Liability of the lands

The European Commission has for some time been considering whether, and how, to impose a EU-wide environmental liability regime. In February this year, it adopted a White Paper proposing a structure for such a system, based on the polluter pays principle. Helen Loose is head of the Environmental Risk Management Group with Ashurst Morris Crisp.

According to Article 174(2) of the EC Treaty: “Community policy on the environment shall be…based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay.”

And, the theory goes, if the polluters have to pay, they will cut back pollution to the point where the marginal cost of abatement exceeds the compensation avoided. “Thus,” says the White Paper, “environmental liability results in prevention of damage and in internalisation of environmental costs. Liability may also lead to the application of more precaution, resulting in avoidance of risk and damage, as well as it may encourage investment in R&D for improving knowledge and technologies.”

It is nevertheless limited in the sense that it is a framework directive intended to operate as the basis for a more comprehensive liability regime in the future. This limitation is deliberate and is portrayed as an attempt to ensure that the “risks arising from the regime” are “better calculable and manageable”. The danger, of course, is that if the matrix is inadequately drafted, unanticipated consequences will flow out of that inadequacy.

The White Paper envisages that the regime will cover environmental damage (site contamination and damage to biodiversity) and traditional damage (harm to health and property). The regime will not be retroactive and will therefore apply to future damage only. Furthermore, only “significant damage” will be covered by the regime, though the definition of this term has yet to be finalised.

Under the proposed regime, strict liability will apply where damage results from any EC-regulated hazardous or potentially hazardous. Strict liability excludes the need to establish fault, something which may make sense in the environmental context. There is also a view that someone carrying out an inherently hazardous activity should bear the risk if things go wrong.

Afford a defence

Fault-based liability will apply in relation to biodiversity damage in Natura 2000 areas – around 10% of EU territory designated by Member States under the Wild Birds Directive (1979) and the Habitats Directive (1992) – resulting from unregulated non-dangerous activity, with the State being responsible for resoration or compensation if fault cannot be established. This type of liability requires deliberate conduct or negligent acts or omissions. Compliance with, for example, the conditions of a permit may not necessarily afford a defence and state-of-the-art or development risk defences are unlikely to be favoured.

An important point to note is that the White Paper proposes that liability will be financially unlimited.

The White Paper acknowledges that the availability of insurance is an important factor in ensuring that the goals of an environmental liability regime are reached. However, a system of compulsory insurance is not currently proposed, ostensibly because it is thought that potential polluters will voluntarily manage the risk by such means.

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