Pipeline Spill Liability Caps Let Operators Externalize Cleanup Costs

Under the Oil Pollution Act of 1990, the liability cap for onshore pipeline spills is set at $350 million per incident, a figure that has not been meaningfully updated to reflect modern cleanup costs, environmental damage valuations, or inflation. For context, the cleanup of the 2010 Enbridge Line 6B spill into the Kalamazoo River in Michigan cost over $1.2 billion, more than three times the liability cap. BP's Deepwater Horizon cleanup and settlement costs exceeded $65 billion. When actual spill costs exceed the statutory cap, the difference is borne by taxpayers through the Oil Spill Liability Trust Fund, by state and local governments through emergency response costs, and by affected communities through uncompensated property damage and health impacts. This liability structure creates a moral hazard that directly undermines pipeline safety investment. When an operator knows that its maximum financial exposure for a catastrophic spill is capped at a fraction of the actual cost, the economic incentive to invest in prevention, redundant safety systems, and rapid response is diminished. Insurance premiums based on capped liability are lower than they would be under full-cost liability, which means the price of pipeline transport does not reflect its true risk. Smaller pipeline operators, in particular, may carry minimal insurance and maintain thin balance sheets, effectively judgment-proofing themselves against claims that exceed their assets. The cap persists because the pipeline industry lobbied aggressively during OPA 90's passage and every subsequent reauthorization to keep liability limits in place, arguing that unlimited liability would make pipeline transport economically unviable. But this argument essentially concedes the point: if the true cost of potential spills were priced into pipeline operations, some routes and some aging infrastructure would be uneconomical to operate, which is exactly the market signal that liability caps suppress. Meanwhile, the Oil Spill Liability Trust Fund, financed by a per-barrel tax on oil, has been periodically drawn down by major spills and is not sized for a worst-case event on the scale of a major pipeline rupture into a drinking water source.