Compensation for natural resource damages from oil spills: A comparison of US law and international conventions

International Journal of Environment and Pollution

Volumn 11, Issue 1, 1999, Pages 86-107

  Jones, Carol Adaire ^a  

^a The INCAE Business School   (Costa Rica)

Author keywords

[No Author keywords available]

Indexed keywords

INTERNATIONAL COOPERATION; LAWS AND LEGISLATION; NATURAL RESOURCES; OIL SPILLS; RISK ASSESSMENT;

NATURAL RESOURCE DAMAGES;

ENVIRONMENTAL PROTECTION;

EID: 0032688304     PISSN: 09574352     EISSN: None     Source Type: Journal    
DOI: 10.1504/IJEP.1999.002251     Document Type: Article

References (58)

1. The focus is on the 'consumer' side of public uses, including the consumption of natural-resource related products as well as non-consumptive uses of natural resources, (e.g., recreation, aesthetics or bequests to future generations). Separate liability provisions cover private claims for lost profit incurred by producers using natural resources in production and for property damage incurred by private property owners. See the discussion in Section 2.2.
2. 2 33 U.S.C. § 2706(c)(1)(C).
3. Some states have similar statutes or may rely on other legal theories to recover for injury to natural resources.
4. 33 U.S.C. § 2706.
5. Federal Water Pollution Control Act (Clean Water Act), 33 U.S.C. § 1321(f)(4) & (5); Deepwater Port Act of 1974, 33 U.S.C. § 1501 (authorizing the trustee to recover for all damages for oil spilled at or in connection with deepwater ports, and to use recoveries to restore or rehabilitate the injured natural resources); Outer Continental Shelf Lands Act Amendment of 1978, 43 U.S.C. § 1813 (authorizing the trustee to recover damages for injury to or destruction of natural resources and to use the money recovered to restore, rehabilitate or acquire the equivalent of such injured resources); and Trans-Alaska Pipeline Authorization Act, 43 U.S.C. § 1653 (allowing public and private parties to recover for damages from spills of oil transported through the Trans-Alaska Pipeline). TAPAA still covers liability for spills of Alaska North Slope crude oil along the pipeline right-of-way.
6. 33 U.S.C. § 2702(a).
7. 33 U.S.C. § 2704(c).
8. Other federal statutes containing natural resource trustee provisions not previously mentioned include the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, more commonly known as Superfund) 42 U.S.C. § 9607; and the National Marine Sanctuaries Act (formerly the Marine Protection, Research, and Sanctuaries Act), 16 U.S.C. § 1443.
9. The public trust doctrine provides that the government hold in trust property and natural resources for the benefit of the public. See Ward, K. and Duffield, J. (1992) Natural Resource Damages: Law & Economics, pp.11-21 for a discussion of the doctrine.
10. Parens patriae is similar to the public trust doctrine and provides the legal basis for a state to assert a claim on behalf of its citizens when their health or welfare is threatened; ref. 9, pp.21-23.
11. See, e.g., Sierra Club v. Department of the Interior, 376 F. Supp. 90 (1974), 398 F. Supp. 284 (N.D.Cal. 1975).
12. The Act further specifies that the President, acting through designated trustees, is to promulgate regulations for the assessment of damages for injury to, destruction of, or loss of natural resources resulting from a release of oil or a hazardous substance for the purposes of both CERCLA and the Federal Water Pollution Control Act. The US Department of the Interior was designated to write the regulations implementing CERCLA; the National Oceanic and Atmospheric Administration (NOAA) of the US Department of Commerce was designated to write the implementing regulations for OPA.
13. 33 U.S.C. § 2706(d).
14. 33 U.S.C. § 2702(b).
15. For other comparative discussions of damage measures, see Sheehan, D.F. (1996) 'OPA 90 and the international regimes concerning oil pollution liability and compensation: are they so far apart, must they remain so?' 1995 International Oil Spill Conference Proceedings, American Petroleum Institute, Washington DC, pp.261-264; Brans, E.H.P., (1994) 'Liability for ecological damage under the 1992 Protocols to the Civil Liability Convention and the Fund Convention, and the Oil Pollution Act of 1990', TMA, Vol. 3, p.63; and Holt, M.G. and Johnson, S. (1996) 'Oil Pollution Act of 1990: cure, catalyst, or catastrophe', 1995 International Oil Spill Conference Proceedings, American Petroleum Institute, Washington DC. pp.713-717.
