Quadruple tax for oil spills? Why not make BP and others insure themselves? 

Congress wants to quadruple the oil-spill tax, the Associated Press reports:

WASHINGTON — Responding to the massive BP oil spill, Congress is getting ready to quadruple — to 32 cents a barrel — a tax on oil used to help finance cleanups. The increase would raise nearly $11 billion over the next decade.

The tax is levied on oil produced in the U.S. or imported from foreign countries. The revenue goes to a fund managed by the Coast Guard to help pay to clean up spills in waterways, such as the Gulf of Mexico.

The tax increase is part of a larger bill that has grown into a nearly $200 billion grab bag of unfinished business that lawmakers hope to complete before Memorial Day. The key provisions are a one-year extension of about 50 popular tax breaks that expired at the end of last year, and expanded unemployment benefits, including subsidies for health insurance, through the end of the year.

As our own Tim Carney explained on The Rachel Maddow Show, we have caps on BP’s liability only because of a deal that the Congress made with oil companies decades ago.

Congress now plans to quadruple the tax and strengthen a program that was probably a bad idea in the first place. It’s important to note that (1) consumers pay for these cleanups one way or the other in the form of higher oil prices, and (2) it’s always going to be the federal government’s responsibility to regulate drilling and force cleanups in federal waters, no matter who pays for it.

But instead of forcing offshore producers to protect themselves with insurance against strict liability for oil spills, Congress imposed an eight-cent-per-barrel tax — not just on offshore producers, but on all oil produced in or imported to the U.S. In exchange for the tax, which started being collected in 1990, the oil companies got caps on liability for economic damages that a major spill might cause.

The money from the tax was supposed to go into a cleanup fund until it hit its statutory maximum, at which point the tax stops being collected for the remainder of the calendar year. That maximum was $1 billion until 2005. In 2005, it became $2.7 billion. Whenever the fund hit its maximum, government is officially giving the offshore producers a free ride with regard to economic damage claims. Wouldn’t it be nice if you could get a deal like that on your car insurance?

So the federal government effectively protects offshore oil producers from having to insure themselves from the risks involved in their venture. It subsidizes them at the expense of other oil producers. And the scheme does not work: Despite the existence of this fund, the government came into this accident unprepared, lacking essential equipment, and has since displayed a noteworthy and ongoing lack of competence.

The only question before Congress’s consideration right now is whether to expand a government program that obviously didn’t work the first time. Don’t believe the politicians when they say they are somehow holding big oil accountable, or making us safer from future spills. They aren’t.

About The Author

David Freddoso

David Freddoso came to the Washington Examiner in June 2009, after serving for nearly two years as a Capitol Hill-based staff reporter for National Review Online. Before writing his New York Times bestselling book, The Case Against Barack Obama, he spent three years assisting Robert Novak, the legendary Washington... more
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