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Leaky Laws – Oil Spill Liability in New York

Posted on: May 26th, 2016
by David Ganje

Pipelines, even privately owned, are a publically regulated transportation and operating system. The question is not whether pipelines are “essential to our society.”  Pipelines are already integral to the country: the US had over 1,700,000 miles of oil and gas pipelines in 2014. Operating systems will malfunction. The process for legally authorizing operating systems should not. To paraphrase Norman Vincent Peale, the problem with most publically regulated systems is that they would rather be ruined by praise than saved by criticism.

On September 2, 1978 the U.S. Coast Guard discovered evidence of an oil spill entering Newton Creek in Brooklyn. After launching an investigation, the government found over 17 million gallons of petroleum products that had leaked over a period of decades beneath the Greenpoint area, contaminating more than 50 acres of land. Today, new studies put the spill volume up to 30 million gallons. Cleanup began in 1979, but by 2006 only 9 million gallons had been cleaned up – less than a third of the known spill size. Cleanup continues today, with the aid of the federal government. The spill was designated a Superfund site. No one knows how long the leak existed before it was discovered
The relevant question should be how regulated pipeline leaks will be cleaned up, and who will pay for them. Under both Federal and state laws, the party responsible for a leak is the one responsible for cleanup. Usually the operator responsible prefers to take care of the cleanup themselves. Not only does this help soothe public relations problems resulting from a leak, but it helps the operator control the costs. However, a pipeline operator causing a spill may not always be willing or able to clean up a spill. The liable operator could be bankrupt, dissolved, or simply not have the money. The operator responsible for the Greenpoint spill was still in business and capable of footing the bill for their mistakes. This will not always be the case. Not all spills are flashy and obvious. Cleanup should not wait for years of court cases or bureaucratic lethargy. The money for a cleanup must be there, ready to be used.

New York has the NY Environmental Protection and Spill Compensation Fund (“Spill Fund”), established in 1977 to protect the state against petroleum spills. The fund is financed with a tax on petroleum products moving through the state, and any disbursements from the fund to pay for spill remediation is ideally recovered through penalties assigned to the responsible party. Third parties who are damaged by the spill can also file a claim with the Spill Fund and get their damages paid through the Fund, allowing the Fund to add those damages to the remediation it seeks from the responsible party.

This kind of fund is a good start. However, the fund is simply not large enough to handle the kind of oil spills that are possible in this era of pipelines and oil trains. For the 2014-2015 fiscal year, the Spill Fund spent over five million dollars more than it collected, bringing the fund’s total down to twenty-two million dollars. The fund spent thirty-two million that year. The 2015 state budget raised the cap on the Spill Fund from $25 million to $40 million. But even $40 million is not enough to handle the large spills when a company is not around to pay – in fact, $40 million is not even what the fund would be at if the cap had kept pace with inflation.

This is not to say that New York would be alone in a crisis. Both the Coast Guard and the EPA have trust funds in place to help states and the federal government. The Coast Guard’s fund only applies to spills into navigable waters, and cannot apply to cleaning up spills on land. But it would be there to help if the real disaster happened: a lengthy, voluminous spill into one of the many bodies of water in New York State, like the 2013 Enbridge spill in Michigan that cost more than a billion dollars to clean up. EPA maintains their Leaking Underground Storage Tank Fund for spills on land, but that fund is financed with a tax on motor fuel – a tax paid by private citizens, not the companies causing the damages in the first place.

Petroleum spills are not going away. The New York State Spill Hotline receives approximately 16,000 reports of spills each year, and the NY Dept. of Environmental Conservation estimates that approximately 90% of those reports involve petroleum products. Financial assurances for spills must be required before the damage happens, in amounts sufficient to cover the thousands of spills that happen every year. The legislature needs to create a modern statute addressing financial assurances by the operators for pipeline leaks.