Naomi Klein is correct that the mere $20m spent on accident prevention and spill response goes "a long way" toward explaining this disaster (Gulf oil spill, 19 June), but the story is incomplete without asking why BP had such priorities. The answer is the Oil Pollution Act of 1990. The ironically named act gave BP a liability cap of $75m for oil spills, with the provision that the cap is invalid only in the case of extreme negligence. The $20m it spent on accident prevention and spill response was really nothing more than a gesture to show it had done its due diligence, thereby sidestepping the extreme negligence provision. What reason would they have to spend more on accident prevention when the most they could possibly lose for any given accident is $75m?
Now the spill has received such massive media attention, the cap is basically meaningless, but that fact is irrelevant – the damage has already been done. All that matters is that, when BP was allocating budget funds, it believed it would be immune to accident liability in excess of $75m, thereby rendering accident prevention and spill response a low priority. In a true free market, liability for damages is unlimited, so this is a perfect example of one way in which intervention into the free market can lead to catastrophic consequences. Had there been no liability cap in place, it is a near certainty that BP would have spent much more on accident prevention and spill response, given the massively higher stakes. Had there been no cap, and thus higher safety spending, an accident of this monstrous scale would have likely never occurred.