16. For other comparative discussions of damage measures, see Sheehan, D.F. (1996) 'OPA 90 and the international regimes concerning oil pollution liability and compensation: are they so far apart, must they remain so?' 1995 International Oil Spill Conference Proceedings, American Petroleum Institute, Washington DC, pp.261-264; Brans, E.H.P., (1994) 'Liability for ecological damage under the 1992 Protocols to the Civil Liability Convention and the Fund Convention, and the Oil Pollution Act of 1990', TMA, Vol. 3, p.63; and Holt, M.G. and Johnson, S. (1996) 'Oil Pollution Act of 1990: cure, catalyst, or catastrophe', 1995 International Oil Spill Conference Proceedings, American Petroleum Institute, Washington DC. pp.713-717.
17. For other comparative discussions of damage measures, see Sheehan, D.F. (1996) 'OPA 90 and the international regimes concerning oil pollution liability and compensation: are they so far apart, must they remain so?' 1995 International Oil Spill Conference Proceedings, American Petroleum Institute, Washington DC, pp.261-264; Brans, E.H.P., (1994) 'Liability for ecological damage under the 1992 Protocols to the Civil Liability Convention and the Fund Convention, and the Oil Pollution Act of 1990', TMA, Vol. 3, p.63; and Holt, M.G. and Johnson, S. (1996) 'Oil Pollution Act of 1990: cure, catalyst, or catastrophe', 1995 International Oil Spill Conference Proceedings, American Petroleum Institute, Washington DC. pp.713-717.
18. Article V(2), 1969 International Convention on Civil Liability for Oil Pollution Damage.
19. International Oil Pollution Compensation Fund (1992) General Information on Liability and Compensation for Oil Pollution Damage, London, February, p.1.
20. Persistent oil includes any persistent hydrocarbon mineral oil such as crude oil, fuel oil, heavy diesel oil and lubricating oil. Article I (5), 1969 International Convention on Civil Liability for Oil Pollution Damage.
21. See Sheehan, D.F., ref. 15, for a side-by-side comparison of all key features of the liability regimes.
22. A 1984 Protocol with similar pollution damage provisions to the 1992 Protocol was never entered into force.
23. See FUND/A/ES.1/13. paragraph 11(a) and Annex I, and Fund/A.4/16, paragraph 13.
24. The main goals of the Protocols were to increase the compensation amounts available and to widen the scope of the conventions. The 1992 Protocol contains similar provisions to the 1984 Protocol, but contains easier terms for entering into force. Consequently, the 1992 Protocol essentially replaces the 1984 Protocol. As the Torrey Canyon spill off the coast of England in 1967 motivated the original Conventions, the Amoco Cadiz spill off the coast of France motivated the 1984 Protocol. Jacobsson, M. (1992) 'Future of the International Conventions on Liability and Compensation for Oil Pollution Damage', 1991 International Oil Spill Conference Proceedings, pp.689-723.
25. In contrast, the broader definition of reinstatement (consistent with US law) is explicitly included in the 1993 Council of Europe Convention on Civil Liability for Damage Resulting from Activities Dangerous to the Environment. [Article 2(8), Treaty] In further contrast, the measures of damages in the draft protocols [UNEP/CHW.1/WG.1/1/5, UNEP/CHW.1/WG.1/2] for the 1989 Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and Their Disposal (entered into force in 1992) [(1989) 288 I.L.M.] and for the Antarctic Treaty [XVIII ATCM/WP.2, April 10, 1994] allow for calculations of lost value as an alternative to reinstatement costs.
26. The Working Group further re-affirmed that only 'quantifiable economic loss' should be admissible, not claims for impairment of the environment per se. FUND/WGR.7/21, Annex I, page 4.
27. See, for example, Shavell, S. (1987) Economic Analysis of Accident Law, Harvard University Press.
28. This assertion assumes that the costs of restoration are reasonably commensurate with the gains generated.
