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.