The Problem of Oil Spills

The worst oil spill in U.S. history occurred in December after the Liberian tanker Argo Merchant ran aground and broke up off Nantucket, spewing forth 7.6 million gallons of oil into the Atlantic Ocean. Since then, there have been another ten widely-publicized tanker accidents in or near U.S. waters, with five resulting in major oil spills. Oil tankers had already had a record-breaking number of mishaps and oil spills in the first nine months of 1976, with a total loss of 200,000 tons of oil—much of which occurred in U.S. waters. The rash of tanker disasters has led to a clamor for action to protect against further spills, and has opened the door to renewed support from American maritime unions for cargo preference legislation to protect the U.S. maritime industry against competition from ships of foreign registry.

The problem of marine pollution due to oil spills is complex, and there is no simple or immediate solution. Although the short-term effects of oil spills may be minimized by special efforts to remove the oil, the long-term effects are still unknown. The gravest risk is the potential that an oil spill may upset the ecological balance of the oceans. Fish and bird populations could be affected for generations by a major mishap.

Of the estimated 17 million barrels of oil spilled annually by tankers, authorities estimate that ninety percent is dumped deliberately, in the process of cleaning oil residues from empty cargo tanks or pumping out seawater used for ballast in empty tanks. When accidents occur, 80 percent take place in coastal or harbor regions, and experts mainly place the blame on incompetent operating crews, claiming that 85 percent of accidents are caused by human error.

The risk of accidental tanker spills is significant and the threat is rising due to increased U.S. oil imports and the use of larger tankers. Oil tankers now constitute over half of the tonnage of the world merchant fleet. Most imported oil is brought into the United States by tankers registered under foreign flags, such as Liberia. It is much cheaper to use foreign flag tankers than American flagships, which must use American crews. U.S. maritime unions have driven the cost of American crews to three times the cost of foreign crews, which can add as much as $1 million to a tanker's annual cost. Also, there may be significant tax savings and other benefits for owners of foreign flag vessels.

Although some Liberian-flag ships are old and have abysmal accident records (the Argo Merchant had a record of 19 serious incidents before the Nantucket grounding), it is not clear that the Liberian fleet has a worse safety record than U.S. tankers. Liberian vessels are generally younger and more efficient than the U.S. tanker fleet, and U.S. Coast Guard officers acknowledge that some of the world's best operated ships fly the Liberian flag.

Obviously the answer to oil spills is not found in the current attempt by U.S. maritime unions and other special interests to revive the 1974 cargo preference act. The legislation—vetoed by President Ford—would require 30 percent of oil imports to be carried by U.S. flag tankers, at a vast increase in cost to the consumer.

Nor is the oil spill problem eliminated by the new generation of supertankers, with capacities over 200,000 tons. The newer, larger ships have modern design features and equipment, and are run primarily by large operators who use top-quality officers and crew. But while they can reduce the problem of congestion from increased tanker traffic, supertankers are difficult to maneuver—requiring more than two miles to stop from cruising speed—and are so fragile they have been labeled "floating balloons."

The most effective means of dealing with the complex problem of oil spills is to impose liability on those who pollute. Requiring wrongdoers to clean up oil spills and pay compensation for damage they cause is an essential aspect of any solution. It is not a complete solution, partly because private property rights are not recognized in the oceans and navigable rivers. But as a means of internalizing costs of business activities, a rule of liability allows market forces to respond to the risk in an appropriate way. In other words, if a private firm operated a port, its own economic interests would lead it to take adequate measures to protect itself from oil spills.

We propose that unlimited liability be imposed on anyone who deliberately or negligently causes damage from oil spills. Liability should be placed on the owners and operators of inadequately-designed and equipped tankers, and tankers operating without qualified officers and crew. Liability should extend also to firms which hire unsafe ships to transport oil and to ports which willingly allow them entry. In short, those who deal with risky cargoes in a risky manner should be required to pay when a mishap occurs.

Imposing unlimited liability on owners of unsafe ships and companies that charter them would greatly reduce the use of ships with inadequate equipment and inferior crew-training standards. Under present law, unsafe ships can be operated without undue risk to their owners. Many old vessels—such as the 23-year old Argo Merchant—are owned by one-ship holding companies, and liability of a ship's owner for damages from a spill may be limited to the value of the vessel and its freight after an accident—which may be worthless.

Eliminating limits on liability might also lead to more stringent practices by marine insurers, which could result in improvements in tanker design and equipment and crew-training standards to avoid the cost of higher premiums charged for riskier vessels with faulty equipment and crews with poor safety records. Moreover, the high cost of insuring the enormous risk posed by supertankers could be avoided by using tankers of medium capacity, with protective spaces in hulls in case of a collision or grounding, and designed to be more maneuverable.

Imposing full liability would also provide cost incentives for the development of new procedures and equipment to contain and clean up oil spills.

In combating oil spills, it would also be helpful to remove the present threat of antitrust prosecution for publishing a list of unsafe ships and their owners.

Another effective way to reduce the number of spills would be to reduce American reliance on oil imports. This could be achieved by allowing offshore drilling on the East Coast, which has uniquely safe geological characteristics for oil production and is much less risky than importing oil in tankers—and much safer than drilling on the Gulf and West Coasts. The same result could be achieved by decontrolling oil and natural gas prices, to allow market incentives to increase domestic production from its artificially-constrained level.

It would be a mistake to adopt cargo preference legislation or to await the implementation of international agreements between governments concerning vessel equipment and safety. The adoption of rational economic policies is the way to combat the problem of oil spills.