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CASE NUMBER: 88
CASE MNEMONIC: EXXON
CASE NAME: Exxon Valdez Disaster
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I. IDENTIFICATION 1. The Issue
Just after midnight on March 24, 1989, the Exxon Valdez, an oil tanker, hit Bligh Reef in the Prince William Sound dumping 11 million gallons of crude oil into the pristine blue waters, the worst oil spill in United State's history. The Prince William Sound, an island body of water off of Alaska's southern coast, is home to one of the country's richest concentrations of wildlife, as well as booming fishing industries and native villagers. The sound also serves as a thorough fare for the Alyeska Pipeline's oil tankers shipping oil to the consumers of the lower 48 states.
Alaska's natives, fishermen and environmentalists have always been weary of the oil industry's foothold in the region for the potential risks of an oil spill. On that spring night their worst fears had been realized. This accident would touch off a battle between the native Alaskans and the oil industry, both in the court room and in the press, not only over the culpability for the accident but the future of the region and the future of oil transportation and oil spill readiness.
Exxon led the clean up effort with 11,000 workers in the summer months expending some $1.9 billion dollars. Sea otter rehabilitation centers were established while salmon and herring fisheries were closely isolated and monitored. Even today, over five years later, scientists are still attempting to determine the ecological damage caused by the spill.
During the 1960's the oil industry established the Alyeska consortium made up of the Seven Sister Oil companies. They began construction on the Alyeska pipeline in order to transport the crude extracted from remote regions of Alaska's North Slope to Port Valdez where it could be loaded into oil tankers and delivered to the hungry 48 states below. The Exxon Valdez, after receiving 53 million cargo of crude, pulled away from the Valdez pipeline terminal at 9:26 P.M., on its 28th trip out of the sound since its construction in 1986. The trip to Long Beach California, its destination, was to take five days and a half days.
The Exxon Valdez is one of the largest vessels on water. Almost a thousand feet long, it moves with tremendous force through the water. At its top speed of 15 miles per hour it would take 3 miles for it to come to a halt. On board that night was Captain Joseph Hazelwood, a harbor pilot, and third mate Gregory Cousins. Once the harbor pilot had safely guided the huge vessel through Valdez Narrows and past Rocky Point he departed, and left the tanker in the command of Captain Hazelwood.
Although the weather that night was conducive to traveling, some small icebergs (growlers) had drifted into the sound from the Columbia Glacier. Captain Hazelwood radioed to the Coast Guard station that he would be changing course in order to avoid the growlers. Growlers are chunks of ice from glaciers which make a growling sound when knocked against the ship's hull. The captain received permission to move into the northbound lane. Before retiring to his cabin, Captain Hazelwood instructed his third mate Gregory Cousins to steer the vessel back into the southbound lane once it passed Busby Island. Although Cousins did give the instructions to the helmsman to steer the vessel to the right, the vessel was not turning sharply enough and at 12:04 a.m. the vessel hit Bligh Reef. It is not known whether Cousins gave the orders too late, the helmsman did not follow instructions properly, or if something was wrong with the steering system of the vessel.
The impact was so forceful that it ripped through its cargo tanks, spilling tons of oil into the sound so quickly that it created waves of oil three feet above water level. Hazelwood, attempting to get the vessel loose from the reef did not phone the Coast Guard until twenty minutes after the collision, finally gave up maneuvering the vessel nearly two hours later.
All told, over 11 million gallons of oil leaked out into the Prince William Sound creating the worst oil spill in American history. One of the conditions on which the Trans Alaska Pipeline was constructed was that Alyeska submit an oil spill response plan. According to that plan, Alyeska would be at the site with response equipment within five hours of the spill. However, at the time of the Valdez spill, little of the oil-containment equipment was ready and the barge which should have much of the equipment already on it sat nearly empty. It would be ten hours before clean up crews would arrive, at this point the oil slick had spread for miles.
The weather was also uncooperative for an effective early clean up. Additionally, waters were too calm to use oil clean-up chemicals called "dispersants" which are sprinkled on the water by airplane. Dispersants break up the oil and work best in rough seas where they spread and foam, like dishwater soap. When the seas finally started behaving, the skies were much too stormy for planes to fly and spread dispersants. By the third day, the slick had covered 100 square miles and was spreading. There were simply not enough containment booms to prevent the oil from spreading. The amount of oil was overpowering.
