Fuel for Thought

How Is the Fine for an Oil Spill Calculated?

Jul 13 2015 Comments 0

Oil spills can have a devastating impact on the environment, as well as local communities. Those responsible aren’t let off lightly, with governments not hesitating to issue penalties to offenders that don’t comply with regulatory laws. BP is one of the latest companies to feel the sting when it was hit with an $18.7 billion fine in the wake of the 2010 Gulf of Mexico catastrophe. That equates to around $4300 per barrel of oil.

So how are oil spill fines calculated? Read on for an explanation of what factors play a role in influencing the final verdict.

The seriousness of the spill

One of the first factors the court will consider is the overall seriousness of the spill. This encompasses how much oil was spilt, how long the spill lasted, how it affected the environment and whether or not it will continue to do so. For example, U.S. District Judge Carl Barbier recently ruled that BP was responsible for spewing 3.19 million barrels of oil into the Gulf of Mexico over a period of 87 days.

Did the offender profit?

If oil was spilt as a result of the offending party attempting to save money penalties are generally much harsher.

Pinpointing the blame

When companies are accused of negligence and corner cutting, oil spill fines skyrocket. If the spill was caused by an unavoidable incident such as a natural disaster the penalty will be much less severe.

Is the culprit a repeat offender?

If offenders have a history of prior violations the court will be less lenient. When calculating BP’s final fine for the Gulf of Mexico spill the court considered both the 2005 explosion at the Texas City Refinery and the 2006 Prudhoe Bay pipeline rupture in Alaska.

What the offender did to minimise damage

When calculating fines courts look at what offenders have proactively done to minimise the impact of the spill. Money spent during the clean-up effort helps reduce the final fine.

The financial impact of the fine

Judges will consider the size, scale and financial power of a company before issuing a final figure. This includes taking into account the overall economic impact eye-wateringly high fines could have on the economy and company shareholders.

Interested in learning more about how the oil industry is regulated? ‘Meeting Tier 3 Requirements with Ease and Precision’ offers readers an in-depth look at the new lower sulphur level gasoline requirements as outlined by the U.S. Environmental Protection Agency. 

Images sourced via Flickr Creative Commons. Credits: Jay-P

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