Liability for natural resource damages from oil spills: A survey

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This paper provides an overview of the role of oil spill liability in policy at the state, national, and international levels. The primary focus is on damages to publicly owned natural resources from oil spills and associated legislation, policy, and economics. Both US and International Law have evolved over time to provide strict liability for an ever more inclusive set of oil spill damages, including what is termed “pure environmental” damages. This represents arguably the most expansive implementation of the “Polluter Pays Principle”, which makes those who pollute financially responsible for the damages. Under both US and International Law, the primary form of compensation is a set of cost-effective actions to restore environmental damages, which has been termed resource-based compensation, as opposed providing to monetary compensation to injured parties. The framework under US law for liability for publicly owned natural resource damages requires quantification of causal linkages from a spill event, to injury to natural resources, to damages to the public, to natural recovery to baseline conditions, and accelerated recovery under alternative sets of restoration programs. In principle, this is a logical framework to ensure that the public is compensated for spill-related environmental damages. However, carrying out such a program may strain the state-of-the-science at each stage, given the many limitations of our scientific understanding of complex environmental systems. Thus, assessing liability for oil spill damages is a highly challenging endeavor and enormous uncertainties exist at nearly every stage in the process. Furthermore, litigation for oil spill damages is often a high stakes game, where the parties that are principally involved in assessing damages also receive benefits from, or pay the costs of, the damage awards. Thus, the process of assessing damages cannot be viewed as an objective analysis by impartial third parties. Furthermore, this damage assessment process is costly and time consuming, and neither assessment costs nor litigation costs contribute to compensating victims or restoring environmental damages. This raises the question of whether we as a society should rethink the framework for compensation for natural resource damages in future oil spill legislation. Standardized alternatives to traditional tort law exist which may reduce the time and financial costs of litigation and may thereby expedite restoration actions. Furthermore, standardized approaches may not necessarily reduce the accuracy of damage assessments, given the great scientific uncertainties and the financial interests of the parties involved in the damage assessment process.

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International Review of Environmental and Resource Economics