Maritime Transportation: Major Oil Spills Occur Infrequently, but Risks to the Federal Oil Spill Fund Remain
Published: 2007-09-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: When oil spills occur in U.S. waters, federal law places primary liability on the vessel owner or operator--that is, the responsible party--up to a statutory limit. As a supplement to this "polluter pays" approach, a federal Oil Spill Liability Trust Fund administered by the Coast Guard pays for costs when a responsible party does not or cannot pay. The Coast Guard and Maritime Transportation Act of 2006 directed GAO to examine spills that cost the responsible party and the Fund at least $1 million. This report answers three questions: (1) How many major spills (i.e., $1 million or more) have occurred since 1990, and what is their total cost? (2) What factors affect the cost of spills? and (3) What are the implications of major oil spills for the Oil Spill Liability Trust Fund? GAO's work to address these objectives included analyzing oil spill costs data, interviewing federal, state, and private-sector officials, and reviewing Coast Guard files from selected spills.
section_title: What GAO Found
paragraphs: On the basis of cost information collected from a variety of sources, GAO estimates that 51 spills with costs above $1 million have occurred since 1990 and that responsible parties and the federal Oil Spill Liability Trust Fund (Fund) have spent between about $860 million and $1.1 billion for oil spill removal costs and compensation for damages (e.g., lost profits and natural resource damages). Responsible parties paid between about 72 percent and 78 percent of these costs; the Fund has paid the remainder. Since removal costs and damage claims may stretch out over many years, the costs of the spills could rise. The 51 spills, which constitute about 2 percent of all vessel spills since 1990, varied greatly from year to year in number and cost. Three main factors affect the cost of spills: a spill's location, the time of year, and the type of oil spilled. Spills that occur in remote areas, for example, can increase costs involved in mobilizing responders and equipment. Similarly, a spill occurring during tourist or fishing season might produce substantial compensation claims, while a spill occurring during another time of year may not be as costly. The type of oil affects costs in various ways: fuels like gasoline or diesel fuel may dissipate quickly but are extremely toxic to fish and plants, while crude oil is less toxic but harder to clean up. Each spill's cost reflects a unique mix of these factors. To date, the Fund has been able to cover costs from major spills that responsible parties have not paid, but risks remain. Specifically, the Coast Guard and Maritime Transportation Act of 2006 increased liability limits, but GAO's analysis shows the new limit for tank barges remains low relative to the average cost of such spills. Since 1990, the Oil Pollution Act required that liability limits be adjusted above the limits set forth in statute for significant increases in inflation, but such changes have never been made. Not making such adjustments between 1990 and 2006 potentially shifted an estimated $39 million in costs from responsible parties to the Fund.

section_title: Letter
paragraphs: The potential for an oil spill exists daily across coastal and inland waters  of the United States. In 2005, for example, oil tankers transported over half  of the crude oil that entered the country, and often, barges move  petroleum products to the markets where they are used. The potential for  spills also extends well beyond vessels involved in the petroleum industry.  Cargo, fishing, and other types of vessels also carry substantial fuel  reserves. Accidents, groundings, or collisions can release this fuel and  create substantial damage. Spills can be expensive, with considerable  costs to the federal government and the private sector. The most  expensive spill in U.S. waters, the 1989 Exxon Valdez spill in Alaska, cost  $2.2 billion to clean up, according to ExxonMobil. Less expensive but still  significant spills have occurred since then. For example, in 2004, the  tanker Athos I spilled over 260,000 gallons of crude oil into the Delaware  River; and, according to the Coast Guard, removal costs and damage  claims from this spill have cost more than $120 million to date.
The framework for addressing and paying for maritime oil spills is  identified in the Oil Pollution Act of 1990 (OPA), which was enacted after  the Exxon Valdez spill. OPA created a “polluter pays” system that places  the primary burden of liability and the costs of oil spills on the vessel  owner or operator who was responsible for the spill—that is, the  responsible party—in return for financial limitations on that liability.  Under this system, the responsible party assumes, up to a specified limit,  the burden of paying for spill costs—which can include both removal costs  (cleaning up the spill) and damage claims (restoring the environment and  payment of compensation to parties that were economically harmed by the  spill). Above the specified limit, the responsible party is no longer  financially liable. To pay costs above the limit of liability, as well as to pay  costs when a responsible party does not pay or cannot be identified, OPA  authorized the Oil Spill Liability Trust Fund (Fund), which is financed  primarily from a per-barrel tax on petroleum products either produced in  the United States or imported from other countries. The Fund is  administered by the National Pollution Funds Center (NPFC) within the  U.S. Coast Guard. The balance in the Fund—about $600 million at the end  of fiscal year 2006—is well below its yearly peak of $1.2 billion in 2000.  The decline in the Fund’s balance reflects an expiration of the barrel tax  on petroleum in 1994. The tax was not reinstated until 2005.
While this system is well understood, the costs involved in responding to  oil spills are less clear. Costs paid from the Fund are well documented, but  the party responsible for the spill is not required to report the costs it  incurs. As a result, private-sector and total costs for cleaning up spills and  paying damages are largely unknown to the public. The lack of  information about the cost of spills, the declining Fund balance, and  significant claims made on the Fund—for spills in which the removal costs  and damage claims have exceeded established OPA liability limits—have  all raised concerns about the Fund’s long-term viability.
The Coast Guard and Maritime Transportation Act of 2006 directed us to  conduct an assessment of the cost of response activities and claims  related to oil spills from vessels that have occurred since January 1, 1990,  for which the total costs and claims paid was at least $1 million per spill.  The mandate required that the report summarize the costs and claims for  oil spills that have occurred since January 1, 1990, that total at least $1  million per spill, and the source, if known, of each spill for each year. To  fulfill this requirement, we examined—after consultation with committee  staff—the following questions: (1) How many major oil spills have  occurred since 1990 and what have been the total costs of these spills? (2)  What are the factors that affect major oil spill costs? and (3) What are the  implications of major oil spill costs for the Oil Spill Liability Trust Fund?
