fine parity” be applied to a Deepwater Horizon penalty settlement. Like most Americans, we recognized that both oil spills were uniquely large-scale damaging events within rich ecosystems. And, in both spills, the federal court found the responsible parties to have operated recklessly.
The “parity fine” concept extrapolates the $1,125,000,000 Exxon Valdez consent decree for all federal and Alaska environmental penalties and adjusts for the size of the Deepwater Horizon spill and for inflation from 1989 to 2010, the years of each spill. The parity fine approach provides a constant dollar “apples to apples” comparison. Without yet knowing the Deepwater Horizon spill volume, our resolution used a range based on BP’s ‘size of spill’ estimate and the federal estimate. Adjusting for volume and inflation produced a range from $15.8 billion to $28.1 billion if BP and responsible parties matched Exxon Corporation’s agreement with President George H.W. Bush’s Justice Department.
When Federal Judge Carl Barbier set Deepwater Horizon’s total at 3.19 million barrels in February, he ruled that it was 12.18 times larger than the Exxon Valdez. Multiplying Exxon’s fine by 12.18 and adjusting for inflation means that Exxon Valdez environmental fine parity for Deepwater Horizon is $24 billion.
While oil spill laws have changed since 1989, Congress didn’t intend to lighten penalties for guilty parties. And while Deepwater Horizon fines are now occurring on three separate legal tracks; criminal, Clean Water Act and Natural Resource Damages, a consent decree could combine all federal environmental fines. Gulf State environmental fine claims would need to be included within the $24 billion to match what the Alaska Department of Law agreed to.
Consent decrees are common in resolving complicated cases and they bring closure by avoiding the appeals process.
Since passage of Jefferson County’s environmental fine parity resolution, 36 other public entities from Texas to Florida have passed parity resolutions urging the U.S. Department of Justice to pursue a consent decree outcome. A timely conclusion to all Deepwater Horizon cases would provide both planning and ‘time value of money’ benefits to coastal counties and parishes and to state and federal agencies overseeing environmental and economic recovery.
BP and its partners have avowed their desire for penalty fairness and full rapid Gulf recovery. If their lawyers can successfully argue that they should pay less than Exxon did, dollar per barrel adjusted for inflation, the consent decree path offers them closure as well.
BP and its partners have already agreed to pay $7 billion in federal fines to the Oil Spill Liability Trust Fund, the Gulf Environmental Benefits Fund, and a Natural Resource Damages account. The Gulf Coast States eagerly await Judge Barbier’s Clean Water Act penalty verdict where the maximum fine would be $13.7 billion. Using the $7 billion already agreed to, a consent decree would allow BP and its well partners to schedule multi-year payments on the remaining $17 billion of a $24 billion parity figure, just as Exxon paid out over a 10-year period. Gulf States would waive additional environmental fine claims.
BP and responsible parties for Deepwater Horizon can use a consent decree process to adjust how much of the pending fines are paid under what federal laws. For example, Natural Resource Damages fines are tax deductible, while Clean Water Act fines are not. Federal and state negotiators can use levers like tax deductibility and payment schedule to incentivize a timely end to a spill penalty process that has already taken over five years.
Both the Exxon Valdez and the Deepwater Horizon spills stand out by the magnitude of their damage. As such, they are disasters of national, even global significance. The Gulf States, all Americans, BP and its well partners have a great stake in a fair, timely resolution of Deepwater Horizon penalties.
As energy exploration continues in the Gulf’s deep waters and expands into the Arctic, the world is watching how America reacts when things go terribly wrong as a result of gross negligence in the quest for oil in sensitive, productive environments. Using the standard of justice that President George H.W. Bush set and Alaska agreed to in the Exxon Valdez consent decree as a precedent for Deepwater Horizon’s environmental fines would add reassurance that the energy industry must meet a high bar when paying for big mistakes.
Jeff R. Branick is County Judge for Jefferson County.