#58 - BP’s New Deal is a Raw Deal

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June 18, 2010, Amanda J. Reinecker, My Heritage.org (The Heritage Foundation)

It's TARP all over again. Yesterday, BP announced that it would "voluntarily" place $20 billion into a government-administered fund to compensate victims of the Gulf of Mexico oil disaster and clean up the mess. The oil company also agreed to shell out another $100 million to a foundation that will support oil workers made unemployed by President Barack Obama's indefinite ban on offshore oil drilling.

Now, no one is disputing that this oil spill is real disaster wreaking enormous havoc on the environment and the economy. And BP should absolutely have to pick up the tab for all efforts to correct this mess. It's the beauty of the "you break it, you buy it" mentality. But there are right ways – legal and constitutional ways – to go about assigning responsibility, and the Obama Administration isn't following them.

Heritage Foundation legal scholar Hans von Spakovsky explains the law pertaining to the Gulf Coast situation: “The Oil Pollution Act of 1990 (OPA) sets out exactly what BP and anyone else who caused the spill have to pay for. Under 33 U.S.C. § 2702, BP is responsible for all removal costs; all injuries to real or personal property; damages for loss of subsistence use of natural resources; loss of profits or impairment of earning capacity due to injury, destruction, or loss of natural resources or real or personal property; and damages for the cost of providing increased public services by any state. These categories of damages would cover all of the costs that everyone has been talking about…”

But the law says nothing about BP compensating the newly unemployed offshore oil workers. Why and how, then, can BP be liable? Legally, they can't. "Obama's moratorium is an unreasonable decision that is supported neither by the states in the Gulf nor experts in the oil and gas industry," von Spakovsky argues. In addition, the President's demand to transfer an immense portion of stockholders' wealth to the compensation fund without any legislation or court decision is extremely worrisome. So why would BP "voluntarily agree" to these costly measures? Perhaps the company was intimidated by Attorney General Eric Holder's threat to open a criminal investigation. Perhaps BP is under the impression this agreement places a cap on their costs. (It doesn't. The White House made clear that the $20 billion was just a down payment and in no way represented a cap on BP's liability.)

Or perhaps this so-called deal between the White House and BP represents little more than what Rep. Joe Barton (R-TX) dubbed a political "shakedown"—a shakedown Heritage's Conn Carroll calls of "Godfather-like proportions." BP is by no means off the hook with this deal – it has to pay big-time; it is still liable to individual and state claims; and it received no assurances that economic damages would not be higher or that the White House wouldn't come back demanding more. But Carroll explains in a separate piece that BP is not the victim in this scenario. The rule of law is.

Wednesday's 'voluntary' deal between BP and the Obama administration was nothing less than a continuation of President Barack Obama's ongoing assault on the rule of law. Capitalism only succeeds if it is a profit and LOSS system. Well-managed firms should have every right to keep their profits, but mismanaged firms must be allowed to suffer losses… Failure is a necessary component of capitalism. But this administration refuses to allow the rule of law to work. From Fannie Mae to Freddie Mac, from GM to Chrysler, from AIG to Citibank, our government continues to subvert the established rule of law. This lawlessness creates uncertainty in the business environment, and it is a huge reason why our economy is not recovering as it should be.