To address these questions, we analyzed oil spill removal cost and claims  data from NPFC, the National Oceanic and Atmospheric Administration’s  (NOAA) Damage Assessment, Remediation, and Restoration Program, and  the Department of the Interior’s (DOI) Natural Resource Damage  Assessment and Restoration Program and the U.S. Fish and Wildlife  Service (FWS). We also analyzed cost data obtained from vessel insurers  and in contract with Environmental Research Consulting. We interviewed  NPFC, NOAA, and state officials responsible for oil spill response, as well  as industry experts and representatives from key industry associations and  a vessel owner. In addition, we selected five oil spills on the basis of the  spill’s location, oil type, and spill volume for an in-depth review. During  this review, we interviewed NPFC officials involved in spill response for  all five spills, as well as representatives of private sector companies  involved in the spill and spill response; and we conducted a file review of  NPFC records of the federal oil spill removal activities and costs  associated with spill cleanup. We also reviewed documentation from the  NPFC regarding the Fund balance and vessels’ limits of liability. This  report focuses on oil spills that have occurred since the enactment of  OPA—August 18, 1990—for which removal costs and damage claims  exceeded $1 million, and we refer to such spills as major oil spills.  Because private-sector and total costs for cleaning up spills and paying  damages are not centrally tracked and maintained, we obtained the best  available cost data from a variety of sources, as previously described. We  then combined the information that we collected from these various  sources to develop cost estimates for the oil spills. However, because the  cost data are somewhat imprecise and the data we collected vary  somewhat by source, we present the cost estimates in ranges. The lower  and higher bounds of the range represent the low and high end of cost  information we obtained. Based on reviews of data documentation,  interviews with relevant officials, and tests for reasonableness, we  determined that the data were sufficiently reliable for the purposes of our  study. We conducted our review from July 2006 through August 2007 in  accordance with generally accepted government auditing standards. More  details regarding our scope and methodology can be found in appendix I.
subsections: section_title: Background
paragraphs: The United States is the world’s largest net importer of oil. In 2006, the  United States had net imports of 12.2 million gallons of oil per day, more  than twice as much as Japan and over three times as much as China, the  world’s next largest importers. The transport of oil into the United States  occurs primarily by sea with ports throughout the United States receiving  over 40,000 shipments of oil in 2005. In addition, vessels not transporting  oil, such as cargo and freight vessels, fishing vessels, and passenger ships,  often carry tens of thousands of gallons of fuel oil to power their engines.  With over 100,000 commercial vessels navigating U.S. waters, oil spills are  inevitable. Fortunately, however, they are relatively infrequent and are  decreasing. While oil transport and maritime traffic have continued to  increase, the total number of reported spills has generally declined each  year since 1990.
OPA forms the foundation of U.S. maritime policy as it pertains to oil  pollution. OPA was passed in 1990, following the 1989 Exxon Valdez spill  in Alaska, which highlighted the need for greater federal oversight of  maritime oil transport. OPA places the primary burden of liability and the  costs of oil spills on the vessel owner and operator who was responsible  for the spill. This “polluter pays” system provides a deterrent for vessel  owners and operators who spill oil by requiring that they assume the  burden of spill response, natural resource restoration, and compensation  to those damaged by the spill, up to a specified limit of liability—which is  the amount above which responsible parties are no longer financially  liable under certain conditions. For example, if a vessel’s limit of liability  is $10 million and a spill resulted in $12 million in costs, the responsible  party only has to pay up to $10 million—the Fund will pay for the  remaining $2 million. Current limits of liability, which vary by type of  vessel and are determined by a vessel’s gross tonnage, were set by the  Congress in 2006. The Coast Guard is responsible for adjusting limits for  significant increases in inflation and for making recommendations to the  Congress on whether adjustments are necessary to help protect the Fund.  OPA also requires that vessel owners and operators must demonstrate  their ability to pay for oil spill response up to their limit of liability.  Specifically, by regulation, with few exceptions, owners and operators of  vessels over 300 gross tons and any vessels that transship or transfer oil in  the Exclusive Economic Zone are required to have a certificate of financial  responsibility that demonstrates their ability to pay for oil spill response  up to their limit of liability.
OPA consolidated the liability and compensation provisions of four prior  federal oil pollution initiatives and their respective trust funds into the Oil  Spill Liability Trust Fund and authorized the collection of revenue and the  use of the money, with certain limitations, with regards to expenditures.  The Fund has two major components—the Principal Fund and the  Emergency Fund. The Emergency Fund consists of $50 million  apportioned each year to fund spill response and the initiation of natural  resource damage assessments, which provide the basis for determining the  natural resource restoration needs that address the public’s loss and use of  natural resources as a result of a spill. The Principal Fund provides the  funds for third-party and natural resource damage claims, limit of liability  claims, reimbursement of government agencies’ removal costs, and  provides for oil spill related appropriations. A number of agencies— including the Coast Guard, EPA, and DOI—receive an annual  appropriation from the Fund to cover administrative, operational,  personnel, and enforcement costs. From 1990 to 2006, these  appropriations amounted to the Fund’s largest expense (see fig. 2).
The Fund’s balance has generally declined from 1995 through 2006, and  since fiscal year 2003, its balance has been less than the authorized limit  on federal expenditures for the response to a single spill, which is  currently set at $1 billion (see fig. 3). The balance has declined, in part,  because the Fund’s main source of revenue—a $0.05 per barrel tax on U.S.  produced and imported oil—was not collected for most of the time  between 1993 and 2006. As a result, the Fund balance was $604.4 million  at the end of fiscal year 2006. The Energy Policy Act of 2005 reinstated  the barrel tax beginning in April 2006. With the barrel tax once again in  place, NPFC anticipates that the Fund will be able to cover its projected  noncatastrophic liabilities.
OPA also defines the costs for which responsible parties are liable and for  the costs for which the Fund is made available for compensation in the  event that the responsible party does not pay or is not identified. These  costs, or “OPA compensable” costs, are of two main types:    Removal costs: Removal costs are incurred by the federal government or  any other entity taking approved action to respond to, contain, and clean  up the spill. For example, removal costs include the equipment used in the  response—skimmers to pull oil from the water, booms to contain the oil,  planes for aerial observation—as well as salaries and travel and lodging  costs for responders.
Damages caused by the oil spill: OPA-compensable damages cover a wide  range of both actual and potential adverse impacts from an oil spill, for  which a claim may be made to either the responsible party or the Fund.  (Table 1 provides a brief definition of OPA-compensable removal costs  and damages.) Claims include natural resource damage claims filed by  trustees, claims for uncompensated removal costs and third-party damage  claims for lost or damaged property and lost profits, among other things.
The Fund also covers costs when responsible parties cannot be located or  do not pay their liabilities. NPFC encounters cases where the source of the  spill, and therefore the responsible party is unknown, or where the  responsible party does not have the ability to pay. In other cases, since the  cost recovery can take a period of years, the responsible party may be  bankrupt or dissolved. Based on our analysis of NPFC records, excluding  spills with limit of liability claims, the recovery rate for costs from the 51  major oil spills since 1990 is 65 percent, which means that responsible  parties have paid 65 percent of costs. The 35 percent of nonreimbursed  costs to the Fund for these major spills have amounted to $53.9 million.