Perhaps the most interesting, effective, and technologically advanced method of clean up is bio-remediation. This is a process whereby the chemicals nitrogen and phosphorous are sprayed on oil contaminated soil and rocks. These chemicals then act as a catalyst to the growth of micro-organisms naturally protecting the environment which break down oil. This technique could actually double the speed of natural oil removal.
SHETLAND case
KOMI case
IRISH case
KUWAIT case
WALESOIL case
ECUADOR case
RUSSOIL case
HONGKONG case
COLOMOIL case
OGONI case
Keyword Clusters
(1): Trade Product = OIL
(2): Bio-geography = POLAR
(3): Environmental Problem = Pollution Sea (POLS)
5. Discourse and Status: DISagree and INPROGress
In order to make the trial easier to understand for the jury,Judge Holland divided the case into four phases. At the conclusion of the first phase, which ended in June, 1994, a Federal jury determined that Exxon and Mr. Hazlewood had acted recklessly. This decision cleared the way for the third phase in which the jury would award punitive damages. During the second phase, which ended in August, the jury began to side with Exxon's contention that skimpy supplies of herring and salmon could not be entirely attributed to Exxon, and awarded some 10,000 fishermen $286.8 million in compensatory damages, only a third of the amount they were seeking. While the jury was deliberating in the second phase, 3,500 Natives who claimed subsistence harvest losses settled with Exxon for $20 million.
Also, a handful of coastal communities settled their claims against Exxon for another $1 million. The third phase was to determine punitive damages for about 34,000 fishermen, some 4,000 native Alaskans, and several thousand more Alaska residents, land owners and others, who claimed that they had been harmed by the spill. On September 16, 1994, the Federal jury ordered the Exxon Corporation to pay $5 billion in punitive damages, the largest punitive award ever against a corporation. The jury also ordered the former captain of the Valdez, Joseph Hazelwood to pay $5,000 in punitive damages. Exxon said that the decision was too severe and that they would appeal the decision. The fourth phase is to begin this fall, 1994 where a new jury will decide if whether to award $300 million in damages to crab fishermen and other specialized groups who were not included in the earlier trial.
In addition to the federal trial, is the state trial where a jury decided to award$9.7 million out of the $120 million to Native corporations and Kodiak Island Borough for land damages.
7. Decision Breadth: 1 (USA)
The total number of plaintiffs has not yet been tallied but is in the range 40,000-50,000.
This case was tried mainly under the century-old maritime law. This case also has spurred the enactment of other new statutes and regulations such as the Oil Pollution Act of 1990 which assesses liability for accidental oil spills. For example, "by congressional decree, federal and state agencies are authorized to make a damage assessment that will result in a financial claim against the spiller sufficient to cover costs of complete restoration".
Also, the MARPOL Convention of 1993, an international treaty under the International Maritime Organization now requires double hulls on all new oil tankers and may have been further supported by such accidents as the Exxon Valdez.
III. Geographic Clusters
a. Geographic Domain: North America [NAMER]
b. Geographic Site: Western North America [NNAMER]
c. Geographic Impact: USA
The great oil slick eventually drifted 500 miles, contaminating 1500 miles of shoreline covering an area 10,000 square miles. If you were to superimpose the length of the area covered by the spill onto the east coast of the U.S. it would stretch from Massachusetts to North Carolina.
The native Alaskan communities were considered a separate class of citizens with a separate suit, however, they were not able to make claims much different from other Alaskans. Judge Holland rejected the claim that the Native Alaskan Corporations, which were created by Congress to manage lands deeded to Alaska's Eskimos, Aleuts, and Indians, should be compensated for non-economic damages due to their culture and subsistence lifestyle. The judge maintained that "the affront to Native culture...is not actionable on an individual basis." The loss they sustained to their culture was the same economically and non-economically as the other Alaskans in the other suits.
IV. Trade Clusters
The type of measure used to change the behavior of Exxon and other oil transport companies is legal in the form of punitive and compensatory damages. As mentioned earlier, this spill and others similar to it have spurred the enactment of regulations.