29. In contrast to those who argue that damages for interim losses should be limited to financial losses, others argue that resources are priceless - that it is morally repugnant to place a value on them. Yet, when resources are scarce, and have competing demands for their use, the reality is that society must make difficult judgments regarding the wise use of resources. For example, how much of the stock of fish in a fishery should be allocated to current catch (and consumption) and how much should be protected from catch now, in order to ensure the viability of the future fish stocks? Further, how much of the current catch should be allocated to recreational use versus commercial use? Taking the position that resources are priceless does not help develop the information necessary to weigh the relative merits of the alternatives among which society must choose.
30. As noted above, we focus is on the 'consumer' side of public uses, including the consumption of natural-resource related products as well as non-consumptive uses of natural resources, (e.g., recreation, aesthetics or bequests to future generations) - because this is the major component of public trustee claims for natural resource damage. For more complete discussion of the economic theory applicable to calculating social losses attributable to environmental harm see Johansson, P.-O. (1993) Cost-Benefit Analysis of Environmental Change, Cambridge University Press; or Just, R.E., Hueth, D. and Schmitz, A. (1983) Welfare Economics and Public Policy, Prentice-Hall, Englewood Cliffs, N.J.
31. As noted above, we focus is on the 'consumer' side of public uses, including the consumption of natural-resource related products as well as non-consumptive uses of natural resources, (e.g., recreation, aesthetics or bequests to future generations) - because this is the major component of public trustee claims for natural resource damage. For more complete discussion of the economic theory applicable to calculating social losses attributable to environmental harm see Johansson, P.-O. (1993) Cost-Benefit Analysis of Environmental Change, Cambridge University Press; or Just, R.E., Hueth, D. and Schmitz, A. (1983) Welfare Economics and Public Policy, Prentice-Hall, Englewood Cliffs, N.J.
32. Market price is a single point on a demand function: when the market is in equilibrium, it is the price at which the quantity demanded by the consumers equals the amount producers choose to supply. As discussed in Section 6, demand functions can be estimated from market data characterizing the quantity of goods or services purchased at different price levels.
33. Alternatively, a productivity loss attributable to the spill (e.g., increasing the costs of supplying the water by area B as a result of the damage to the local water supplies) will cause a social loss. This social loss would be measured on the production side.
34. Commercial claimants may seek to recover lost profit associated with changes in the expenditures part of this diagram. However, the private loss of business in the vicinity of the spill may simply be the gain of business in another location, and may not represent a net social loss.
35. See 43 CFR § 11.83 and Ohio v. U.S. Dept. of the Interior, 880 F.2d 432, 464 (D.C. Cir. 1989), reh'g denied, 897 F.2d 1151 (D.C. Cir. 1989).
36. Note that, if the compensation were paid to individuals in the form of money, there would be analogous limitations on the use of the compensation monies. Individuals generally cannot make autonomous decisions regarding expenditures on public resources because public decision-making processes must be invoked. Consequently, the recipients essentially are able to spend private recoveries only on private goods.
37. Alternatively the responsible party may assume responsibility for implementing the restoration plan, subject to performance monitoring by the trustees. See Jones, C.A. and Pease, K.A. (1996) 'Restoration-based measures of compensation in natural resource liability regimes', in Benefits and Costs in Natural Resource Planning, Western Regional Research Publication.
38. As noted above, we apply discounting to the streams of past and future losses and gains to take into account the fact that the value of receiving a dollar in one year is less than the value of receiving a dollar today.
