The compensation system for marine ecological damage resulting from offshore drilling in China

In the past four decades that China has devoted to its offshore oil exploration and production, a model of joint development between the China National Offshore Oil Corporation (CNOOC) and foreign operators has been used. Drilling for oil offshore is a challenging task with multiple hazards, as oil spills both from daily operations and from offshore accidents, endangers the marine ecosystem of nearby waters. Unlike traditional damage (i.e., personal injury and property damage) via the environment, tort liabilities resulting from marine ecological damage require a separate regime where relevant rules are scattered in different legal instruments. Some unique features rooted in the Chinese offshore oil industry fundamentally shape the liability distribution and the approaches to ecological remediation. The Bohai Bay Oil Spill in 2011 demonstrated that China was in urgent need of dealing with this issue in practice. This study will describe the applicable legal remedies concerning this type of damage and analyse the existing compensation system. Based on a law and economics approach, some observations are made on the efficiency of the regime to evaluate if the applicable rules are in line with economic starting points when compensating marine ecological damage arising from offshore drilling. •Description of the current liability system aiming at marine ecological damage arising from offshore drilling in China.•The overwhelming role of the public administration in tackling ecological remediation as a result of offshore drilling.•A case study of the Bohai Bay oil spill case to confirm the compensation system in practice.•A critical analysis of the existing compensation system for marine ecological damage based on a law and economics perspective.