Response to large oil spills is typically a cooperative effort between the  public and private sector, and there are numerous players who participate  in responding to and paying for oil spills. To manage the response effort,  the responsible party, the Coast Guard, EPA, and the pertinent state and  local agencies form the unified command, which implements and manages  the spill response. Beyond the response operations, there are other  stakeholders, such as accountants who are involved in documenting and  accounting for costs, and receiving and processing claims. In addition,  insurers and underwriters provide financial backing to the responsible  party. The players involved in responding to and/or paying for major spill  response are as follows:  Government agencies: The lead federal authority, or Federal On-Scene  Coordinator, in conducting a spill response is usually the nearest Coast  Guard Sector and is headed by the Coast Guard Captain of the Port. The  Federal On-Scene Coordinator directs response efforts and coordinates all  other efforts at the scene of an oil spill. Additionally, the on-scene  coordinator issues pollution removal funding authorizations—guarantees  that the agency will receive reimbursement for performing response  activities—to obtain services and assistance from other government  agencies. Other federal agencies may also be involved. NOAA provides  scientific support, monitoring and predicting the movement of oil, and  conducting environmental assessments of the impacted area. The federal,  state, and tribal trustees join together to perform a natural resource  damage assessment, if necessary. Within the Coast Guard, the NPFC is  responsible for disbursing funds to the Federal On-Scene Coordinator for  oil spill removal activities and seeking reimbursement from responsible  parties for federal costs. Additionally, regional governmental entities that  are affected by the spill—both state and local—as well as tribal  government officials or representatives may participate in the unified  command and contribute to the response effort, which is paid for by the  responsible party or are reimbursed by the responsible party or the Fund.
Responsible parties: OPA stipulates that both the vessel owner and  operator are ultimately liable for the costs of the spill and the cleanup  effort. The Coast Guard has final determination on what actions must be  taken in a spill response, and the responsible party may form part of the  unified command—along with the Federal On-Scene Coordinator and  pertinent state and local agencies—to manage the spill response. The  responsible parties rely on other entities to evaluate the spill effects and  the resulting compensation. Responsible parties hire environmental and  scientific support staff, specialized claims adjustors to adjudicate third- party claims, public relations firms, and legal representation to file and  defend limit of liability claims on the Fund, as well as serve as counsel  throughout the spill response.
Qualified individuals: Federal regulations require that vessels carrying oil  as cargo have an incident response plan and, as part of the plan, they  appoint a qualified individual who acts with full authority to obligate funds  required to carry out response activities. The qualified individual acts as a  liaison with the Federal On-Scene Coordinator and is responsible for  activating the incident response plan.
Oil spill response organizations: These organizations are private  companies that perform oil spill cleanup, such as skimming and disposal  of oil. Many of the companies have contractual agreements with  responsible parties and the Coast Guard. The agreements, called basic  ordering agreements, provide for prearranged pricing, response personnel,  and equipment in the event of an oil spill.
Insurers: Responsible parties often have multiple layers of primary and  excess insurance coverage, which pays oil spill costs and claims. Pollution  liability coverage for large vessels is often underwritten by not-for-profit  mutual insurance organizations. The organizations act as a collective of  ship owners, who insure themselves, at-cost. The primary insurers of  commercial vessels in U.S. waters are the Water Quality Insurance  Syndicate, an organization providing pollution liability insurance to over  40,000 vessels, and the International Group of P & I Clubs, 13 protection  and indemnity organizations that provide insurance primarily to foreign- flagged large vessels.
section_title: Oil Spills Costing More than $1 Million Occurred Infrequently Since 1990, but Estimated Costs Total $860 Million to $1.1 Billion
paragraphs: On the basis of information we were able to assemble about responsible  parties’ expenditures and payments from the Fund, we estimate that 51 oil  spills involving removal costs and damage claims totaling $1 million or  more have occurred since 1990. In all, the Fund spent $240 million on  these spills, and the responsible parties themselves spent about $620  million to $840 million, for a total of $860 million to $1.1 billion. The  number of spills and their costs varied from year to year and showed no  discernable trends in either frequency or cost.
subsections: section_title: Less Than 2 Percent of Oil Spills Occurring Since 1990 Were Major Spills
paragraphs: Less than 2 percent of oil spills from vessels, since 1990, had removal costs  and damage claims of $1 million or greater. Each year, there are thousands  of incident reports called into the National Response Center that claim oil  or oil-like substances have been spilled from vessels sailing in coastal or  inland waters in the United States—-but only a small percentage of these  reported incidents are oil spills from vessels that received federal  reimbursement for response efforts. Specifically, there have been 3,389 oil  spills from vessels that sought reimbursement from the Fund for response  efforts. Of these spills, we estimate that 51 were major oil spills. As figure  4 shows, there are no discernable trends in the number of major oil spills  that occur each year. The highest number of spills was seven in 1996; the  lowest number was zero in 2006.
These 51 spills occurred in a variety of locations. As figure 5 shows, the  spills occurred on the Atlantic, Gulf, and Pacific coasts and include spills  both in open coastal waters and more confined waterways.
section_title: Total Cost of Major Spills Ranges from $860 Million to $1.1 Billion, and Responsible Parties Pay the Majority of Costs
paragraphs: The total cost of the 51 spills cannot be precisely determined, for several  reasons:    Private-sector expenditures are not tracked: The NPFC tracks federal  removal costs expended by the Fund for Coast Guard and other federal  agencies’ spill response efforts, but it does not oversee costs incurred by  the private sector. There is also no legal requirement in place that requires  responsible parties to disclose costs incurred for responding to a spill.
The various parties involved in covering these costs do not categorize  them uniformly: For example, one vessel insurer we spoke with separates  total spill costs by removal costs (for immediate spill cleanup) and loss  adjustment expenses, which contain all other expenses, including legal  fees. In contrast, the NPFC tracks removal costs and damage claims in  terms of the statutory definitions delineated in OPA.
Spill costs are somewhat fluid and accrue over time: In particular, the  natural resource and third-party damage claims adjudication processes  can take many years to complete. Moreover, it can take many months or  years to determine the full effect of a spill to natural resources and to  determine the costs and extent of the natural resource injury and the  appropriate restoration needed to repair the damage. For example, natural  resource damage claims were recently paid for a spill that occurred near  Puerto Rico in 1991, over 16 years ago.
Because spill cost data are somewhat imprecise and the data we collected  vary somewhat by source, the results described below will be reported in  ranges, in which various data sources are combined together. The lower  and higher bounds of the range represent the low and high end of cost  information we obtained.
Our analysis of these 51 spills shows their total cost was approximately $1  billion—ranging from $860 million to $1.1 billion. This amount breaks  down by source as follows:    Amount paid out of the Fund: Because the NPFC tracks and reports all  Fund expenditures, the amount paid from the Fund can be reported as an  actual amount, not an estimate. For these 51 spills, the Fund paid a total of  $239.5 million.
