Turns out that the federal government thought ahead. See, they expected a certain amount of spills and cleanups where oil is involved. So they created a tax on oil to use in the event of a disaster, not unlike what we’re seeing now in the Gulf of Mexico.

Up to $1 billion of the $1.6 billion reserve could be used to compensate for losses from the accident, as much as half of it for what is sometimes a major category of costs: damage to natural resources like fisheries and other wildlife habitats.

Under the law that established the reserve, called the Oil Spill Liability Trust Fund, the operators of the offshore rig face no more than $75 million in liability for the damages that might be claimed by individuals, companies or the government, although they are responsible for the cost of containing and cleaning up the spill.

The fund was set up by Congress in 1986 but not financed until after the Exxon Valdez ran aground in Alaska in 1989. In exchange for the limits on liability, the Oil Pollution Act of 1990 imposed a tax on oil companies, currently 8 cents for every barrel they produce in this country or import.

The tax adds roughly one tenth of a percent to the price of oil. Another source of revenue is fines and civil penalties from companies that spill oil.

That’s great! The oil companies have to pay the cost of the spill… wait a sec, run those numbers by me again?

Up to $1 billion of the $1.6 billion reserve could be used to compensate for losses from the accident, as much as half of it for what is sometimes a major category of costs: damage to natural resources like fisheries and other wildlife habitats.

One billion? Hm. Says here that the total cost could exceed $14 billion. The Oil Spill Liability Trust Fund may work for a floating oil slick the size of Duluth, not Puerto Rico.

Now, the President says BP will cover the rest of the costs themselves. Incidentally, BP self-insures through its own in-house insurance company, Jupiter, so we won’t see AIG or any outside insurer roped into this mess. They may sue Halliburton or other equipment providers for faulty services and make some money that way, which would at least be a fun court session. But one way BP looks to limit their liability, other than the completely insane statutory mandate, is through ripping off the locals:

Alabama Attorney General Troy King said tonight that he has told representatives of BP Plc. that they should stop circulating settlement agreements among coastal Alabamians.

The agreements, King said, essentially require that people give up the right to sue in exchange for payment of up to $5,000 [...]

The attorney general said he is prohibited from giving legal advice to private citizens, but added that “people need to proceed with caution and understand the ramifications before signing something like that.

“They should seek appropriate counsel to make sure their rights are protected,” King said.

If BP really wanted to manage their expenses at this time, maybe they could reduce the millions in lobbying costs that, strangely, did not succeed in capping the wellhead or stopping the advance of black murk. It did manage to intellectually capture Rep. Gene Taylor, however, so I guess that was money well spent.

In the end, I’m banking on at least some taxpayer money funding the aftermath of this catastrophe, or a lot of uncompensated people with their lives in tatters.