TABLE OF CONTENTS(Click on Section)

PURPOSE

BACKGROUND

CHAIRMAN'S OPENING STATEMENT

WITNESSES

The Subcommittee will meet on Thursday, April 27, 2006 to review the implementation of the Oil Pollution Act of 1990 (P.L. 101-380) and the status of funding that remains in the Oil Spill Liability Trust Fund.

The Oil Pollution Act of 1990

The Oil Pollution Act of 1990 (OPA) establishes the Federal framework governing oil spill prevention, response, liability, research, and restoration. The Act was passed after the EXXON VALDEZ oil spill that discharged more than 11 million gallons of crude oil into Prince William Sound, Alaska on March 24, 1989. Under OPA, the Coast Guard leads Federal oil spill response and prevention efforts in tidal waters, while the Environmental Protection Agency (EPA) is responsible for coordinating efforts in non-tidal and inland waters.

Oil Spill Liability and Limits on Liability

Under OPA, a responsible party for a vessel or facility that discharges oil or which poses a substantial threat of discharging oil into or upon navigable waters or adjoining shorelines or the exclusive economic zone is liable for the costs associated with removing the oil and any damages to natural resources arising from the spill. Covered costs and damages include the costs of cleanup and removal; natural resources damages, including loss of use of natural resources; injury or loss of real or personal property; loss or impairment of income, profits, or earning capacity; loss of subsistence use of natural resources; costs of providing increased or additional public services; and loss of taxes, royalties, rents, fees, or net profit shares.

OPA establishes limits on liability for a responsible party based on the size and type of vessels or facility involved in an oil spill. OPA liability limits were established at $1,200 per gross ton or $10 million, whichever is greater for larger tankers, and $1,200 per gross ton or $2 million, whichever is greater, for smaller tankers, including most inland barges. Owners or operators of certain-size vessels and “offshore facilities” must demonstrate financial responsibility (through the use of certificates of financial responsibility) sufficient to meet the maximum amount of possible liability under these limits. There is no limit on liability in the case of gross negligence, willful misconduct, failure to report a spill, or violation of certain Federal regulations. In cases where costs and damages exceed liability limits, the excess costs and damages are paid by the Oil Spill Liability Trust Fund.

OPA mandated that the liability limits be adjusted every three years to reflect changes in inflation, but no adjustments were made. The authority to make the statutorily required adjustments in oil spill liability limits was recently delegated to the Commandant of the Coast Guard; however the Coast Guard has not yet proposed regulations to adjust oil spill liability limits. The conference report on H.R. 889, the Coast Guard and Maritime Transportation Act of 2005, adjusts oil spill liability limits for double-hull tank vessels and nontank vessels for inflation over the period of 1990-2006 and to increase liability limits for single-hull tank vessels to $3,000 per gross ton. Under the conference report, these adjustments will become effective 90 days after the enactment of H.R. 889. The conference report is awaiting action by the House and the Senate.

Oil Spill Liability Trust Fund

OPA established an Oil Spill Liability Trust Fund (OSLTF) to provide a readily available funding source to assume the costs of Federal oil spill response and prevention efforts and to pay for costs and damages above the liability limits established by OPA. The Coast Guard and EPA use funds from the OSLTF to carry out immediate and ongoing response efforts to oil spills which can later be reimbursed by the responsible party up to the vessel’s or facility’s liability limits. The OSLTF is the sole source of funding to support actions where there is no responsible party identified. Funds derived from payments of natural resource damages, funds for payment of claims for removal costs or damages, and up to $50 million each fiscal year for emergency removal actions under section 311(c) of the Clean Water Act are available from the OSLTF without appropriation.

The OSLTF was initially capitalized at an amount of $1 billion with revenues from a 5-cent per barrel tax on each barrel of oil that was transported to oil refineries in the U.S., and the transfer of $551 million in funds from two existing trust funds. The authority to impose this tax expired at the end of 1994; however, the Energy Policy Act of 2005, P.L. 109-58, reinstituted that authority effective April 1, 2006 through the end of 2014. Under this new authority, the barrel tax will continue to be imposed until the unobligated balance in the Fund exceeds $2.7 billion.

The Coast Guard has estimated that approximately $740 million was available in the Fund at the beginning of fiscal year 2006. The Coast Guard has estimated that the Fund will receive approximately $130 million in funding during fiscal year 2006 and approximately $217 million in fiscal year 2007.

Costs of the ATHOS I Spill

On November 26, 2004, the tank vessel ATHOS I allided with several submerged objects while being maneuvered to a berth at a CITGO facility on the Delaware River near Paulsboro, New Jersey. As a result of the allision, several of the vessel’s oil storage tanks were ruptured and approximately 265,000 gallons of crude oil were released into the Delaware River. The Coast Guard has recently completed its official investigation of the incident and has found that there were no violations on the part of the River Pilot, the Docking Pilot, or the vessel’s crew that contributed to the incident. Further, the Coast Guard has also concluded that there is no way to identify the owners of the submerged objects that punctured the vessel’s hull and caused the release of oil. As a result, it is unclear whether a responsible party will be identified as being liable for the removal costs and damages from this spill as outlined under OPA.