The Exxon Valdez oil spill had great trade impacts both for the plaintiffs and the defendant. Although the Alaskan oil industry annual revenues of $8-$10 billion dwarf the $1 billion earned by the Alaskan fishing industry, the actual impact on the lives of the fishermen and native Alaskans is felt more severely.
During that spring of 1989 the state canceled the opening to the herring fisheries and restricted the salmon take. Due to these closings, the commercial fishermen lost $136.5 million the year of the spill. According to Brian O'Neill, the attorney for the plaintiffs, the fishermen have lost a total of $580.4 million because of spill tainted the reputation of Alaskan salmon. Further losses cited by the attorney included $154.8 million more due to damage to the ecosystem and depleted fish stocks.
The fishermen are also suing due to a drop in the value of their fishing permits. O'Neill stated that the fishermen who tried to get out of the business lost $23.3 million when they attempted to sell their fishing permits. To counter these claims Exxon stressed that due to an increase in the world supply of fish in recent years, the world price has dropped. It is also important to note that salmon runs of the summer of 1994 were much higher than projected, signaling perhaps that lingering oil contamination affecting salmon is no longer a valid claim. Judge Holland did not allow this new evidence to be disclosed to the jury however, because they were in the midst of deliberating when the result of the 1994 salmon run was announced.
Losses sustained just after the spill however remain a strong point for the plaintiffs. In addition to the salmon and herring fisheries, areas were closed to shrimp, crab, and to bottom fishing. The long term effects on trade have yet to be determined but state studies have shown that although there were record catches of pink salmon in 1990 and 1991, and of herring in 1991 and 1992, the numbers of both species plummeted in the summer of 1993 with the area's lowest harvest since 1978. Translated into dollars, the record shows that the value of commercial salmon harvest in Prince William Sound in the year before the spill was nearly $70 million. Last year in 1993, the value of the harvest was approximately $24.7 million.
Exxon is still making the claim that this drop in numbers may be due to cyclical changes in ocean temperatures which affect the food supplies of fish. However,federal and state studies conclude that indeed the oil spill continues to have toxic effects on the wildlife in the area. The controversial question remains as to whether the falling prices of salmon are due to a world glut of farm salmon from foreign markets and from high inventories in Japan or from a tainted reputation due to the oil spill (see SALMON case).
The great cost to the Exxon corporation in the clean up, settlements, legal
damages and fees, will probably be passed onto the consumer. Additionally, the
new clean up response systems established by the Seven Sisters and the
possibility of constructing the expensive double hulled ships will add on great
expense to the operating costs of oil companies. An industry consortium has
already pledged over $250 million toward oil spill research and regional response
centers.
The Alaskan tourism industry was also significantly hard hit by the spill,
reporting substantial financial losses according to a report prepared by the
McDowell Group, entitled "An Assessment of the Impact of the Exxon Valdez Oil
Spill on The Alaska Tourism Industry." The major negative effects taken from the
report are as follows.
o Decreased resident and non-resident Vacation/Pleasure visitor traffic
in the spill-affected areas of Valdez, Homer, Cordova, and Kodiak.
o Of the businesses surveyed, in spill-affected areas, 43% felt their
business had been significantly or completely affected by the oil spill in
Summer 1989.
o Severe labor shortage in the visitor industry throughout the state due
to traditional service industry workers seeking high-paying clean-up jobs. The
result was a higher cost of doing business among visitor industry businesses.
o 59 percent of businesses in the most spill-affected areas reported
spill-related cancellations and 16 percent reported business was less than
expected due to the spill.
o The business segments most negatively affected by the spill included
lodges and resorts, Alaska-based package tour companies, guided outdoor
activities, charter and sightseeing boats. These businesses were not able to
reap the benefits of spending due to accommodations for the clean-up because they
were too far from the clean-up operations.
o Visitor spending decreased 8 percent in South central Alaska and 35
percent in Southwest Alaska from previous summer spending, the two major
spill-affected areas. The net result was a loss of $19 million in visitor
spending.
