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Extending the 'polluter pays' principle: environmental damage regulations - International Law Office

International Law Office

Environment & Climate Change - United Kingdom

Extending the 'polluter pays' principle: environmental damage regulations

February 01 2010

Environmental protection regime
Extension of 'polluter pays' principle
Managing obligations and risks imposed by the regulations

Environmental protection regime

The EU Directive on Environmental Liability (2004/35/EC) is based on the 'polluter pays' principle. The directive imposes liability on operators of sites and activities for damage or threat of damage to protected species, natural habitats and sites of special scientific interest (biodiversity), as well as water and land. The directive requires operators to prevent, disclose and remediate such environmental damage.

The Environmental Damage (Prevention and Remediation) Regulations 2009, which came into force on March 1 2009, transpose the directive into UK law and impose two liability regimes for environmental damage. The first is the regime which imposes strict liability on operators listed in Schedule 2 of the regulations (including those covered by the pollution prevention control regime, waste management operators, those that discharge and abstract water and those that handle dangerous substances) for damage to protected species, natural habitats, sites of special scientific interest, surface and ground water and land.

The second is the regime which imposes fault-based liability or negligence on operators that are not listed in Schedule 2 for damage to protected species, natural habitats or sites of special scientific interest.

The regulations were amended in January 2010 to clarify their application in relation to marine habitats.

Extension of 'polluter pays' principle

The regulations extend the 'polluter pays' principle under UK environmental law in the following ways.

Proactive action and disclosure
Operators must be proactive in eliminating the threat of imminent environmental damage, or further damage where environmental damage has already occurred. Unless the threat has been eliminated, operators must disclose details of the threat or damage to the authorities. Previously, operators had a duty to report environmental damage only when the relevant environmental permit contained a specific requirement to do so.

Third-party representations
Third parties that are affected by environmental damage or that have a sufficient interest in environmental damage or risk thereof (including environmental non-governmental organizations) have the right to request authority investigations. The authority must consider the notification and invite the affected operator to respond to the allegations, and may require the operator to take preventative or remedial action.

Required levels of remediation
Where environmental damage has occurred, remediation is required to remove the risk to human health and, in the case of biodiversity and water damage, to return each to its baseline condition. An authority may require:

  • primary remediation to restore a site to its baseline condition;
  • complementary remediation (eg, at alternative sites where primary remediation fails or is incomplete); or
  • remediation to compensate losses while restoration is carried out, with the possibility of high remediation costs.

An operator may appeal a liability notice on the grounds that:

  • it was acting in accordance with an environmental permit;
  • the damage was caused by a third party, despite the operator having adopted all appropriate safety measures; or
  • it was not at fault or negligent and the damage was caused by an activity that the operator can demonstrate was not considered likely to cause environmental damage according to the scientific and technical knowledge at the time at which the emissions occurred or activity took place.

Managing obligations and risks imposed by the regulations

Businesses affected by the regulations should consider the following risk management options.

Desirability of undertaking environmental audits
As the regulations do not apply retroactively, operators may consider undertaking environmental audits of their sites to establish a baseline against which any future damage can be assessed. However, audits may uncover new or continuing environmental damage which the operator is then required to disclose to the authorities and remediate (unless such damage is entirely eliminated). Such considerations are also important in the context of pre-acquisition environmental due diligence.

Need for effective environmental compliance systems
The prevention and reporting obligations imposed by the regulations require operators to create and implement sound environmental compliance systems to ensure that:

  • they can comply fully with their environmental permit conditions and best practice techniques;
  • they can assess quickly environmental risks associated with their operations;
  • they can take all practical steps to prevent environmental damage; and
  • they have a system for reporting threats and damage to the authorities where necessary.

Adequacy of environmental insurance
In light of the increased obligations under the regulations, operators must consider whether existing public liability policies will cover the increased risk of liability. Claims by the regulator, and losses arising from gradual pollution and those relating to compensatory remediation, are generally excluded from public liability insurance (as demonstrated in Bartoline Limited v Royal & Sun Alliance Insurance PLC ([2006] EWHC 3598 (QB))).

Need for contractual protection from environmental liability
Traditionally, environmental indemnities have excluded liability for proactive or voluntary remediation. These types of limitation must be reconsidered in light of the proactivity and disclosure obligations imposed by the regulations. In particular, disputes may arise over whether notification of the authorities is required (except in cases where the threat of damage has been entirely eliminated). The Department for Environment, Food and Rural Affairs guidance on the regulations requires operators to adopt precautions in relation to the duty to disclose.

Disputes may also arise over whether any remedial action taken (and claimed for under the indemnity) goes beyond the minimum required under the law, as environmental indemnities normally exclude cover where remediation has been 'gold plated'.

For further information on this topic please contact Angela Mouton or Christopher Norton at Lovells LLP by telephone (+44 20 7296 2000), fax (+44 20 7296 2001) or email (angela.mouton@lovells.com or christopher.norton@lovells.com).

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