Amount paid by responsible parties: Because of the lack of precise  information about amounts paid by responsible parties and the differences  in how they categorize their costs, this portion of the expenditures must  be presented as an estimate. Based on the data we were able to obtain and  analyze, responsible parties spent between $620 million and $840 million.  Even at the low end of the range, this amount is nearly triple the  expenditure from the Fund.
section_title: Costs Vary Widely by Spill and Year
paragraphs: Costs of these 51 spills varied widely by spill, and therefore, by year (see  fig. 6). For example, 1994 and 2004 both had four spills during the year, but  the average cost per spill in 1994 was about $30 million, while the average  cost per spill in 2004 was between $71 million and $96 million. Just as  there was no discernible trend in the frequency of these major spills, there  is no discernible trend in their cost. Although the substantial increase in  2004 may look like an upward trend, 2004 may be an anomaly that reflects  the unique character of two of the four spills that occurred that year.  These two spills accounted for 98 percent of the year’s costs.
section_title: Key Factors Affect Oil Spill Costs in Unique Ways
paragraphs: Location, time of year, and type of oil are key factors affecting oil spill  costs, according to industry experts, agency officials, and our analysis of  spills. Data on the 51 major spills show that spills occurred on all U.S.  coasts, across all seasons, and for all oil types. In ways that are unique to  each spill, however, each of these factors can affect the breadth and  difficulty of the response effort or the extent of damage that requires  mitigation. For example, spills that occur in remote areas can make  response difficult in terms of mobilizing responders and equipment, as  well as complicating the logistics of removing oil—all of which can  increase the costs. Officials also identified two other factors that may  influence oil spill costs to a lesser extent—the effectiveness of the spill  response and the level of public interest in a spill.
subsections: section_title: Location Impacts Costs in Different Ways
paragraphs: The location of a spill can have a large bearing on spill costs because it  will determine the extent of response needed, as well as the degree of  damage to the environment and local economies. According to state  officials with whom we spoke and industry experts, there are three  primary characteristics of location that affect costs:    Remoteness: For spills that occur in remote areas, spill response can be  particularly difficult in terms of mobilizing responders and equipment, and  they can complicate the logistics of removing oil from the water—all of  which can increase the costs of a spill. For example, a 2001 spill in  Alaska’s Prince William Sound—which occurred approximately 40 miles  from Valdez, AK—resulted in considerable removal costs after a fishing  vessel hit a rock and sank to a depth of approximately 1,000 feet.  Response took many days and several million dollars to contain the oil  that was still in the vessel, but the effort was eventually abandoned  because it was too difficult from that depth.
Proximity to shore: There are also significant costs associated with spills  that occur close to shore. Contamination of shoreline areas has a  considerable bearing on the costs of spills as such spills can require  manual labor to remove oil from the shoreline and sensitive habitats. The  extent of damage is also affected by the specific shoreline location. For  example, spills that occur in marshes and swamps with little water  movement are likely to incur more severe impacts than flowing water. A  September 2002 spill from a cargo vessel in the Cooper River near the  harbor in Charleston, SC, spread oil across 30 miles of a variety of  shoreline types. The spill resulted in the oiling of a number of shorebirds  and a temporary disruption to recreational shrimp-baiting in area waters,  among other things. As of July 2007, a settlement for natural resource  damages associated with the spill was still pending.
Proximity to economic centers: Spills that occur in the proximity of  economic centers can also result in increased costs when local services  are disrupted. A spill near a port can interrupt the flow of goods,  necessitating an expeditious response in order to resume business  activities, which could increase removal costs. Additionally, spills that  disrupt economic activities can result in expensive third-party damage  claims. For example, after approximately 250,000 gallons of oil spilled  from a tanker in the Delaware River in 2004, a large nuclear plant in the  vicinity was forced to suspend activity for more than a week. The plant is  seeking reimbursement for $57 million in lost profits.
Overall, for the 51 major oil spills, location had the greatest effect on costs  for spills that occurred in the waters of the Caribbean, followed by the  East Coast, Alaska, and the Gulf states. (See fig. 7). The range of average  per spill costs for the spills that occurred in the East Coast locations  ranged from about $27 million to over $37 million, higher than the average  costs in any other region besides the two spills in Caribbean. The high spill  costs in the East Coast locations were caused by several spills in that  geographic area that had considerably higher costs. Specifically, four of  the eight most expensive spills occurred on the waters off the East Coast.
section_title: Time of Year Has Impact on Local Economies and Response Efforts
paragraphs: The time of year in which a spill occurs can also affect spill costs—in  particular, impacting local economies and response efforts. According to  several state and private-sector officials with whom we spoke, spills that  disrupt seasonal events that are critical for local economies can result in  considerable expenses. For example, spills in the spring months in areas  of the country that rely on revenue from tourism may incur additional  removal costs in order to expedite spill cleanup, or because there are  stricter standards for cleanup, which increase the costs. This situation  occurred in March of 1996 when a tank barge spilled approximately  176,000 gallons of fuel oil along the coast of Texas. Because the spill  occurred during the annual spring break tourist season, the time frames  for cleaning up the spill were truncated, and the standards of cleanliness  were elevated. Both of these factors contributed to higher removal costs,  according to state officials we interviewed.
The time of year in which a spill occurs also affects response efforts  because of possible inclement weather conditions. For example, spills that  occur during the winter months in areas of the country that experience  harsh winter conditions can result in higher removal costs because of the  increased difficulty in mobilizing equipment and personnel to respond to a  spill in inclement weather. According to a state official knowledgeable  about a January 1996 spill along the coast of Rhode Island, extremely cold  and stormy weather made response efforts very difficult.
Although the 51 spills occurred during all seasons of the year, they were  most prevalent in the fall and winter months, with 20 spills occurring in  the fall and 13 spills during the winter, compared with 9 spills in the spring  and 9 in the summer months. On a per-spill basis, the cost range for the  51 spills was highest in the fall (see fig. 8).
section_title: Type of Oil Spilled Impacts the Extent of the Response Effort and the Amount of Damage
paragraphs: The type of oil spilled affects the degree to which oil can be cleaned up  and removed, as well as the nature of the natural resource damage caused  by the spill—both of which can significantly impact the costs associated  with an oil spill. The different types of oil can be grouped into four  categories, each with its own set of impacts on spill response and the  environment (see table 2). For example, lighter oils such as jet fuels,  gasoline, and diesel dissipate quickly, but they are highly toxic, whereas  heavier oils such as crude oils and other heavy petroleum products do not  dissipate much and, while less toxic, can have severe environmental  impacts.
Very light and light oils naturally dissipate and evaporate quickly, and as  such, often require minimal cleanup. However, light oils that are highly  toxic can result in severe impacts to the environment, particularly if  conditions for evaporation are unfavorable. For instance, in 1996, a tank  barge that was carrying home-heating oil grounded in the middle of a  storm near Point Judith, Rhode Island, spilling approximately 828,000  gallons of heating oil (light oil). Although this oil might dissipate quickly  under normal circumstances, heavy wave conditions caused an estimated  80 percent of the release to mix with water, with only about 12 percent  evaporating and 10 percent staying on the surface of the water. The  natural resource damages alone were estimated at $18 million, due to the  death of approximately 9 million lobsters, 27 million clams and crabs, and  over 4 million fish.
