The Deepwater Horizon Oil Spill and Seafood Prices

• Date: 01 November 2010

11-2010 NEWS & ANALYSIS 40 ELR 11111

The Deepwater Horizon Oil

Spill and Seafood Prices

by David A. Argue, Ph.D.

Dr. David A. Argue is a Corporate Vice President and Principal of Economists Incorporated in Washington, D.C. He is

one of the authors of the study of Alaska seafood prices after the Exxon Valdez oil spill that is discussed in this Article.

The Deepwater Horizon oil spill in the Gulf of Mexico

is a disaster of major proportions. e commercial

and natural resources damages that will arise from

the spill may ultimately be similarly signicant. e Exxon

Valdez oil spill in 1989 is often compared as the closest, if

imperfect, historical example of how the Gulf spill will be

treated. After the Exxon Valdez spill, shermen claimed pure

economic dama ges related to alleged depression of seafood

prices in addition to losses from forgone catch in closed

sheries. ese types of pure economic losses are a llowed

under the Oil Pollution Act (OPA) of 19901 and are likely

to be among those at issue in the Deepwater Horizon spill.

To quantif y such claims, it will be necessary to estimate

the seafood prices that would have prevailed if the spill had

not occurred. A study prepared for the Trans-Alaska Pipe-

line Liability Fund after the Exxon Valdez spill undertook a

comprehensive, multi-model estimation of price eects for

12 species of seafood in several sheries at dierent levels

of production.2 It based the estimation of price eects on

the fu ndamental supply and demand forces that determine

prices of Alaska seafood. is modeling approach could serve

as a template for the pure economic losses arising from the

Deepwater Horizon oil spill.

I. Pure Economic Losses

For both practical and historical reasons, the fu ll measure of

damages is not a llowed in claims following some accidents.

Damages from an accident that have in the past been d isal-

lowed for some parties following an oil spill are those charac-

terized as “pure economic losses.” is term refers to a loss of

earnings from an accident that is unrelated to any accident-

caused injury to the victim’s property. In the context of an oil

spill, these pure economic losses might include the lost prots

of shermen who were unable to access a shery that was

closed because of contamination. No injury occurred to the

shermen’s vessels, gear, or other property, but they lost earn-

ings in any event. Simila rly, a holiday resort may suer pure

economic losses from an oil spill if swimming o its beaches

1. 33 U.S.C. §§2701-2761, ELR S. OPA §§1001-7001.

2. B M. O  ., T E   D: T EXXON VALDEZ

O S (1995).

is prohibited because of fouled water. In principle, pure eco-

nomic losses can be quantied as the unit volume of lost sales

valued at the appropriate market price, less the costs of mak-

ing the goods or services available. e appropriate price for

valuing t he lost sales is the price that would have prevailed

had the accident not occurred. Other than some legal issues

of whether both the shermen a nd the resort owner have

compensable claims under maritime law (or, more relevantly

since 1990, under the OPA), there is little that is unusual

about such a damage claim.

A more distinctive claim of pure economic loss from an oil

spill relates solely to prices. Such a claim may involve allega-

tions that the accident adversely aected prices even for par-

ties that did not lose unit sales. It may also aect the correct

valuation for those that did lose sales. Damage claims for

price declines of this nature were raised by Alaska shermen

following the Exxon Valdez oil spill and could be brought

in relation to the Deepwater Horizon oil spill in the Gulf

of Mexico. e OPA allows commercial entities to claim

“[d]amages equal to the loss of prots or impairment of earn-

ing capacity due to the injury, destruction or loss of real

property, personal property, or natural resources, which shall

be recoverable by any claimant.”3 is language in the statute

could be interpreted to include price depression even without

any reduction in seafood harvests. Because the OPA was not

in eect at the time of the Exxon Valdez spill, the shermen’s

claims of depressed prices were adjudicated under maritime

law, which normally bars pure economic losses. e sher-

men maintained a right to sue, however, under the “Oppen

exception” to Robins Dry Dock & Repair C. v. Flint.4

Whether an oil spill actually creates price eects on sea-

food is a question that requires empirical study, and this

Article focuses on methods for determining whether seafood

prices were aected by an oil spill. It is worthwhile, however,

to put that in the context of other damages that might be

claimed under the OPA. e ty pes of damages under the

OPA are generally classied as follows5:

3. 33 U.S.C. §2702(b)(2)(E).

4. See Robins Dry Dock & Repair C. v. Flint, 275 U.S. 303 (1927) (Holmes,

J.) and Union Oil Co. et al. v. James J. Oppen et al., 501 F.2d 558 (9th Cir.

1974).

5. 33 U.S.C. §2702.

Copyright © 2010 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.