39. Consumer surplus is the net value of a good or service to an individual, which equals the total willingness to pay for a specified quantity of a good, minus the amount the individual must actually pay. In addition, a second category of interim losses is lost economic rent, which measures the change in the public value of a resource allocated to commercial uses, which may be claimed provided such economic rent is not recovered under a private cause of action. Economic rent is the value of a public resource that may accrue to a private party because the government or Indian tribe does not charge a price or fee for the use of the resource. Economic rent may occur when a resource, such as fish, is commercially harvested and sold. The issues associated with measurement of economic rent are beyond the scope of this paper. For a discussion, see Jones, C.A., Tomasi, T.D. and Fluke, S.W. (1996) Public and private claims in natural resource damage assessments', Harvard Environmental Law Review, Vol. 20, pp.111-163.
40. In this document, we use the term 'service-to-service' to refer to this class of methods. The term 'resource-to-resource' is also sometimes used in the literature and the OPA regulations.
41. To illustrate the role of the different factors in determining comparable value, we provide fruit analogies. Comparing services of the same type but different quality is like comparing fresh to canned pineapple. On the other hand, comparing services of the same type and quality, but found under different supply and demand conditions is like comparing the value of harvesting another orange when oranges are in abundant supply with the value when the harvest has failed in much of the country. The value of providing another unit of fruit may be substantially greater when the pineapple is fresh or the oranges are scarce. (We assume the quality of harvested oranges is not different in the two scenarios.) Valuation methods can measure the rate of tradeoff between the differing quality or differing scarcity of fruits in the two circumstances.
42. A critical question in determining whether the lost services and the replacement services are of comparable quality is whether the metric used to characterize services captures any quality differences between lost and restored services. For example, an acre of replacement habitat may be more or less productive than an acre of the injured habitat. However, if it is possible to capture these differences in service levels per acre in a metric, then the quality differences may be accounted for in the calculations.
43. For an overview of the method, see Habitat Equivalency Analysis: An Overview, Damage Assessment and Restoration Program Policy and Technical Paper Series, 95-1, National Oceanic and Atmospheric Administration, revised June 1996. Other authors discuss the general concept, but suggest different possible standards for appropriate applications. See Mazzotta, M., Opaluch, J.J. and Grigalunas, T.A. (1994) 'Natural resource damage assessment: the role of resource restoration', Natural Resources, Vol. 34, No. 1, Winter pp.153-178; and Unsworth, R.E. and Bishop, R.C. (1994) 'Assessing natural resource damages using environmental annuities', Ecological Economics, Vol. 11, pp.35-41.
44. For an overview of the method, see Habitat Equivalency Analysis: An Overview, Damage Assessment and Restoration Program Policy and Technical Paper Series, 95-1, National Oceanic and Atmospheric Administration, revised June 1996. Other authors discuss the general concept, but suggest different possible standards for appropriate applications. See Mazzotta, M., Opaluch, J.J. and Grigalunas, T.A. (1994) 'Natural resource damage assessment: the role of resource restoration', Natural Resources, Vol. 34, No. 1, Winter pp.153-178; and Unsworth, R.E. and Bishop, R.C. (1994) 'Assessing natural resource damages using environmental annuities', Ecological Economics, Vol. 11, pp.35-41.
45. U.S. v. Blackbird Mining Ltd. Partnership, Civ. No. 93-0235-E MLR (D. Idaho) (DOJ No. 90-11-2-816); Idaho v. The M.A. Hanna Mining Co., Civ. No. 83-4179 (D. Idaho) (consolidated). Consent decree with Union Carbide lodged 1/95; consent decree with Noranda Mining, Hanna Company, and Alumet Enterprises lodged on 4/28/95.
46. The discussion in the text focuses on the 'value-to-value' version of the valuation approach, in which the compensatory actions are scaled so that the value gained from the actions is comparable with the value lost from the injuries. Alternatively, in certain circumstances, a variant of the valuation approach may be employed in which the restoration plan is scaled by the equating the cost of the restoration plan to the dollar value of losses due to the injury. To apply this procedure, the Trustees must judge that the valuation of the lost services is practicable, but valuation of the replacement natural resources and/or services cannot be performed within a reasonable time frame or at a reasonable cost. Generally, these circumstances will generally arise only in the context of spills with limited injuries. Factors to consider in determining whether a time frame or cost is 'reasonable' are set out in 15 CFR § 990.27(a)(2).