Medium and heavy oils do not evaporate much, even during favorable  weather conditions, and thus, can result in significant contamination of  shoreline areas. Medium and heavy oils have a high density and can  blanket structures they come in contact with—boats and fishing gear, for  example—as well as the shoreline, creating severe environmental impacts  to these areas, and harming waterfowl and fur-bearing mammals through  coating and ingestion. Additionally, heavy oils can sink, creating prolonged  contamination of the sea bed and tar balls that sink to the ocean floor and  scatter along beaches. These spills can require intensive shoreline and  structural cleanup, which is time consuming and expensive. For example,  in 1995, a tanker spilled approximately 38,000 gallons of heavy fuel oil into  the Gulf of Mexico when it collided with another tanker as it prepared to  lighter its oil to another ship. Less than 1 percent (210 gallons) of the oil  was recovered from the sea, and as a result, recovery efforts on the  beaches of Matagorda and South Padre Islands were labor intensive, as  hundreds of workers had to manually pick up tar balls with shovels. The  total removal costs for the spill were estimated at $7 million.
Spills involving heavy oil were the most prevalent among the 51 spills; 21  of the 51 major oil spills were from heavy oils. On a per-spill basis, costs  among the 51 spills, varied by type of oil, but the cost ranges for medium  and heavy oils were higher than light and very light oils (see fig. 9).
section_title: Other Factors Also Affect Spill Costs
paragraphs: Although available evidence points to location, time of year, and type of oil  spilled as key factors affecting spill costs, some industry experts reported  that the effectiveness of the spill response and the level of the public  interest can also impact the costs incurred during a spill.
Effectiveness of spill response: Some private-sector officials stated that  the effectiveness of spill response can impact the cost of cleanup. The  longer it takes to assemble and conduct the spill response, the more likely  it is that the oil will move with changing tides and currents and affect a  greater area, which can increase costs. Some officials also stated that the  level of experience of those involved in the incident command is critical to  the effectiveness of spill response, and they can greatly affect spill costs.  For example, poor decision making during a spill response could lead to  the deployment of unnecessary response equipment, or worse, not enough  equipment to respond to a spill. In particular, several private-sector  officials with whom we spoke expressed concern that Coast Guard  officials are increasingly inexperienced in handling spill response, in part  because the Coast Guard’s mission has been increased to include  homeland security initiatives. Additionally, another noted that response  companies, in general, have less experience in dealing with spill response  and less familiarity with the local geography of the area affected by the  spill, which can be critical to determining which spill response techniques  are most effective in a given area. They attributed the limited experience  to the overall decline in the number of spills in recent years. Further, one  private-sector official noted that response companies can no longer afford  to specialize in cleaning up spills alone, given the relatively low number of  spills, and thus, the quality, effectiveness, and level of expertise and  experience diminish over time.
Public interest: Several officials with whom we spoke stated that level of  public attention placed on a spill creates pressure on parties to take action  and can increase costs. They also noted that the level of public interest can  increase the standards of cleanliness expected, which may increase  removal costs. For example, several officials noted that a spill along the  Texas coast in February 1995 resulted in increased public attention  because it occurred close to peak tourist season. In addition to raising the  standards of cleanliness at the beaches to a much higher level than normal  because of tourist season, certain response activities were completed for  primarily aesthetic reasons, both of which increased the removal costs,  according to state officials.
section_title: Fund Has Been Able to Cover Costs Not Paid by Responsible Parties, but Risks Remain
paragraphs: The Fund has been able to cover costs from major spills that responsible  parties have not paid, but risks remain. Although liability limits were  increased in 2006, the liability limits for certain vessel types, notably tank  barges, may be disproportionately low relative to costs associated with  such spills. There is also no assurance that vessel owners and operators  are able to financially cover these new limits, because the Coast Guard has  not yet issued regulations for satisfying financial responsibility  requirements. In addition, although OPA calls for periodic increases in  liability limits to account for significant increases in inflation, such  increases have never been made. We estimate that not making such  adjustments in the past potentially cost the Fund $39 million between 1990  and 2006. Besides issues related to limits of liability, the Fund faces other  potential drains on its resources, including ongoing claims from existing  spills, claims related to already-sunken vessels that may begin to leak oil,  and the threat of a catastrophic spill such as occurred with the Exxon  Valdez in 1989.
subsections: section_title: Further Attention to Limits of Liability Is Needed
paragraphs: Major oil spills that exceed the vessel’s limit of liability are infrequent, but  their impact on the Fund could be significant. Limits of liability are the  amount, under certain circumstances, above which responsible parties are  no longer financially liable for spill removal costs and damage claims. If  the responsible party’s costs exceed the limit of liability, they can make a  claim against the Fund for the amount above the limit. Of the 51 major oil  spills that occurred since 1990, 10 spills resulted in limit of liability claims  on the Fund. The limit of liability claims of these 10 spills ranged from  less than $1 million to over $100 million, and totaled over $252 million in  claims on the Fund. Limit of liability claims will continue to have a  pronounced effect on the Fund. NPFC estimates that 74 percent of claims  under adjudication that were outstanding as of January 2007 were for  spills in which the limit of liability had been exceeded. The amount of  these claims under adjudication was $217 million.
We identified three areas in which further attention to these liability limits  appears warranted: the appropriateness of some current liability limits, the  need to adjust limits periodically in the future to account for significant  increases in inflation, and the need for updated regulations for ensuring  vessel owners and operators are able to financially cover their new limits.
subsections: section_title: Some Recent Adjustments to Liability Limits Do Not Reflect the Cost of Major Spills
paragraphs: The Coast Guard and Maritime Transportation Act of 2006 significantly  increased the limits of liability from the limits set by OPA in 1990. Both  laws base the liability on a specified amount per gross ton of vessel  volume, with different amounts for vessels that transport oil commodities  (tankers and tank barges) than for vessels that carry oil as a fuel (such as  cargo vessels, fishing vessels, and passenger ships). The 2006 act raised  both the per-ton and the required minimum amounts, differentiating  between vessels with a double hull, which helps prevent oil spills resulting  from collision or grounding, and vessels without a double hull (see table 3  for a comparison of amounts by vessel category). For example, the  liability limit for single-hull vessels larger than 3,000 gross tons was  increased from the greater of $1,200 per gross ton or $10 million to the  greater of $3,000 per gross ton or $22 million.
