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The BP settlement deal could be better for Louisiana 

click to enlarge The Deepwater Horizon explosion, April 20, 2010.

Photo courtesy U.S. Coast Guard

The Deepwater Horizon explosion, April 20, 2010.

The July 1 announcement that BP had reached a tentative settlement of all government claims arising from the Macondo well blowout has generated mixed reviews, which should come as no surprise. Many specifics remain to be worked out, and at the end of the day it will be up to one man — U.S. District Judge Carl Barbier — to determine whether it's a good deal. Here's what we know so far:

   BP has agreed to settle all federal, state and local claims for $18.7 billion, to be paid over 15 to 18 years. That's a good deal for BP.

   Louisiana's known share of the settlement is nearly $6.8 billion. Of that amount, $5 billion comes via the federal Natural Resource Damage Assessment (NRDA) program. That money will go into a trust fund for coastal projects that must be approved by federal and state trustees.

   Louisiana's share of "economic damages" is $1 billion, which strikes us as small — particularly since most of the disaster's environmental damage (which had severe economic consequences) occurred in Louisiana. Here again, BP will pay that money over the course of at least 15 years. The money has been dedicated to the state's so-called rainy day fund and to health care and higher education trust funds.

   Louisiana will get at least $787 million under the federal Clean Water Act (CWA). That money also will go toward coastal restoration. BP's total CWA exposure had been estimated at more than $13 billion. New Orleans has accepted $45 million.

  No doubt the most second-guessed aspect of the settlement is the long payout period, which is a two-edged sword. On one hand, it's generous to BP; on the other hand, the litigation easily could have dragged on for years. This settlement brings closure — and certainty. Moreover, Louisiana's Master Plan for coastal restoration is a 20-30 year initiative. We couldn't spend $5.8 billion right now even if all that money arrived overnight. Putting that money into a trust fund, we hope, will insulate it against future governors and lawmakers looking for quick cash in lean times.

  The long payout period for economic damages is another matter altogether. The adverse economic impact of the blowout hit south Louisiana businesses and the state immediately and lasted several years. Why should BP get to pay this relatively small portion of the damages over so many years? It would be difficult to imagine anyone arguing that Louisiana will still be reeling from the blowout's economic effects in 2030.

  Here's another troublesome aspect of the deal: The Exxon Valdez settlement included a five-year "reopener window" during which additional claims for unforeseen environmental damages could be brought. Such a window strikes us as a good idea, considering that the long-term effects of the Valdez disaster are still being measured more than 25 years later.

  Many wonder if this settlement really teaches BP and other oil companies a lesson about cutting corners on safety. That debate could last almost as long as the protracted payout period. The proposed settlement is a big step forward, but it could be better. We hope Judge Barbier will push for a faster payout of economic damages — and a reopener window for unforeseen environmental damages down the line.


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