Instead of Making the Permit-orium Official, Congress Should Try Real Reform

by Nicolas Loris

Since it’s taking such a long time to issue permits for oil and gas exploration, why not make it law?

Congress is using the continuing resolution (CR) to triple the amount of time the federal government spends reviewing exploration plans, from 30 days to 90 days, which effectively codifies the permit-orium that we have seen since the BP oil spill. Maybe the oil and gas industry should be cracking champagne bottles, since 90 days is less than the current (de facto) level, more than 180 days.

Senators Mary Landrieu (D., La.) and Lisa Murkowski (R., Alaska) call the increase in time “unnecessary” in a letter objecting to that section of the CR. “Unnecessary” doesn’t even begin to describe it. Extending the government’s statutory review period is a reckless, politicized policy, an attempted hand-holding for the Gulf’s struggling economy with no legitimate reason behind it.

Yes, an oil spill occurred. People have not forgotten it. It’s easy from a PR standpoint to say we need newer and tougher regulations and a longer review process to prevent such catastrophes. But even shortly after the spill, seven experts from National Academy of Engineering said that a blanket moratorium was not the answer, that it would not significantly reduce the risks of offshore drilling, and that it would punish the innocent. The administration’s ban went forward anyway, punishing deepwater and shallow-water drillers.

Now, with tightened rules on offshore drilling, regulators have been quick to blame the drillers. It’s true that companies had difficulty figuring out the intricacies of the new rules. But that excuse won’t hold water any longer: The International Energy Agency reports that drilling requests are increasing.

With a more appropriate approach, the government could promote safety, allow offshore drilling to continue as it should, and at the same time fix the broken liability system for offshore oil and gas regulators — something politicians were eager to address when the spill first occurred. The liable party’s responsibility for clean-up costs should remain law. Other parts of the current system — such as the $75 million cap on liability for the secondary costs stemming from offshore oil and gas accidents — should be rethought, since they do not sufficiently align risk and liability with individual behavior, bur rather socialize risk by spreading the costs across the entire industry.

Congress should create a new regime that:

Removes the $75 million liability cap and replaces with a tiered system that relies on private insurance to cover liability for normal operations up to $1 billion;

Replaces the Oil Spill Liability Trust Fund with an industry-funded, private, voluntary pooled insurance fund for claims over $1 billion. The claims process will ensure that legitimate claims are fully and efficiently paid while protecting responsible parties from frivolous lawsuits;

Tasks private risk assessors to determine liability-coverage requirements for specific offshore oil and gas operations (exploration, extraction, transportation, etc). Professional risk assessors are better prepared to make objective, informed calculations of risk than government bureaucrats and politicians; and

Requires companies to demonstrate an ability to insure against the liability risk associated with operations in federal waters. The means for meeting liability coverage may include (this list is not comprehensive) self-insurance, insurance pools, dedicated assets, or private insurance policies.

In addition, industry should create an Organization for Offshore Safety Operations (OOSO) to collect/distribute safety data, establish and certify best practices, and share information, as appropriate, with federal regulators. Third-party monitoring would reduce corner-cutting and provide sufficient response time to anomalies. Further, safety certifications from such an organization could inform insurance premiums and risk assessments. This is a regime that works for the private sector and the government. It promotes safety, assigns full liability, protects the taxpayer, and allows offshore gas and oil exploration to continue.

— Nicolas Loris is a research associate at the Heritage Foundation’s Roe Institute for Economic Policy Studies.

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