Preventing Damage from Major Oil Spills: Lessons from the Exxon Valdez

Institut Oceanographique de Paris
Publication Type:
Journal Article
Oceanis, 2006, 32 (3/4), pp. 349 - 372
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Recent widespread damage from oil spills in Europe suggests that the current legal and economic framework does not provide a mechanism for preventing oil spill damages. The process by which a preventative mechanism arose in the United States following the Exxon Valdez oil spill may provide some lessons for Europe. The key to reducing oil spill damages is to create an incentive for prevention by increasing the damages a shipper of oil has to pay for a major oil spill. The simple economic argument is that shippers facing greater liability for damages will make greater efforts to prevent oil spills and to contain oil spills that have occurred. These greater efforts will be taken up to the point where the expected marginal prevention/containment cost is equal to the expected marginal change in the level of liability. Translating this economic solution into a preventative legal and economic framework for oil spill damages requires ensuring that an optimal level of prevention is achieved by using appropriate damage assessment methods that are part of a coherent administrative and legal framework. This framework must also address the potential for undesired responses, provide prior planning to facilitate prevention and containment, and make decisions about how to allocate resources to initial response, restoration, and compensation. These key issues are discussed by examining the process surrounding the Exxon Valdez oil spill in the United States.
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