Business & Policy Environmental Policy Oil Pollution Act: Summary and Impact By Maria Marabito Updated June 30, 2021 A dead sea turtle lies next to a rolling tide of crude oil, released following the sinking of the BP Deepwater Horizon drilling rig, along the shore of East Grand Terre Island on June 7, 2010. Benjamin Lowy / Getty Images Share Twitter Pinterest Email Business & Policy Corporate Responsibility Environmental Policy Economics Food Issues The Oil Pollution Act is a piece of legislation created to prevent and address oil spills in U.S. waters. It was passed on August 18, 1990, under President George H. W. Bush in reaction to the Exxon Valdez oil spill, a disaster of a magnitude never before seen in U.S. history. Soon after the Exxon Valdez tragedy, three other oil spills occurred in U.S. waters. The government lacked the resources and knowledge to clean up all four spills effectively, highlighting how unprepared the country was to respond to such events. The Oil Pollution Act addressed many problems related to the response and prevention of future oil pollution in U.S. waters by creating response, liability, and compensation systems to account for vessel and facility-caused oil pollution. The legislation increased federal oversight of oil work and implemented liability clauses to hold companies financially accountable for spills. It also mandated the creation of contingency plans in case such events would occur. The Oil Pollution Act has been successful in decreasing the frequency of oil spills over time. However, its ability to disincentivize future drilling was challenged strongly during the Trump administration as large expansions of leases for oil and gas were proposed. For example, the drilling in Alaska's Arctic National Wildlife Refuge, which has been halted by President Joe Biden, risked spilling oil in freezing waters that could have created an environmental disaster extremely difficult to clean up due to the location and temperature. Nevertheless, the Act led to significant changes in oil production, transportation, and distribution. Summary of the Law Oil floats ashore at the Grand Isle East State Park May 27, 2010 on Grand Isle, Louisiana, after the BP Oil Spill. Win McNamee / Getty Images Oil storage facilities are required to prepare facility response plans. Additional revisions to the Act instructed facility owners or operators to prepare and submit spill response plans to the Environmental Protection Agency. According to the law, oil vessel employees must have specific training and all mitigation efforts should be implemented and proved. Routine mock spill response drills are also required, and if a real spill were to occur, the oil vessel must notify federal, state, and local agencies. Title I of the Act established higher liability limits for spills, up to $1 billion for immediate oil removal and up to $1 billion for damages. The law also expanded what is considered "damages" to include natural resource injury. Under the Oil Pollution Act, the U.S. Coast Guard is responsible for screening the application process for vessels involved with oil transport and collection. Vessel owners are required to provide evidence of financial liability. They must apply to the Coast Guard for a Certificate of Financial Responsibility and acknowledge that they are financially responsible for cleanup and damages caused by an oil spill. The Bureau of Ocean Management (BOEM) enforces all regulations for offshore oil facilities. BOEM mandates evidence of financial responsibility of $150 million for potential liability. If a vessel doesn't comply with the potential liability requirement, it must pay a penalty of $25,000 per day in violation of the Act and may also be forced to terminate all operations. The Act also promoted increased interest for vessel improvements as well as environmental research to determine the impact of oil spills and how to clean them up. Due to developments in technology, new research has made it possible to plot where spilled oil would likely go, how fast it could travel, how much oil could be spilled, and how it could impact the environment. Largest Environmental Fine Ever Paid It is only fitting that the largest oil spill in U.S. history demanded the largest environmental fine ever paid. BP was responsible for the Deepwater Horizon spill and paid $18.7 billion in legal settlements after the U.S. Justice Department, Louisiana, Mississippi, Alabama, Texas, and Florida sued BP for damages not covered by earlier settlements that dealt with businesses and individuals harmed during the spill. Impact Due to increased financial liability, the law disincentivized oil companies to transport or charter oil in their vessels. Some companies began selecting higher quality ships to transport oil for improved safety of delivery. The Act also made financial backers more hesitant to lend large quantities of money to oil companies when vessels are required to show proof of financial liability. Deepwater Horizon (BP Oil Spill) disaster containment efforts. Corbis / Getty Images In addition, the Act led to the creation of natural resource trustees like the U.S. Coast Guard's National Pollution Fund Center, which has secured more than $9.8 billion in oil spill settlements to be used for restoration. According to a Marine Policy report, since the law's implementation, the number and volume of oil spills in U.S. waters have decreased significantly without a major impact on oil prices. However, it is difficult to definitively attribute this to the legislation instead of advances in technology and industry. After the major oil spill, the Deepwater Horizon Commission made several recommendations for how to avoid another environmental disaster, but the mandates requiring Congressional approval never passed despite the media attention following the spill. The recommendations included whistleblower protections, longer periods to review exploration plans, and charging industry fees to support environmental science and regulatory review. Under former President Obama, limitations were implemented for offshore drilling which supported regulations set out in the Oil Pollution Act. However, these limitations were then loosened during the Trump administration. Current Status Several amendments have been made to the Oil Pollution Act since 1990. In 2018, the Coast Guard Authorization Act added several provisions, setting new requirements for oil transfers from vessels, prevention of smaller spills, and the reduction of human error, among other changes. The limits on financial liability are determined by a vessel's tonnage and certain amendments have been made to increase liability, including the Delaware River Protection Provisions (Title VI of the Coast Guard and Maritime Transportation Act of 2006). This law allowed for increased limits to be set on oil spills for single-hull and double-hull tank vessels and non-tank vessels. Bureau of Safety and Environmental Enforcement (BSEE) statistics reveal that an average of 20 oil spills or blowouts occur every year. And according to BOEM, it has been difficult to secure adequate funding for the Pollution Spill Liability Fund during court proceedings after a spill. The fund is administered by the U.S. Coast Guard for natural resource damage assessments and claims. As the U.S. expands its domestic oil production, increased funding and pro-environmental legislation are required to further disincentivize risk oil industry activity.