Deepwater Horizon Oil Spill Sparks Calls for $10bn Levy on BP and Drilling Ban

The catastrophic oil spill in the Gulf of Mexico set off a political backlash against the oil industry today, with a demand for a ban on future offshore drilling. The rising anger at the long-term costs of the 200,000-gallon-a-day gusher of crude oil in the gulf also carried a financial sting.

On Capitol Hill, senators, flanked by environmental organisations, rolled out a proposal that would put oil companies on the hook for up to $10bn (PS6.5bn) for the cost of a spill.

The cap would be 133 times greater than the $75m bill that BP, the company which operated the Deepwater Horizon rig, faces under existing US laws for the spill following the rig explosion on 20 April.

"It's time to believe our eyes and accept the obvious risks of drilling," Robert Menendez, a Democratic senator from New Jersey, told a press conference.

Arnold Schwarzenegger, California's governor, had arrived at a similar conclusion, reversing his support for expanded drilling off the coast to help the state's $20bn budget crisis. "You turn on the television and see this enormous disaster, you say to yourself, why would we want to take on that kind of risk?" he told a press conference.

The spill does not appear to have forced a change of heart for the former governor of Alaska Sarah Palin, who popularised the Republican "drill, baby, drill" slogan in the 2008 election. She told an audience in Kansas City the country should continue with offshore drilling. "I want our country to be able to trust the oil industry."

But BP and other oil companies face further intense scrutiny of their practices in Congress. Company officials were due to brief members of Congress in a closed session this afternoon, with a public grilling scheduled for next week.

The backlash against oil firms is dangerous for Barack Obama, who angered many fellow Democrats and environmental groups in March when he announced a plan to expand offshore oil and gas drilling. The move was widely seen as a ploy to win support in the Senate, and from big oil firms, for climate and energy legislation.

But Bill Nelson, a Democratic senator from Florida, said that strategy would have to be abandoned. "I will make it short and to the point," Nelson told reporters. "The president's proposal for offshore drilling is dead on arrival."

Activists have also put pressure on Obama to permanently shelve the plan for expanded offshore drilling. In a new advert, containing images of a burning oil rig and oil-encrusted wildlife, the liberal Moveon.org group asks: "President Obama, will you lead our country into a clean energy future? Or will we see more of this?"

The potential fallout from the gulf explosion has put the Obama administration on a PR alert, scrambling to demonstrate full engagement with the spill, which threatens ecologically fragile areas from Louisiana through to Alabama and Mississippi and Florida, and could damage the livelihoods of millions of people.

After Obama's visit to Louisiana at the weekend the White House said a number of cabinet officials would return to the gulf coastline this week.

The proposals unveiled by the three senators today would raise the legal cap on damages that oil firms must pay after a spill from $75m to $10bn. They would also do away with a $1bn per incident cap on an industry fund. The existing limits on liability are 20 years old, dating from the Exxon Valdez spill off Alaska.

However, those limits do not apply if it is found that BP was negligent or had violated government regulations at the time the Gulf of Mexico rig exploded.

Tony Hayward, BP's chief executive, has stated that the company will bear the costs of the clean-up and any "legitimate" claims arising from those who have lost their livelihoods because of the spill. "We will absolutely be paying for the clean-up operation. There is no doubt about that. It's our responsibility, we accept it fully."

He said the company would also be prepared to pay claims to affected individuals. "Where legitimate claims are made, we will be good for them."

But Menendez and others argue that $75m will not begin to pay for the lost livelihoods of shrimpers and others in the fisheries industries. "We're glad that the costs for the oil clean-up will be covered, but that's little consolation to the small businesses, fisheries, and local governments that will be left to clean up the economic mess that somebody else caused," Menendez said.

Environmental activists have also begun to look more closely at how to recover costs relating to the spill. To date, BP faces about 20 lawsuits arising from the spill.

In Mississippi attention has focused on the high number of sea turtles washed up dead along the state's beaches in the past three days. The Institute for Marine Mammal Studies, in Gulfport, Mississippi, which has carried out necropsies on the turtles, said the first round of tests had found no visible traces of oil. A spokeswoman for the institute said that more detailed examinations were being done on tissue samples taken from the animals to see if there were signs of hydrocarbons at a microscopic level.

Though experts have been struck by the large number of turtles - "at least 31 in latest counts" - they point out that this is the season when the animals come close to shore and can get caught in fishing nets and suffocate. Moby Solangi, the director of the institute, said the heightened degree of public alertness in the wake of the oil crisis might also explain why more dead turtles were being reported this year.

In some of the first sightings of oil reaching land, reports said that the Chandeleur Islands, a haven for fish and birds in the Gulf of Mexico, had been affected by the slick. The Sierra Club of Mississippi, an environment group, which organised a flight over the islands, said there were already orange-brown patches of oil lying on the sand.