Is BP's Escrow Account the Right Move Now?

The Root asked experts in public policy, ecology and disaster management about the escrow account for Gulf oil spill damages -- and found some skepticism.

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TR: Is $20 billion too small an amount for the escrow account?

GVB: I am at a loss to think of what an appropriate number is, but I will say that I'm inclined to err on the larger side. And while I think it's a good idea to set up an escrow account, this spill is by no means over. It could go uncontrolled for as long as December, and even if they were able to cap that oil today, the long-term harm of what's already happened could continue to unfold for many years to come. It puts you in a difficult position to even try and predict what the final outcomes will be. We are literally in uncharted waters. This spill has the potential -- and I stress potential -- to be the worst oil spill in world history. It's pretty hard at this point to gauge how much this is going to cost without a lot more investigation.

GVB: It might actually enter into BP's interest to arrive at a number now [rather] than negotiate it later on. This is going to continue to unfold for years, and if you settle early, as a commercial fisherman or a hotel owner or what-have-you, for what you think your costs are, you might be shortchanging yourself. If [BP gets] people to sign off early, that closes the door and probably finds [BP] paying a lot less than [they] would in the long run.

TR: What variety of costs do you see in the wake of a disaster like this?

GVB: One interesting thing is that BP says it will pay all legitimate claims. Well, we know from litigation in previous oil spills and other disasters that the devil is in the details. How you define "legitimate" is going to be one of the big questions. BP has already given us some indication of where they're going by saying they would pay for all direct costs but not indirect costs. And it's going to be very problematic to define an indirect cost.

For instance, [if] someone who owns a hotel on the coast loses money, that's a direct cost. But what about the people who supply the food to that hotel? Is that direct or indirect? Presumably, BP's going to want to cut that off immediately and say, "No, that's not a direct cost." And that's dangerous, because you're probably going to see quite a ripple effect on the economy from this spill. Presumably, suppliers will lose money from [their] suppliers -- people who then might lose their homes and stop spending money in the community. It's a cascading effect.

TR: What are some costs you see outside of general business?

GVB: In the wake of the Exxon Valdez spill, we saw over time -- both in the immediate wake of the spill and years after -- a cost increase in providing social services to the people who had been harmed by the spill physically or mentally. We found cost increases in social services for spouse abuse, child abuse, and drug and alcohol abuse. We found increases in homicides and suicides. When communities are traumatized like this, there are enormous costs to those families that were involved. There's an enormous cost to the community to provide those services -- enormous both in terms of the social fabric and in pure monetary costs. And I'm almost sure BP [will] say they're not going to pay for these types of costs.

Senator Mary Landrieu of Louisiana:

Formal statement: I firmly believe that BP should establish an escrow account to compensate all individuals, businesses and communities in the Gulf Coast who have suffered damages because of this spill. But before we start throwing around figures like $20 billion, I wanted to have some basis for that amount. Why $20 billion? Why not $5 billion? Why not $30 billion? Congress needs to proceed carefully and responsibly to address this issue in a comprehensive way so that our actions do not have unintended consequences on the victims of this disaster. An escrow account should be established, but it must be done in a way that ensures BP remains viable enough to pay every penny of what they owe to those who have been affected by this horrific spill and tragedy. The worst-case scenario is BP declaring bankruptcy before our citizens are compensated for the tremendous damage the company has inflicted on our fragile coast and economy.

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