Don't Bail Out Big Oil

Private companies have the right and, indeed, the responsibility to make money by drilling for oil. But if their activities cause environmental damage, they shouldn’t be able to escape paying the costs.

At least for now, Sen. Lisa Murkowski has successfully blocked efforts to raise the liability cap for oil spills.

On the surface, her arguments against the cap increase seem compelling: raising the $75 million cap to $10 billion would leave a lot of “small” oil-refining operations unable to secure insurance. Most likely, they would have to sell out to larger interests capable of securing much more coverage. And higher liability costs could make some otherwise promising oil wells more economically difficult to exploit.

All this is true but really shouldn’t matter. A rational, reasonable, market-based risk management policy should require those that undertake risks to pay the costs of problems that stem from them. It’s that simple.

Even though billions of dollars and person hours have been devoted to figuring out how to drill for and transport oil safely, the recent disaster shows that doing so is still an inexact and risky art. If smaller companies cannot afford to take the risks implicit in drilling for and refining oil, then that’s a good market-based sign that larger companies should dominate the market. If exploiting certain sources of oil becomes impossible as a result of higher liability costs, then that should serve as a sign that companies should either develop technology that makes drilling safer or find other sources of energy.  Private companies have the right and, indeed, the responsibility to make money by drilling for oil. But if their activities cause environmental damage, they shouldn’t be able to escape paying the costs.  Sen. Murkowski is wrong.