House Votes to Remove Oil Spill Liability Cap

In an important step towards requiring oil companies to properly manage their risk, the House voted to lift the arbitrary $75m cap that oil companies currently face for oil spill costs.

"The House of Representatives passed legislation Friday which would lift the current $75 million liability cap for oil spills while imposing new safety standards for offshore drilling.

The Senate has yet to act, however, so the prospects for final oil spill and energy legislation are unclear.

The measure was pushed by House Democratic leaders as part of the congressional reaction to the BP oil disaster in the Gulf of Mexico. Top Republicans have opposed the measure, arguing that it will further damage an already-reeling Gulf region economy."

Even though the damage to the Gulf of Mexico that resulted from BP's oil spill a few months ago appears to be contained and may have been oversold to being with, it still makes sense for this bill to ultimately pass, be signed by the President, and become law.

If an oil company wants to reap the fruits of drilling for and finding a new oil and gas field offshore, then they must be willing to assume the full economic risk of the drilling going awry.

That's just pure capitalism, where participants should bear the full benefits and burdens of their activities.

The current artificial $75m ceiling on the liability from an oil spill encourages the short-cutting of safety and environmental stewardship. Currently, taxpayers are in effect on the hook for any costs that exceed the cap, unless (like in BP's case) companies voluntarily agree to pay costs that exceed that cap.

If an oil company wants to drill offshore, they should either have the liquid funds necessary to pay for any resulting clean-up, contract with an insurance company that would provide the necessary clean-up in case of a spill, or simply take the risk that they could lose the company to creditors if things really go wrong.