47. For more information about use of the different methods for valuing natural resources, see Freeman, A.M. (1993), The Measurement of Environmental and Resource Values: Theory and Methods, Resources for the Future, Washington DC.
48. In addition, hedonic models of property value estimate how the price of property (generally residential housing), a marketed good, varies with important attributes of the property, including the local environmental quality. With this method, an implicit 'price' for changes in environmental quality can be estimated. However, the value of environmental changes associated with oil spills generally is difficult to observe in the property market, owing to its high transactions costs and the other factors influencing price variability.
49. See, for example, Louviere, J.J. (1996) 'Combining revealed and stated preference data: the rescaling revolution', presented for the Association of Environmental and Resource Economists, Lake Tahoe, June 2, 1996; and Adamowicz, W., Louviere, J. and Williams, M. (1994) 'Combining revealed and stated preference methods for valuing environmental amenities', J. Environmental Economics and Management, Vol. 26, pp.271-292.
50. See, for example, Louviere, J.J. (1996) 'Combining revealed and stated preference data: the rescaling revolution', presented for the Association of Environmental and Resource Economists, Lake Tahoe, June 2, 1996; and Adamowicz, W., Louviere, J. and Williams, M. (1994) 'Combining revealed and stated preference methods for valuing environmental amenities', J. Environmental Economics and Management, Vol. 26, pp.271-292.
51. See, for example, Matthews, K.E., Johnson, F.R., Dunford, R.W. and Desvouges, W.H. 'The potential role of conjoint analysis in natural resource damage assessments', Triangle Economic Research, Durham NC, undated. For a survey of the literature, see Louviere, J.J. (1988) 'Conjoint analysis modeling of stated preferences', J. Transportation Economics and Policy, Vol. 10, pp.93-119, January.
52. See, for example, Matthews, K.E., Johnson, F.R., Dunford, R.W. and Desvouges, W.H. 'The potential role of conjoint analysis in natural resource damage assessments', Triangle Economic Research, Durham NC, undated. For a survey of the literature, see Louviere, J.J. (1988) 'Conjoint analysis modeling of stated preferences', J. Transportation Economics and Policy, Vol. 10, pp.93-119, January.
53. See, for example, Gan, G. and Luzar, E.J. (1993) 'A conjoint analysis of waterfowl hunting in Louisiana', J. Agricultural and Applied Economics, Vol. 25, 36-45; Krupnick, A. and Cropper, M.L. (1992) 'The effects of information on health risk valuations', J. Risk and Uncertainty, Vol. 5, pp.29-48; Mackenzie, J. (1993) 'A comparison of contingent preference models', American J. Agricultural Economics, 75(3) 593-603; Opaluch, J. et. al (1993) 'Evaluating impacts from noxious facilities: including public preferences in current siting mechanisms', Environmental Economics and Management, 24:41-59; Viscus, W.K., Magat, W.A. and Huber, J. (1991) 'Pricing environmental health risks: survey assessments of risk-risk and risk-dollar trade-offs for chronic bronchitis,' J. Environmental Economics and Management, Vol. 21, pp.32-51; Wood, L., Kenyon, E., Desvouges, W.H. and Morander, L.K. (1995) 'How much are customers willing to pay for improvements in health and environmental quality?' The Electricity Journal, May, pp.70-77.
54. See, for example, Gan, G. and Luzar, E.J. (1993) 'A conjoint analysis of waterfowl hunting in Louisiana', J. Agricultural and Applied Economics, Vol. 25, 36-45; Krupnick, A. and Cropper, M.L. (1992) 'The effects of information on health risk valuations', J. Risk and Uncertainty, Vol. 5, pp.29-48; Mackenzie, J. (1993) 'A comparison of contingent preference models', American J. Agricultural Economics, 75(3) 593-603; Opaluch, J. et. al (1993) 'Evaluating impacts from noxious facilities: including public preferences in current siting mechanisms', Environmental Economics and Management, 24:41-59; Viscus, W.K., Magat, W.A. and Huber, J. (1991) 'Pricing environmental health risks: survey assessments of risk-risk and risk-dollar trade-offs for chronic bronchitis,' J. Environmental Economics and Management, Vol. 21, pp.32-51; Wood, L., Kenyon, E., Desvouges, W.H. and Morander, L.K. (1995) 'How much are customers willing to pay for improvements in health and environmental quality?' The Electricity Journal, May, pp.70-77.
