How the Federal Oil Spill Tax Funds Environmental Protection

The Federal Oil Spill Tax amount collected is maintained by the Oil Spill Liability Trust Fund (OSLTF). It is an essential financial reserve established to provide timely and adequate funding for oil spill removal and damage restoration. Primarily funded through a tax imposed on the petroleum industry, the OSLTF now holds approximately $1 billion. 

The OSLTF comprises two primary components:

1. The Emergency Fund: This fund provides immediate resources for Federal On-Scene Coordinators (FOSCs) to respond promptly to oil discharges and for federal trustees to initiate natural resource damage assessments. Each year, a recurring amount of $50 million is allocated to the President for these emergency actions.

2. The Principal Fund: The remaining balance of the OSLTF, known as the Principal Fund, is utilized to pay claims and support Congressional appropriations to federal agencies. These funds help implement the provisions of the Oil Pollution Act (OPA) and support essential research and development initiatives to improve oil spill response and prevention.

1. Removal Costs for Oil Spill Response

One of the primary uses of the OSLTF is to cover oil spill removal costs. When an oil spill occurs, immediate action is crucial to mitigate environmental damage,

• Costs incurred by federal or state officials for removal actions.

• Monitoring of ongoing removal operations to ensure effectiveness.

• Foreign Offshore Discharges: Costs related to oil discharges from foreign offshore units, demonstrating the fund’s flexibility in managing incidents across U.S. waters and international jurisdictions when they pose a threat.

2. State Access for Removal Activities

The OSLTF provides states with access to funds to support spill response operations in state waters, ensuring that local governments have the resources to act swiftly and decisively. State authorities can apply for access to fund resources to:

• Assist in removal activities.

• Ensure coordination with federal operations.

• Promote localized response efforts tailored to regional needs.

3. Natural Resource Damage Assessments and Restoration

Following an oil spill, impacted ecosystems require substantial recovery efforts,

• Assessing damages to natural resources: This includes evaluating the extent of environmental injuries to resources such as marine life, coastal ecosystems, and habitats.

• Developing and implementing restoration plans: Funds help restore damaged resources or create alternatives to compensate for losses.

4. Payment of Uncompensated Claims for Removal Costs and Damages

The fund also compensates individuals, businesses, and local governments for uncompensated costs directly related to oil spill incidents. Types of claims that can be reimbursed include:

• Uncompensated removal costs: For expenses incurred during cleanup activities that were not covered by responsible parties.

• Loss of profits or earning capacity: Compensation for businesses and individuals who lost income due to the spill.

• Loss of federal, state, or local government revenue: Reimbursements for lost tax revenue or other government income.

• Increased public service costs: For expenses incurred by local governments for enhanced services during and after the spill.

• Loss of subsistence use: Funds for communities impacted by the spill, especially when traditional resources are no longer available for subsistence.

• Property damage: Reimbursements for real or personal property affected by the spill.

5. Research, Development, and Federal Administrative Costs

Another important function of the OSLTF is supporting research and development projects. Funds are allocated to enhance oil spill response technology, which includes:

• Research and Development (R&D) to innovate and improve oil spill response and restoration techniques.

• Administrative Costs: Covering operational expenses for federal agencies involved in oil spill response and fund management.

6. Support to Fishermen and Aquaculture Claimants

The OSLTF offers loans and interim assistance to support fishermen and aquaculture businesses affected by oil spills. This measure ensures:

• Continued economic stability for those who rely on marine resources for their livelihoods.

• Financial assistance until claims can be fully processed or until fisheries are restored.

7. Legal and Regulatory Obligations

The OSLTF has responsibilities under various legislative acts, ensuring compliance with federal regulations governing oil pollution. Expenditures are used to:

• Enforce sections of the Federal Water Pollution Control Act (FWPCA) focused on prevention, removal, and enforcement related to oil discharges.

• Carry out Intervention on the High Seas Act provisions for oil pollution and substantial threats to pollution.

• Pay liabilities incurred by revolving funds, such as the Deepwater Port Liability Fund and the Offshore Oil Pollution Compensation Fund.

The Oil Spill Liability Trust Fund (OSLTF) is subject to specific expenditure limitations to ensure its sustainability and effectiveness in managing oil spill incidents. These limitations include:

1. Per-Incident Cap:

• For any single incident, a maximum of $1,500,000,000 can be paid from the OSLTF.

• Of this amount, a maximum of $750,000,000 may be allocated specifically for natural resource damage assessments and claims related to the incident.

2. Minimum Fund Balance:

• Except for payments related to removal costs, no payments may be made from the OSLTF if the resulting balance in the fund would fall below $30,000,000 after the payment. This restriction helps maintain a reserve for ongoing and future spill response needs.

WRAP:

After reading this blog, you should now have a clearer understanding of the federal Oil Spill Liability Trust Fund and the diverse ways it supports efforts to mitigate the environmental damage caused by oil spills