o As for long term effects, many in the industry feel that Alaska's
reputation for a pristine natural environment is tarnished. Some positive
effects found their way into the tourism industry with spill related business in
hotel/motels, car/RV rentals, air taxi and boat charters.
a. Directly Related to Product: YES OIL
b. Indirectly Related to Product: NO
c. Not Related to Product: NO
d. Related to Process: YES Pollution Sea [POLS]
16. Economic Data
17. Impact of Trade Restriction: LARGE
The relationship between the salmon trade and the spill was described by Robert Mendelssohn, a Yale University professor who specializes in evaluating pollution's toll on the environment. He said that the 1989 spill allowed the farmed salmon from Norway and Chile to "usurp Alaska's favorite spot among Japanese consumers." Japan consumes most of the red salmon harvested in Alaska and government-funded sources have identified pen-reared salmon as the main competitor for Alaska. According to Mendelssohn, Alaskan salmon still have a tainted image and are suffering in lower quantities ordered and lower prices.
Regarding the competitiveness of Exxon's stock, the stock market has indeed responded along with the jury. In June when Exxon and Capt. Joseph Hazlewood were found to be reckless in causing the spill, Exxon's stock lost ten percent of its value. When the verdict for $287 million was released, Exxon's stock actually rose $2 a share because the award was a lot less than was anticipated. When in September the verdict of $5 billion in punitive damages was made public, the stock market again responded by raising the value of an Exxon share because many analysts had expected a bigger verdict. Another major impact is a rise in consumer prices for Exxon oil.
19. Exporters and Importers: USA and JAPAN
V. Environment Clusters
This oil spill also created problems in biodiversity and general habitat loss.
Name: Salmon
Type: Fish
Diversity: 2,036 higher plant species per 10,000 km/sq (USA)
According to the damage assessment studies of the National Oceanic and Atmospheric Administration and other state and federal agencies:
o some 3,500-5,000 sea otters died (or a third of all otters in the Prince William Sound),
o one pod of killer whales lost 13 of its 36 members.
o Some 200-300 bald eagles perished,
o 175,000-300,000 common murres died,
o The fry of pink salmon were found to be genetically abnormal,
o Millions of herring larvae that hatched in oiled areas developed structural defects which lead to their deaths.
Other species in this region include: clam, mussel, urchin, sea cucumber, chiton, crab, roe, sea lion, seal, deer, bear, porcupine, duck, mink, berry, wood. The sea lions died from one of two causes; either from hypothermia due to the thick oil on their coats preventing its insulating ability or from the ingestion of the toxic oil. Many of the birds also died from the same causes. The eagles died in many cases from eating the contaminated bodies of other dead birds. Luckily, the phyloplankton appears to have been unharmed. This is the source of the food web and if the plankton blooms had been harmed, it would have had catastrophic effects throughout the food chain.
23. Urgency and Lifetime: HIGH and 5-10 years
The long term effects on the Alaskan ecosystem have yet to be determined. No species were in danger of extinction from the oil spill.
Finding viable and sustainable energy resources other than oil, such as solar and nuclear power. There are no substitutes for the fish and other species lost.
F. OTHER Factors
VI. Other Factors
The culture or way of life of the Alaskan native communities were very much effected by the oil spill. Their subsistence way of hunting, gathering, and fishing was threatened and altered. Their claims were given separate attention. Exxon attempted to appease them by compensating them initially with money, flown in groceries, and when native villages began to complain of missing their subsistence foods, Exxon arranged to have seal meat and seaweed shipped in.
Luckily, the spill was contained in American waters and did not reach Canadian waters.
The native villagers were being dispossessed of their livelihood.
"An Assessment of the Impact of the Exxon Valdez Oil Spill on The Alaska Tourism Industry," prepared for Preston, Thorgrimson, Shidler, Gates, and Ellis, prepared by the McDowell Group, August, 1990.
Carr, Terry, Spill! The Story of the Exxon Valdez, New York: Franklin Watts, 1991.
Davidson, Art, In The Wake of the Exxon Valdez, San Francisco: Sierra Club Books, 1990.
Keeble, John, Out Of The Channel: The Exxon Valdez Oil Spill in Prince William Sound, New York: Harper Collins, 1991.
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