Our analysis of the 51 spills showed that the average spill cost for some  types of vessels, particularly tank barges, was higher than the limit of  liability, including the new limits established in 2006. We separated the  vessels involved in the 51 spills into four types (tankers, tank barges, cargo  and freight ships, and other vessels such as fishing boats); determined the  average spill costs for each type of vessel; and compared the costs with  the average limit of liability for these same vessels under both the 1990  and 2006 limits. As figure 10 shows, the 15 tank barge spills and the 12  fishing/other vessel spills had average costs greater than both the 1990 and  2006 limits of liability. For example, for tank barges, the average cost of  $23 million was higher than the average limit of liability of $4.1 million  under the 1990 limits and $10.3 million under the new 2006 limits. The nine  spills involving tankers, by comparison, had average spill costs of $34  million, which was considerably lower than the average limit of liability of  $77 million under the 1990 limits and $187 million under the new 2006  limits.
In a January 2007 report examining spills in which the limits of liability  had been exceeded, the Coast Guard had similar findings on the adequacy  of some of the new limits. Based on an analysis of 40 spills in which costs  had exceeded the responsible party’s liability limit since 1991, the Coast  Guard found that the Fund’s responsibility would be greatest for spills  involving tank barges, where the Fund would be responsible for paying 69  percent of costs. The Coast Guard concluded that increasing liability limits  for tank barges and nontank vessels—cargo, freight, and fishing vessels— over 300 gross tons would positively impact the Fund balance. With regard  to making specific adjustments, the Coast Guard said dividing costs  equally between the responsible parties and the Fund was a reasonable  standard to apply in determining the adequacy of liability limits.  However, the Coast Guard did not recommend explicit changes to achieve  either that 50/50 standard or some other division of responsibility.
section_title: Liability Limits Have Not Been Adjusted for Inflation
paragraphs: Although OPA requires adjusting liability limits to account for significant  increases in inflation, no adjustments to the limits were made between  1990 and 2006, when the Congress raised the limits in the Coast Guard and  Maritime Transportation Act. During those years, the Consumer Price  Index rose approximately 54 percent. OPA requires the President, who  has delegated responsibility to the Coast Guard, through the Secretary of  Homeland Security, to issue regulations not less often than every 3 years  to adjust the limits of liability to reflect significant increases in the  Consumer Price Index. We asked Coast Guard officials why no  adjustments were made between 1990 and 2006. Coast Guard officials  stated that they could not speculate on behalf of other agencies as to why  no adjustments had been made prior to 2005 when the delegation to the  Coast Guard was made.
The decision to leave limits unchanged had financial implications for the  Fund. Raising the liability limits to account for inflation would have the  effect of reducing payments from the Fund, because responsible parties  would be responsible for paying costs up to the higher liability limit. Not  making adjustments during this 16-year period thus had the effect of  increasing the Fund’s financial liability. Our analysis showed that if the  1990 liability limits had been adjusted for inflation during the 16-year  period, claims against the Fund for the 51 major oil spills would have been  reduced 16 percent, from $252 million to $213 million. This would have  meant a savings of $39 million for the Fund.
section_title: Certification of Compliance with the New Liability Limits Is Not in Place
paragraphs: Certificates of Financial Responsibility have not been adjusted to reflect  the new liability limits. The Coast Guard requires Certificates of Financial  Responsibility, with few exceptions, for vessels over 300 gross tons or any  vessels that are lightering or transshipping oil in the Exclusive Economic  Zone as a legal certification that vessel owners and operators have the  financial resources to fund spill response up to the vessel’s limit of  liability. Currently, Certificate of Financial Responsibility requirements are  consistent with the 1990 limits of liability and, therefore, there is no  assurance that responsible parties have the financial resources to cover  their increased liability. The Coast Guard is currently making Certificates  of Financial Responsibility consistent with current limits of liability. The  Coast Guard plans to initiate a rule making to issue new Certificate of  Financial Responsibility requirements. Coast Guard officials indicated  their goal is to publish a Notice of Proposed Rulemaking by the end of  2007, but the officials said they could not be certain they would meet this  goal.
section_title: Other Challenges Could Also Affect the Fund’s Condition
paragraphs: The Fund also faces several other potential challenges that could affect its  financial condition:    Additional claims could be made on spills that have already been cleaned  up: Natural resource damage claims can be made on the Fund for years  after a spill has been cleaned up. The official natural resource damage  assessment conducted by trustees can take years to complete, and once it  is completed, claims can be submitted to the NPFC for up to 3 years  thereafter. For example, the NPFC recently received and paid a natural  resource damage claim for a spill in U.S. waters in the Caribbean that  occurred in 1991.
Costs and claims may occur on spills from previously sunken vessels  that discharge oil in the future: Previously sunken vessels that are  submerged and in threat of discharging oil represent an ongoing liability to  the Fund. There are over 1,000 sunken vessels that pose a threat of oil  discharge. These potential spills are particularly problematic because, in  many cases, there is no viable responsible party that would be liable for  removal costs. Therefore, the full cost burden of oil spilled from these  vessels would likely be paid by the Fund.
Spills may occur without an identifiable source and therefore, no  responsible party: Mystery spills also have a sustained impact on the  Fund, because costs for spills without an identifiable source—and  therefore no responsible party—may be paid out of the Fund. Although  mystery spills are a concern, the total cost to the Fund from mystery spills  was lower than the costs of known vessel spills in 2001 through 2004.  Additionally, none of the 51 major oil spills was the result of a discharge  from an unknown source.
A catastrophic spill could strain the Fund’s resources: Since the 1989  Exxon Valdez spill, which was the impetus for authorizing the Fund’s  usage, no oil spill has come close to matching its costs. Cleanup costs for  the Exxon Valdez alone totaled about $2.2 billion, according to the vessel’s  owner. By comparison, the 51 major oil spills since 1990 cost, in total,  between $860 million and $1.1 billion. The Fund is currently authorized to  pay out a maximum of $1 billion on a single spill. Although the Fund has  been successful thus far in covering costs that responsible parties did not  pay, it may not be sufficient to pay such costs for a spill that has  catastrophic consequences.
section_title: Conclusions
paragraphs: The “polluter pays” system established under OPA has been generally  effective in ensuring that responsible parties pay the costs of responding  to spills and compensating those affected. Given that responsible parties’  liability is not unlimited, the Fund remains an important source of funding  for both response and damage compensation, and its viability is important.  The Fund has been able to meet all of its obligations, helped in part by the  absence of any spills of catastrophic size. This favorable result, however,  is no guarantee of similar success in the future. Even moderate spills can  be very expensive, especially if they occur in sensitive locations or at  certain times of the year.
