Chinese Government Foray Into U.S. Gulf Drilling Underscores Need for Oil Spill Liability Reform

Dec. 1, 2011

Chinese Government Foray Into U.S. Gulf Drilling Underscores Need for Oil Spill Liability Reform

Statement of Tyson Slocum, Director, Public Citizen’s Energy Program

News that a Chinese government oil firm may get involved in Gulf of Mexico deepwater drilling highlights an urgent need for Congress to ensure that leaseholders – not taxpayers – are financially responsible for all damages related to oil spill accidents.

The Chinese entity Cnooc has partnered with Nexen, a Canadian company, to secure rights to at least six deepwater Gulf of Mexico leases. This means that U.S. taxpayers could be liable for the majority of spill-related damages caused by a Chinese government-owned company.

This also could constitute a huge taxpayer giveaway to the government of China. Under current law, all leaseholders in offshore drilling need pay no more than $75 million in the event of an oil spill. In the case of the BP Gulf of Mexico disaster, the company voluntarily agreed to set aside $20 billion for oil spill cleanup. It is imprudent policy to assume that companies or foreign governments will enter such a voluntary agreement in future. It must be enshrined in law.

In the wake of the BP disaster, the U.S. House of Representatives passed a measure that would have required companies that drill offshore to be liable for all spill-related damages. This prudent measure would have held oil companies accountable while protecting taxpayers. But it never got off the ground in the Senate because lawmakers caved to lobbying from the oil industry, which strenuously objected to any requirement that oil companies (or in this case foreign governments) be fully liable for cleaning up their messes.

Today’s announcement introduces a new dynamic to this taxpayer risk. Previously, only corporations have seen liabilities capped for oil spills. Now, because of the failure of Congress to act, American taxpayers must bear the bulk of the cost of an oil spill caused by an entity owned the Chinese government. (It is important to note that the current liability cap applies only to accidental spills; in cases of negligence, the cap is not applicable. However, it can take years to determine a finding of negligence and get the company to pay. Absent that finding, taxpayers are on the hook.)

Repeated examples of entrenched interests receiving unfair, generous taxpayer subsidies are what outrages both the Occupy movement on the left and the tea party on the right. The status quo of freeloading at the taxpayer expense must end. Congress must stand up to oil company lobbying and Chinese national government pressure to ensure that oil drillers – not taxpayers – are financially accountable for their accidents.

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