Industry groups voice concerns over environmental liability law

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Stakeholders in sectors including insurance and chemicals have expressed concerns over the implementation of the environmental liability directive, with only eight member states having transposed this complex piece of legislation into national law some four months after the deadline.

A meeting of the ‘Ad-hoc industry Natural Resource Damage Group’, a group of industry experts focusing on natural resource damage assessment, expressed concerns on “how the Environmental Liability Directive will be implemented in practice”. The panel, made up of representatives of UK industry, insurance and petrochemical companies, outlined a number of issues related to the application of an environmental liability regime, including:

  • Legal interpretation issues arising in connection with a liability regime: definitions of “significant damage” and multi-partite cases of liability, plus situations in which companies may or may not  use exclusions and defensive measures (both permits and “state of the art” ones, i.e. emissions and activities that the operator proves are not likely to cause damage at the time the emission occurred, according to the states of scientific and technical knowledge) and overlaps of the new law with existing liability regimes;
  • technical issues related to the remediation of environmental damage,   such as the interpretation of “baseline conditions” and choices of methodologies for recovery;
  • lastly, financial security issues continue to be widely discussed. Under the directive, member states are free to make financial security compulsory but are supposed to “encourage the development of financial security instruments”.

To date, eight member states, including Italy, Lithuania, Latvia, Hungary, Germany, Romania, Slovakia and Sweden, have notified complete transposition to the Commission, according to Hans Lopatta from the Commission's environment directorate. "23 letters of formal notice were sent to member states on 1 June 2007 and the case will most likely be continued by addressing reasoned opinions in December 2007 regarding those member states who still fail to notify their transposing measures", he said.

Regarding the different options chosen by member states in transposing the Environmental Liability Directive, industry representatives have warned that the establishment of several liability regimes may lead to the distortion of competition. 

Environmental NGOs have strongly supported the idea of making liability insurance or dedicated funds compulsory, in order to avoid situations where an insolvent operator can evade liability. 

However, Phil Bell, from the insurance group Royal & Sun Alliance, argued that "the EU market does not meet the conditions required to create an environmental liability insurance market, in particular legal clarity and certainty". 

He stressed that "the more stringent the liability regime is implemented, as is the case in Hungary, the more difficult it will be to provide a financially-secure product." 

Gábor Baranyai from the Hungarian Ministry of Environment and Water reported that the Hungarian transposition was "one of the most stringent", without defensive possibilities for the operator and with a liability extended to executive officers and shareholders of polluting companies.

Alice Hume, from the Conferederation of British Industry (CBI),  said that UK industry was "supportive of the UK implementation proposals, in particular the adoption of the defences and the basis of proportionate liability for multi-party cases."

However, the environmental NGOs RSPB and BirdLife have recommended, in a policy paper, the exclusion of these defences, especially in relation to GMOs. 

"Not only do these two exceptions derogate from the 'polluter pays' principle and the principle of strict liability, but they also reduce the incentive to operate safely and prevent environmental damage. Moreover, once occurred, damage is less likely to be remedied and they introduce added legal uncertainty, making it harder for businesses to assess the relevant risks. 

"In addition, many of the activities listed in the ELD which are subject to the two exceptions are by their nature unsuitable for giving rise to the exceptions, as they involve very general permits or mere compliance procedures. This is especially relevant to GMOs," states the policy paper.

The directive aims to apply the 'polluter pays' principle and states that business must be held financially and legally liable for 'significant damage' to land, water, species and natural habitats protected under EU law.

While member states have been given an unusual period of three years to transpose this piece of legislation into national law, many are still dragging their feet, based on claims that they encounter legal uncertainties, in particular with regard to the definition of 'significant damage' and the conditions under which businesses may be exempted from the liability to bear the cost of damages (EURACTIV 02/05/2007).

The Commission is due to report on the implementation of the directive in 2010. The review will address:

  • The effectiveness of the ELD in terms of actual remediation of environmental damage;
  • Its availability at reasonable cost and under conditions of insurance and other types of financial security;
  • Considering a gradual approach to financial security, a ceiling for financial guarantees and exclusion of low-risk activities;
  • Extended impact assessment, including cost-benefit analysis, and proposals for a system of harmonised mandatory financial security, if appropriate.  

The Commission will also report on and propose amendments to the directive before 30 April 2014 on: 

  • Exclusions from international conventions;
  • Application of the ELD to environmental damage caused by GMOs;
  • Application of the ELD in relation to protected species and natural habitats; 
  • Instruments eligible for incorporation into Annexes III, IV and V.

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