A Taxonomy of Oil Spill Costs—What are the Likely Costs of the Deepwater Horizon Spill?

While we will never know the true costs of the Deepwater Horizon oil spill, past experience in assessing these kinds of damages provides both a framework for assessing the nature of damages as well as information on the potential magnitude of costs. From society’s perspective, the cost of an oil spill consists of both “private ” costs to the oil rig operator(s) and “external ” or third-party costs to the government, victims, and natural resources. While many of these external costs will ultimately be borne by the legally responsible parties (subject to any liability caps), it is useful to start from this categorization: Private Costs Damage to the oil rig and related equipment Containment costs to stop or reduce further oil spillage (e.g., efforts to cap wells, booms, dispersants, controlled burning) Cleanup costs incurred by responsible parties Lost oil Cost of litigation (including punitive damages or other penalties not directly related to above) External Costs Loss of life and injury to workers Containment costs to stop or reduce further oil spillage (e.g., booms, dispersants, controlled burning) Cleanup costs incurred by government agencie