BP’s $7.8 Billion Settlement of Deepwater Horizon Spill Does Nothing for Louisiana

What does Louisiana get from the $8 billion BP settlement? Nothing, writes John M. Barry.

BP’s agreement last Friday to settle nearly $8 billion worth of private claims stemming from the catastrophic Deepwater Horizon oil spill in 2010 is commendable. But while it will help thousands of people get back on their feet, it does nothing to address the elephant in the room: the very survival of coastal Louisiana, which includes New Orleans, the largest port in the country, and three more of the nation’s biggest ports.

In the current fiscal and political climate, the federal government won’t be spending any money to address the problem. But a fine that BP and its partners will have to pay anyway could provide dollars the state desperately needs.

Some background: Since the 1930s, Louisiana has lost 1,900 square miles of critical buffer land—equivalent to the entire state of Delaware. In other words, if you put Delaware between New Orleans and the sea, the Big Easy wouldn’t need any levees. The land loss continues; every 50 minutes, a football field–size chunk of marshland melts into the sea. And it’s not just the Gulf Coast that suffers, but the entire national economy: nearly one fifth of all waterborne commerce passes through Louisiana waters, 15 percent of the nation's refining capacity is located on Louisiana's coast, and the life cycle of virtually all commercial fish species in the gulf depends upon the marsh.

How did this happen? Mississippi River sediment built roughly 40,000 square miles of land in seven states, from Missouri to the gulf, including all of coastal Louisiana. But that mud has been sliced, diced, and depleted by multiple causes. The majority of the loss directly attributable to a specific source was caused by the oil and gas industry, which has dredged nearly 10,000 miles of canals and pipelines through the marsh. But man-made channels—for commerce and national security—have also brought saltwater into marshes and destroyed millions of acres. The same levees that have prevented floods have also prevented river sediment from replenishing the land naturally. And the amount of sediment the river carries has fallen by two thirds; half of that missing sediment sits behind six dams in Montana, North Dakota, and South Dakota, which were built to provide power, irrigation and, ironically, flood protection to that area.

Taken together, these factors have starved the coast and enormously increased the hurricane threat to Louisiana—as was demonstrated so tragically in 2005.

So where will the money to restore Louisiana’s coast come from? Last week’s agreement actually cost BP no additional dollars, since payments will come out of a $20 billion pot the company had already put aside.

But the Clean Water Act imposes an enormous fine on the company, up to $4,300 per barrel spilled. That’s why BP has consistently low-balled the size of the spill: if roughly 5 million barrels went into the ocean, the fine could be as much as $21 billion. Under current law, that money would go into a fund to clean up future spills, but no one anticipated that the fund would hold billions of dollars. The Obama administration and Gulf Coast legislators agree that the bulk of the fine should go to the gulf states that suffered spill damage. Under that arrangement, Louisiana would get most of the money and would use it to stop further land loss, and to rebuild some land where it could protect populated areas.

In January, Louisiana’s Coastal Protection and Restoration Authority unveiled a master plan to do just that, and even scientists and environmentalists—who have lambasted Gov. Bobby Jindal over his refusal to acknowledge man-made climate change—warmly embraced it.

Legislation that would direct 80 percent of the fine to gulf states has already passed the House in a rare display of bipartisanship—partly because it didn’t call for any actual spending or declare what the states could use the money for. Environmentalists want it to go only to environmental restoration; Alabama wants to use it to build a convention center. In addition, congressional budget rules may require off-setting any money sent to the gulf by either cutting other federal spending or raising taxes. These controversies cannot be avoided forever, so there is no guarantee that even if the Senate acts, there will be agreement on where the money goes or on offsets. And if BP fights the fine, of course, litigation will prevent any money from flowing in for years.

But an alternative to legislation might prove to be a better and cleaner solution. The Justice Department is currently trying to negotiate a settlement in which BP would spend a large proportion of the CWA fine directly on restoration projects. These funds would not go into the federal treasury, and so would bypass the legislative process entirely. There’s recent precedent for this: three weeks ago the DOJ settled with Moex Offshore, which, though it owned 10 percent of the well at the heart of the BP spill, had little role in its operation. Moex will pay $90 million, half to the federal government and half either directly to the gulf states or on environmental projects. This was the largest Clean Water Act fine ever collected. There was just one problem: Louisiana, which suffered at least two thirds of the damage from the spill, got only $13.5 million.

If there were to be a similar settlement with BP, the DOJ would need to ensure that the money was distributed in line with the damage that occurred. It’s not bean-counting. How this process plays out could determine the fate of the Louisiana coast.