Eric Holder says he will prosecute BP. But will it be enough?

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June 2 2010 7:27 PM

Heads May Roll

Eric Holder says he will prosecute BP. But will it be enough?

Now that the latest attempt to plug the Deepwater Horizon oil well has failed, public attention is turning to less technical matters: whether Obama is angry enough. Whether the federal government is doing enough. And what kind of cruel and unusual punishment should befall BP executives.

Attorney General Eric Holder gave the first hints of criminal penalties for BP at a press conference in New Orleans on Tuesday. There, he promised to "prosecute to the full extent any violations of the law." He declined to name specific charges but said that the Department of Justice would be reviewing the Clean Water Act, the Oil Pollution Act of 1990, the Endangered Species Act, and "other traditional criminal statutes" presumably related to manslaughter, since 11 people died in the initial explosion of the well.

But will that be enough? Probably not, judging by past incidents. Even if Holder successfully prosecutes BP and the other companies involved in the spill, anyone looking for catharsis is likely to be disappointed. History suggests that the price paid by companies for environmental disasters is rarely as much as what the government and private parties seek.

The best example, and the likely precedent for any Gulf litigation, is the Exxon Valdez spill in 1989. In civil cases, courts initially held Exxon liable for $5 billion in damages to Alaskan fisheries and other businesses. After a 20-year battle, that sum was cut to $500,000, or about $15,000 per fisherman. (Exxon did pay a separate settlement of $900 million for state and local governments that responded to the spill.) A grand jury indicted Exxon on five criminal violations, and a U.S. attorney said Exxon faced $600 million in fines. But the oil giant ended up paying only $100 million. The ship's captain, meanwhile, was accused of being drunk at the helm but was acquitted of all felony charges and didn't go to jail. (He did have to pay a $50,000 fine for a misdemeanor.)

"Ask people in Alaska and they'll say Exxon has paid maybe 10 percent of what was suffered," says Zygmunt Plater, a professor at Boston College Law School who worked for the state of Alaska's oil spill task force after the Exxon Valdez incident.

Other environmental disasters show a similar pattern: The government and private parties seek high damages, then settle for—or are forced to accept—less. After thousands of workers were killed by a leak in a pesticide plant in Bhopal, India, in 1984, the government initially claimed $3 billion from Union Carbide, the company responsible. Union Carbide ended up paying $470 million in civil and criminal penalties. BP has gotten off easy, too. After the 2005 explosion at a Texas refinery run by BP that killed 15 people and injured 180, the company had to pay a $50 million fine, which attorneys for victims called "trivial." When a BP pipeline leaked more than 200,000 gallons of oil in Alaska in 2006, the company paid a total of $20 million in fines.

That said, the Gulf spill could break the pattern. One reason is its size. Whereas the Exxon Valdez spilled a total of 250,000 barrels, the Deepwater Horizon well may have already leaked upward of 500,000 barrels and is still pumping out an estimated 19,000 barrels a day. If BP fails to siphon off the oil or create a relief well, oil could leak for months. That means more economic and environmental damage near a coastline that's significantly more populated than Alaska's. It also means criminal penalties will likely be much higher than in the Exxon case, because in many cases the size of a fine increases with the amount of pollution.

Those fines have also gone up in recent years. For example, the Clean Water Act now carries civil penalties for oil spills of up to $4,300 per barrel in cases of gross negligence—which, if the well is leaking 19,000 barrels a day, could cost BP $82 million a day for months of spillage.

And finally, there's an increased willingness by courts to consider non-economic natural-resource damages. "We will make certain that those responsible clean up the mess they have made and restore or replace the natural resources lost or injured in this tragedy," said Holder on Tuesday. But what if they can't be replaced? There are many different ways to calculate noneconomic damages, and techniques such as "ecosystem valuation" (thinking of environmental systems holistically) and "contingent valuation" (asking people how much they'd be willing to pay to preserve a natural resource) are more accepted now than they were in the early 1990s.

The resulting fines could be enormous. "If I were the BP board of directors and someone said to me, 'For $20 billion, we'll give you complete absolution,' I'd fall over myself to sign that check," says Plater. Environmental law gives the government a lot of discretion when it comes to penalties, according to Jodi Freeman, a professor of environmental law at Harvard University. So it really comes down to how aggressive the administration wants to be. So far, Holder appears serious. "Government has become more willing to consider knocking heads with criminal provisions," says Freeman.

Whether those penalties match the public's outcry for punishment is ultimately subjective. Even if Holder were to string up BP CEO Tony Hayward by his thumbs in Times Square and give every American a tomato, it may not be sufficient. (Oil execs probably won't see jail time.)

Maximum catharsis is also unlikely for logistical reasons. The administration may be suing the pants off BP for years to come, but in the near term it's also depending on the company to clean things up. That won't stop Holder from pursuing the legal case against BP. But it could cause the administration to tamp down its anti-BP rhetoric in the interests of cooperation.

The timeline of environmental lawsuits works against the plaintiffs, too. It took 20 years for the Exxon Valdez case to reach the Supreme Court, by which time outrage had cooled. People looking for catharsis on the Gulf spill will also have to wait, especially considering that we don't know what happened yet. By the time BP lawyers have exited their last courtroom, some other crisis will no doubt have taken its place.

Slate V: BP's Blame Game

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