55. See, for example, Gan, G. and Luzar, E.J. (1993) 'A conjoint analysis of waterfowl hunting in Louisiana', J. Agricultural and Applied Economics, Vol. 25, 36-45; Krupnick, A. and Cropper, M.L. (1992) 'The effects of information on health risk valuations', J. Risk and Uncertainty, Vol. 5, pp.29-48; Mackenzie, J. (1993) 'A comparison of contingent preference models', American J. Agricultural Economics, 75(3) 593-603; Opaluch, J. et. al (1993) 'Evaluating impacts from noxious facilities: including public preferences in current siting mechanisms', Environmental Economics and Management, 24:41-59; Viscus, W.K., Magat, W.A. and Huber, J. (1991) 'Pricing environmental health risks: survey assessments of risk-risk and risk-dollar trade-offs for chronic bronchitis,' J. Environmental Economics and Management, Vol. 21, pp.32-51; Wood, L., Kenyon, E., Desvouges, W.H. and Morander, L.K. (1995) 'How much are customers willing to pay for improvements in health and environmental quality?' The Electricity Journal, May, pp.70-77.
56. See, for example, Gan, G. and Luzar, E.J. (1993) 'A conjoint analysis of waterfowl hunting in Louisiana', J. Agricultural and Applied Economics, Vol. 25, 36-45; Krupnick, A. and Cropper, M.L. (1992) 'The effects of information on health risk valuations', J. Risk and Uncertainty, Vol. 5, pp.29-48; Mackenzie, J. (1993) 'A comparison of contingent preference models', American J. Agricultural Economics, 75(3) 593-603; Opaluch, J. et. al (1993) 'Evaluating impacts from noxious facilities: including public preferences in current siting mechanisms', Environmental Economics and Management, 24:41-59; Viscus, W.K., Magat, W.A. and Huber, J. (1991) 'Pricing environmental health risks: survey assessments of risk-risk and risk-dollar trade-offs for chronic bronchitis,' J. Environmental Economics and Management, Vol. 21, pp.32-51; Wood, L., Kenyon, E., Desvouges, W.H. and Morander, L.K. (1995) 'How much are customers willing to pay for improvements in health and environmental quality?' The Electricity Journal, May, pp.70-77.
57. See, for example, Gan, G. and Luzar, E.J. (1993) 'A conjoint analysis of waterfowl hunting in Louisiana', J. Agricultural and Applied Economics, Vol. 25, 36-45; Krupnick, A. and Cropper, M.L. (1992) 'The effects of information on health risk valuations', J. Risk and Uncertainty, Vol. 5, pp.29-48; Mackenzie, J. (1993) 'A comparison of contingent preference models', American J. Agricultural Economics, 75(3) 593-603; Opaluch, J. et. al (1993) 'Evaluating impacts from noxious facilities: including public preferences in current siting mechanisms', Environmental Economics and Management, 24:41-59; Viscus, W.K., Magat, W.A. and Huber, J. (1991) 'Pricing environmental health risks: survey assessments of risk-risk and risk-dollar trade-offs for chronic bronchitis,' J. Environmental Economics and Management, Vol. 21, pp.32-51; Wood, L., Kenyon, E., Desvouges, W.H. and Morander, L.K. (1995) 'How much are customers willing to pay for improvements in health and environmental quality?' The Electricity Journal, May, pp.70-77.
58. See, for example, Gan, G. and Luzar, E.J. (1993) 'A conjoint analysis of waterfowl hunting in Louisiana', J. Agricultural and Applied Economics, Vol. 25, 36-45; Krupnick, A. and Cropper, M.L. (1992) 'The effects of information on health risk valuations', J. Risk and Uncertainty, Vol. 5, pp.29-48; Mackenzie, J. (1993) 'A comparison of contingent preference models', American J. Agricultural Economics, 75(3) 593-603; Opaluch, J. et. al (1993) 'Evaluating impacts from noxious facilities: including public preferences in current siting mechanisms', Environmental Economics and Management, 24:41-59; Viscus, W.K., Magat, W.A. and Huber, J. (1991) 'Pricing environmental health risks: survey assessments of risk-risk and risk-dollar trade-offs for chronic bronchitis,' J. Environmental Economics and Management, Vol. 21, pp.32-51; Wood, L., Kenyon, E., Desvouges, W.H. and Morander, L.K. (1995) 'How much are customers willing to pay for improvements in health and environmental quality?' The Electricity Journal, May, pp.70-77.