Obama admin can steer money to Gulf if BP settles

As Congress continues to debate whether to send penalties paid by oil giant BP PLC for the Deepwater Horizon disaster to Gulf Coast states, the Justice Department is positioned to have a major say in steering cash to restoration efforts.

It all depends on whether DOJ lawyers can secure a settlement with BP over the April 20, 2010, explosion and oil spill in the Gulf of Mexico. If a deal is struck -- which most legal experts predict -- the Obama administration is likely to push hard for what is known as a supplemental environmental project.

Lawyers familiar with environmental litigation say supplemental environmental projects -- or SEPs -- have been part of settlements for years and are a way for the government to ask companies to undertake some mitigation measures. In return, the company might face a less stiff financial penalty.

Ignacia Moreno, head of DOJ's Environment and Natural Resources Division, said last year in a Greenwire interview that supplemental environmental projects can be "a win-win for everyone" (Greenwire, April 14, 2011).

The supplemental projects are useful for DOJ and U.S. EPA because the agencies get to determine how the money is spent. By contrast, fines and penalties go to replenish the federal Oil Spill Liability Trust Fund. That is why Congress has been considering a bill -- called the "RESTORE Act" -- that would send up to 80 percent of the money obtained through penalties under the Clean Water Act to Gulf states.


The first trial in the multidistrict litigation in the Eastern District of Louisiana against BP and its partners is due to start Monday. It will focus on events leading up to the explosion and the immediate aftermath. There have been rumblings for several weeks concerning a possible settlement between the U.S. government and BP. Those murmurs only got louder when MOEX Offshore 2007 LLC, which had a 10 percent stake in the doomed Macondo well, announced a provisional settlement with the government last week in which it will pay $90 million.

A settlement between BP and the Justice Department would not mean the trial before U.S. District Judge Carl Barbier would no longer go ahead, as he is also presiding over the various private claims against the oil giant and its partners. Aside from MOEX, the others are rig owner Transocean Ltd. and Anadarko Petroleum Corp. Just yesterday, Barbier ruled that BP and Anadarko are liable under both the Oil Pollution Act and the Clean Water Act but delayed deciding whether on Transocean's level of liability.

The litigation before Barbier does not include potential criminal charges against BP, but most legal experts expect any settlement would also resolve any questions about criminal liability.

'Gulf Coast stimulus bill'

House and Senate versions of the RESTORE Act would divert 80 percent of the fines from the Treasury to Louisiana, Florida, Alabama, Mississippi and Texas for environmental and economic restoration projects.

Funding environmental restoration of Louisiana's coastal wetlands enjoys broad bipartisan support. Louisiana's marshes are disappearing at the rate of one football field every 38 minutes, taking with them a host of ecological and economically important benefits. The wetlands serve as the nursery for the region's prized fishery, habitat for migratory birds and a buffer against hurricane-induced storm surges.

But the economic restoration provision has lawmakers grumbling privately, even those who publicly champion the bill.

In trying to please all five states, critics say, the RESTORE Act is larded with provisions that could allow too much cash to be spent on convention centers, boat ramps and highways. Some of those projects, critics say, could offer a significantly lower return on investment than critical environmental restoration.

Even if all the penalties resulting from the spill -- a figure that could exceed $20 billion -- were devoted to the coastal Louisiana restoration, it would only put a dent in the problem. Total restoration has been estimated at $100 billion by Republican Gov. Bobby Jindal's administration.

"It almost looks like a Gulf Coast stimulus bill," said an official who is publicly supportive of the RESTORE Act and thus asked that the comments not be attributed. "You create councils, plans. I think there are probably less bureaucratic ways to get the dollars on the ground faster."

Of the money captured by the RESTORE Act, 60 percent would go to a newly created Gulf Coast Ecosystem Restoration Council. The council would, in turn, devote half of its money to a "comprehensive plan" to restore the environment. The rest would be divided among states according to a complex formula. States could then carry out projects -- economic or environmental -- provided they submit a plan to the council for approval.

The Senate bill requires that the plans be "consistent with" the council's environmental restoration plan. The House version deletes this language.