Increases in some liability limits appear warranted to help ensure that the  “polluter pays” principle is carried out in practice. For certain vessel types,  such as tank barges, current liability limits appear disproportionately low  relative to their historic spill costs. The Coast Guard has reached a similar  conclusion but so far has stopped short of making explicit  recommendations to the Congress about what the limits should be. Absent  such recommendations, the Fund may continue to pay tens of millions of  dollars for spills that exceed the responsible parties’ limits of liability. As  the agency responsible for the Fund, it is important that the Coast Guard  regularly assess whether and how the limits of liability for all vessel types  should be adjusted—and recommends a course of action to the Congress  on the adjustments that are warranted. Further, to date, liability limits  have not been adjusted for significant changes in inflation. Consequently,  the Fund was exposed to about $39 million in liability claims for the 51  major spills between 1990 and 2006 that could have been saved if the limits  had been adjusted for inflation. Authority to make such adjustments was  specifically designated to the Coast Guard in 2005, and with this clear  authority, it is important for the Coast Guard to periodically adjust the  limits of liability for inflation, as well. Without such actions, oil spills with  costs exceeding the responsible parties’ limits of liability will continue to  place the Fund at risk.
section_title: Recommendations for Executive Action
paragraphs: To improve and sustain the balance of Oil Spill Liability Trust Fund, we  recommend that the Commandant of the Coast Guard take the following  two actions:    Determine whether and how liability limits should be changed, by vessel  type, and make specific recommendations about these changes to the  Congress    Adjust the limits of liability for vessels every 3 years to reflect significant  changes in inflation, as appropriate.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Homeland Security  (DHS), including the Coast Guard and NPFC, for review and comment.  DHS provided written comments, which are reprinted in appendix II. In its  letter, DHS agreed with both recommendations. Regarding our  recommendation that the Coast Guard review limits of liability by vessel  type and make recommendations to the Congress, DHS stated that it has  met the intent of the recommendation by issuing the first of its annual  reports, in January 2007, on limits of liability. As stated in our report,  however, our concern is that the current annual report made no specific  recommendations to the Congress regarding liability limit adjustments.  Therefore, we continue to recommend that in its next annual report to the   Congress on limits of liability, the Coast Guard make explicit  recommendations, by vessel type, on how such limits should be adjusted.  Regarding our recommendation that the Coast Guard adjust the limits of  liability for vessels every 3 years to reflect significant changes in inflation,  DHS stated that the Coast Guard will make adjustments to limits as  appropriate.  In response to other concerns that DHS expressed, we  modified the report to clarify the Coast Guard’s responsibility for adjusting  liability limits in response to Consumer Price Index increases, and to deal  with the Coast Guard’s concern that the report not imply that responsible  parties’ liability is unlimited.
In addition, we provided a draft report to several other agencies—the  Departments of Commerce, Transportation, DOI and EPA—for review and  comment, because some of the information in the report was obtained  from these agencies and related to their responsibilities. The agencies  provided technical clarifications, which we have incorporated in this  report, as appropriate.
We are sending copies of this report to the Departments of Homeland  Security, including the Coast Guard; Transportation, Commerce, DOI, and  EPA; and appropriate congressional committees. We will also make copies  available to others upon request. In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at  flemings@gao.gov or (202) 512-4431. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: To address our objectives, we analyzed oil spill removal cost and claims  data from the National Pollution Funds Center (NPFC); the National  Oceanic and Atmospheric Administration’s (NOAA) Damage Assessment,  Remediation, and Restoration Program; and the Department of the  Interior’s (DOI) Natural Resource Damage Assessment and Restoration  Program; and the U.S. Fish and Wildlife Service (FWS). We also analyzed  data obtained from vessel insurers, and in contract with Environmental  Research Consulting. We interviewed NPFC and NOAA officials and state  officials responsible for oil spill response, as well as industry experts and  representatives from key industry associations and a vessel operator. In  addition, we selected five oil spills that represented a variety of factors  such as geography, oil type, and spill volume for an in-depth review.  During this review, we interviewed NPFC officials involved in spill  response for all five spills, as well as representatives of private-sector  companies involved in the spill and spill response; we also conducted a file  review of NPFC records of the federal response activities and costs  associated with spill cleanup. We also reviewed documentation from the  NPFC regarding the Fund balance and vessels’ limits of liability. Based on  reviews of data documentation, interviews with relevant officials, and  tests for reasonableness, we determined that the data were sufficiently  reliable for the purposes of our study. This report focuses on oil spills that  have occurred since the enactment of OPA—August 18, 1990—for which  removal costs and damage claims exceeded $1 million, and we refer to  such spills as major oil spills. We conducted our review from July 2006  through August 2007 in accordance with generally accepted government  auditing standards.
subsections: section_title: Our Categorization of Oil Spill Costs
paragraphs: For the purposes of this review, we included removal (or response) costs  and damage claims that are considered OPA compensable; that is, the  OPA-stipulated reimbursable costs that are incurred for oil pollution  removal activities when oil is discharged into the navigable waters,  adjoining shorelines, and the Exclusive Economic Zone of the United  States, as well as costs incurred to prevent or mitigate the substantial  threat of such an oil discharge. OPA compensable removal costs include  containment and removal oil from water and shorelines; prevention or  minimization of a substantial threat of discharge; contract services (e.g.,  cleanup contractors, incident management support, and wildlife  rehabilitation); equipment used in removals; chemical testing required to  identify the type and source of oil; proper disposal of recovered oil and  oily debris; costs for government personnel and temporary government  employees hired for the duration of the spill response, including costs for  monitoring the activities of responsible parties; completion of  documentation; and identification of responsible parties. OPA  compensable damage claims include uncompensated removal costs,  damages to natural resources, damages to real or personal property, loss  of subsistence use of natural resources, loss of profits or earning capacity,  loss of government revenues, and increased cost of public services.
section_title: Available Data
paragraphs: In order to present the best available data on spill costs, we gathered cost  information from a number of sources, including federal agencies, vessel  insurance companies and other private-sector companies involved in oil  spill response, and Environmental Research Consulting—a private  consultant.
Federal agencies: We gathered federal data on OPA compensable oil spill  removal costs from the NPFC. Additionally, we gathered federal data on  OPA compensable third-party damage claims from the NPFC, and natural  resource damage claims from NOAA’s Damage Assessment, Remediation,  and Restoration Program, DOI’s Natural Resource Damage Assessment  and Restoration Program, and FWS.
Insurers and other private-sector companies: We collected the best  available data for OPA-compensable removal costs and damage claims  from private-sector sources, including vessel insurers such as the Water  Quality Insurance Syndicate and the International Group of Protection and  Indemnity Clubs; oil spill response organizations, including the Alaska  Chadux Corporation and Moran Environmental Recovery; and a vessel  operator. We made many attempts to contact and interview the  responsible parties involved in the five spills we reviewed in-depth. One  was willing to speak to GAO directly.
Environmental Research Consulting: Environmental Research Consulting  is a consulting firm that specializes in data analysis, environmental risk  assessment, cost analyses, and the development of comprehensive  databases on oil/chemical spills and spill costs. Environmental Research  Consulting supplied cost estimates based on reviews of court documents,  published reports, interviews with responsible parties, and other parties  involved with major oil spills. In addition, Environmental Research  Consulting verified its data collection by relying exclusively on known  documented costs, as opposed to estimated costs. Environmental  Research Consulting, therefore, did not include general estimates of spill  costs, which can be inaccurate.