OPA includes a third party liability defense. However, this defense has never been successfully used. If a responsible party is found to have a complete defense from liability, all removal costs and damages resulting from an oil spill would be paid for with funding from the Oil Spill Liability Trust Fund. The owners and operators of the ATHOS I have not asserted a defense to liability. The Coast Guard has estimated that costs associated with potential claims related to the ATHOS I spill are in excess of $150 million.

Potential Impacts of Hurricane Katrina on the Fund

Hurricane Katrina caused at least ten major oil spills in the Gulf region, resulting in a release of approximately 8 million gallons of oil into waterways in the region. In the State of Louisiana there were at least six major spills of over 100,000 gallons and four medium spills of over 10,000 gallons alone. Currently, oil pollution response costs are being funded from the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund. It is unclear, however, if any of these costs and long-term oil removal costs and natural resource damages will later be charged to the Oil Spill Liability Trust Fund. The Coast Guard has estimated that these costs could exceed $800 million.

Double Hull Requirement

OPA requires all tank vessels greater than 5000 gross tons operating in U.S. waters to be fitted with a double hull before January 1, 2015. Current law establishes a phase-out schedule under which all single-hull tank vessels built before 1979 have already been prohibited from operating in U.S. waters. All vessels that were constructed or undergone a major conversion after July 1, 1990 were required to be fitted with a double hull at delivery.

The Act’s double hull requirements and phase-out schedule were generally accepted by the international community through the International Maritime Organization (IMO). The IMO, however, has recently agreed to a European Union proposal to accelerate the phase-out date for single-hull tank vessels to 2010. The United States has not adopted this agreement, leaving the original phase-out schedule established under OPA in place.

Oil Pollution Research Programs

OPA authorizes an extensive oil spill pollution research program to be directed by Interagency Coordinating Committee on Oil Pollution Research (Committee) which is composed of representatives from the Coast Guard, the National Oceanic and Atmospheric Administration (NOAA), the Environmental Protection Agency (EPA), the Fish and Wildlife Service, Department of Defense, Federal Emergency Management Agency and other Federal agencies. The Committee has been established and has developed the Oil Pollution Research and Technology Plan; however little research has been done under the authorities of the Committee since the passage of OPA in 1990.

Individual Federal agencies and industry groups have in the past funded efforts to carry out oil spill research, but the wide range of research under the Oil Pollution Research and Technology Plan remains to be carried out. H.R. 1412, the Delaware River Protection Act, which passed the House earlier this year, requires NOAA and the Coast Guard to establish a program to develop technologies or other methods to remove submerged oil and to monitor and detect submerged oil. This focused research program would improve the abilities of oil spill responders to remove and diminish the persistence of submerged oil resulting from future spills.

Civil and Criminal Penalties

While OPA establishes a framework to establish liability for costs related to an oil spill from vessels, civil and criminal penalties for deliberate or knowing release of oil or oily substances from a vessel are established under the Act to Prevent Pollution from Ships. That Act establishes a knowing violation as a Class D felony (up to 10 years imprisonment and $250,000 fine) and provides that individuals who violate the Act, in addition to criminal penalties, may be assessed civil penalties of up to $25,000 for each day that a violation took place.

Over the past year, the Department of Justice has successfully prosecuted several vessels for deliberately discharging waste oil into U.S. waters. Under an April 2005 plea agreement, Evergreen International, S.A. was required to pay $25 million in fines and plead guilty to several felonies for the negligent discharge of engine room oil by Evergreen vessels which were fitted with bypass pipes that was used by crew members to illegally discharge oily waste and sludge oil while circumventing required pollution prevention equipment. In the plea agreement the company admitted that it concealed these discharges in fictitious logs which it knew were inspected regularly by the Coast Guard. Last month a Singapore company, the Wallenius Ship Management PTE Ltd., admitted illegal dumping practices over at least three years and agreed to pay $6.5 million in penalties. The vessel was fitted with a device called the “Magic Pipe” that connected the vessel’s oil-waste tanks to a pipe that was hidden under the deck and emptied on the starboard side of the vessel. The crew only operated the device at night, to be less conspicuous, diverting an unknown volume of waste and sludge from the tanks directly to the ocean.

Various Legislative Proposals Regarding OPA

S. 2023 which was introduced on November 16, 2005 by Senator Inhofe of Oklahoma would require an independent audit of funds dispursed by the Coast Guard from the Oil Spill Liability Trust Fund each year. The Administration has also proposed to include costs associated with contracting scientific and technical services necessary to adjudicate claims as an eligible use of the Oil Spill Liability Trust Fund.