Megan Herzog, a fellow at the Environmental Law Institute who wrote an oft-cited legal analysis of the RESTORE Act, confirmed that under the House version, as little as $2.4 billion of a hypothetical $10 billion settlement would be spent on the environment, provided that states opt to focus on economic as opposed to environmental restoration.

"From the clear language of the bill, it would seem so," Herzog said.

Environmental groups lined up in support of RESTORE nonetheless say it would maximize cash flow to restoration projects. RESTORE, they say, would ensure that most of what is left after SEPs are subtracted from the total settlement would be captured and that a portion of that amount would be devoted to environmental restoration.

Environmentalists who back the bill also believe the council -- which includes the administration's top environmental officials -- would ensure that money is properly divided among environmental and economic restoration.

"Our biggest priority is getting funding for comprehensive, large-scale restoration in the Gulf and the right sort of implementation authority to do these projects," said Courtney Taylor, an attorney for the Environmental Defense Fund's Coastal Louisiana Restoration Project.

Similar deal

In the settlement announced last Friday with MOEX Offshore 2007 LLC, one of BP's partners on the doomed Macondo well, the SEP was valued at $20 million of the $90 million total.

A similar ratio in a BP settlement -- expected to be much larger due to BP's much bigger role in the drilling operation -- could allocate tens of millions of dollars for environmental restoration efforts.

James Rubin, a partner at the SNR Denton firm who previously served in DOJ's Environment and Natural Resources Division, predicted that the government "would seek the same basic type of settlement with the other parties."

A BP settlement would be composed of "a very significant fine, payments to the states" and a large SEP, he said.

"Given the nature of the contamination and the impacts on the state and regional economies, this would seem like an appropriate use of funds, rather than simply a large fine going back to the U.S. Treasury," he added.

Although legal experts say last week's MOEX settlement does not necessarily indicate the shape a BP settlement might take, it does suggest that DOJ is trying to send a considerable amount of money to the Gulf states where possible.

Of the $90 million total, $45 million is earmarked for the Gulf Coast: $25 million or so to be divided among the states and another estimated $20 million earmarked for SEPs.

MOEX's agreement means that a minimum of 22 percent of the money it pays will go to specific environmental projects.

The draft consent decree, which must be approved by Barbier, requires MOEX to pay for land acquisition and habitat protection projects in Florida, Mississippi, Louisiana and Texas.

BP and the other partners can expect much stiffer penalties, and any settlement is likely to include a significant supplemental environmental project, lawyers familiar with the process say.

The MOEX SEP "was on the high end" of EPA's scale for setting the size of such projects, said John Cruden, a former senior DOJ attorney who is now president of the Environmental Law Institute.

Within those limits, the BP settlement could have a similarly large percentage allocated to an SEP, Cruden said.

"You can do a lot of things related to Gulf restoration," he added.

'Quick and clean in and out'

SEPs may leave those responsible for the spill in charge of carrying out the environmental project -- a prospect that unsettles those who say BP played too much of a role in directing the government's response to the disaster itself.

Companies responsible for carrying out SEPs may have other competing priorities. In the case of the MOEX settlement, land acquisitions played a prominent role because they could be executed quickly and would not tie the Japanese-owned company down in the Gulf region, according to one source familiar with the discussions.

"One reason that in the case of MOEX they chose land acquisitions is because they wanted a quick and clean in and out," said the source, who was not authorized to speak publicly about the talks.

Nevertheless, an SEP is "100 percent better" than having the money go to the Treasury, Cruden said. But that does not mean Congress should not send a proportion of the penalties toward the Gulf Coast, he added. The penalties will still be a huge sum, and it is worth taking the risk that, if the RESTORE Act is passed, not all the money will be spent on projects directly related to the spill.

"My only reservation is ... how that money actually is used," Cruden said. "This has never been done before."

Robert Verchick, a law professor at Loyola University New Orleans College of Law, said that even in a best-case scenario, the money from the RESTORE Act that would end up paying for environmental restoration would be merely "a good downpayment on coastal restoration."

In that context, SEPs in the settlements with BP and the other partners would, he said, "provide a supplement to that, and for that reason, the states can't just rely on one source of funds."



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