A complete and accurate accounting of total oil spill costs for all oil spills  is unknown, primarily because there is no uniform mechanism to track  responsible party spill costs, and there are no requirements that private  sector keep or maintain cost records. The NPFC tracks federal costs to the  Coast Guard and other federal agencies, which are later reimbursed by the  Fund, but does not oversee costs incurred by the private sector. There is  also no legal requirement in place that requires responsible parties to  disclose costs incurred for responding to a spill. We cannot be certain that  all private-sector cost information we gathered included only OPA-  compensable costs. However, we explicitly outline which costs are  included in our review. Furthermore, private-sector data were obtained  primarily from insurance companies, and one official told us that  insurance coverage for pollution liability usually defines compensable  losses in the same manner as OPA. For instance, while responsible parties  incur costs ancillary to the spill response, such as public relations and  legal fees, these costs are not generally paid by oil spill insurance policies.  In addition, spill costs are somewhat fluid and accrue over time, making it  sometimes difficult to account for the entire cost of a spill at a given time.  In particular, the natural resource and third-party damage claims  adjudication processes can take many years to complete.
Based on consultation with committee staff, we agreed to present the best  available data for major oil spills between 1990 and 2006, and we  determined that the data gathered were sufficiently reliable for the  purposes of our study. Because of the imprecise nature of oil spill cost  data, and the use of multiple sources of data, the data described in this  report were combined and grouped into cost ranges. Using ranges of costs  to provide upper and lower estimates of total costs and damage claims  allows us to report data on major oil spills from all reliable sources.
section_title: Universe of Major Oil Spills
paragraphs: To establish the universe of vessel spills that have exceeded $1 million in  total removal costs and damage claims since 1990, we used—in  consultation with oil spill experts—a combination of readily available data  and reasoned estimation. Since federal government cost data are available,  we first established an estimate of the probable share of spill costs  between the federal government and the private sector to determine what  amount of federal costs might roughly indicate the total costs were over $1  million. We interviewed Environmental Research Consulting, as well as  agency officials from the NPFC and NOAA, to determine a reasonable  estimated share of costs between the private and public sectors. The  officials with whom we spoke estimated that in general, at least 90 percent  of all spill costs are typically paid by the private sector. Based on that  estimation, any spill with at least $100,000 in federal oil spill removal costs  and damage claims probably cost at least $1 million in total—-that is, 90  percent of the total costs being paid by the private sector, and the  remaining 10 percent paid by the public sector. Therefore, we initially  examined all spills with at least $100,000 in federal oil spill removal costs  and damage claims. We obtained these data on federal oil spill removal  costs and damage claim payments from the NPFC.
Of 3,389 federally managed spills since 1990, there were approximately 184  spills where the federal costs exceeded $100,000. From this group of spills,  we limited our review to spills that occurred after the enactment of OPA  on August 18, 1990. Additionally, we omitted (1) spill events in which costs  were incurred by the federal government for measures to prevent a spill  although no oil was actually spilled and (2) spills of fewer than 100  gallons, where, according to the NPFC, the likelihood of costs exceeding  $1 million was minimal. Lastly, in consultation with Environmental  Research Consulting, we used estimated spill costs and additional  research to determine spills that were unlikely to have had total costs and  claims above $1 million. Through this process, we concluded that since the  enactment of OPA, 51 spills have had costs and claims that have exceeded  $1 million.
section_title: Data Analysis and Case Studies
paragraphs: To assess the costs of oil spills based on various factors, we collected data  from federal government, private sector, and a consultant, and combined  the data into ranges. In addition to collecting data on removal costs and  damage claims, we collected additional information on major oil spills. We  categorized and grouped spill costs based on the vessel type, time of year,  location, and oil type to look for discernable trends in costs based on  these characteristics. We collected information on the limits of liability of  the vessels at the time of the spill and the limits of liability for vessels after  changes in liability limits in the Coast Guard and Maritime Transportation  Act of 2006. In addition, to analyze the effects of inflation on the Fund and  liability limits, using the Consumer Price Index, we calculated what the  limits of liability would have been at the time of each spill if the OPA- stipulated limits had been adjusted for inflation. We used the Consumer  Price Index as the basis for inflationary measures because OPA states that  limits should be adjusted for “significant increases in the Consumer Price  Index.”
In reporting spill cost data by year and by certain categories, we use  ranges, including the best available data. For certain statistics, such as the  public-sector/private-sector cost share, where costs are aggregated for all  spills, we calculated percentages based on the mid-point of the cost  ranges. To test the reliability of using the mid-point of the ranges, we  performed a sensitivity test, analyzing the effects of using mid-point versus  the top and bottom of the cost range. We determined that presenting the  certain figures based on the mid-point of the ranges is reliable and  provides the clearest representation of the data.
To supplement our data analysis and in order to determine the factors that  affect the costs of major oil spills, we interviewed officials from the NPFC,  NOAA, and EPA regarding the factors that affect major oil spill costs. We  also interviewed state officials responsible for oil spill response from  Alaska, California, New York, Rhode Island, Texas, and Washington to  determine the types of costs incurred by states when responding to oil  spills and the factors that affect major oil spills costs. Additionally, we  interviewed industry experts and a vessel insurer about the factors that  affect major oil spill costs. To determine the implications of major oil  spills on the Fund, we interviewed agency officials from the NPFC and the  Coast Guard as well as vessel insurers and industry experts to get the  private sector’s perspective on the major oil spills’ impact on the Fund. In  addition, we reviewed recent Coast Guard reports to Congress on the  status of the Fund and limits of liability.
Lastly, we conducted in-depth reviews of five oil spills. The spills were  selected to represent a variety of factors that potentially affect the costs of  spills—geography, oil type, and spill volume. During this review, we  interviewed the NPFC case officers who were involved with each spill,  state agency officials; insurance companies; and private-sector companies,  such as oil spill response organizations that were involved in the spill and  the spill response. To the best of our ability, we attempted to interview the  responsible parties involved in each spill. We were able to speak with one  vessel operator. Our interviews were designed to gain perspectives on the  response effort for each spill, the factors that contributed to the cost of the  spill, and what actual costs were incurred by the responsible party.  Finally, we also conducted a file review of NPFC records of federal  response activities, removal costs, and damage claims made to the Fund  for each of the five spills we reviewed in-depth.
We conducted our review from July 2006 through August 2007 in  accordance with generally accepted government auditing standards,  including standards for data reliability.
section_title: Appendix II: Comments from the Department of Homeland Security
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Nikki Clowers, Assistant Director;  Michele Fejfar; Simon Galed; H. Brandon Haller; David Hooper; Anne  Stevens; Stan Stenersen; and Susan Zimmerman made key contributions to  this report.