ECCE presented a detailed position paper on this issue in 2000 following the Commission’s adoption of a White Paper on the subject on 9th February 2000 (COM(2000)66 final).  A number of options had been examined for Community action and, following a substantial consultation the Commission concluded that the most appropriate option was a Community framework directive on environmental liability. http://europa.eu.int/comm/environment/liability/index.htm

(The paper is to be found on http://www.eccenet.org under the menu heading “Position Papers”)

The European Parliament Environment Committee approved the draft directive in February, based on the 2002 Commission proposal.  The 2002 proposal, if passed, would make polluters directly accountable for the environmental damage they cause.  Although the “polluter pays” principle is enshrined in EU treaties, no workable mechanism for its implementation exists.

‘Prevention rather than cure’ is the motto of the current draft directive which intends to make polluters take all possible precautions by assigning liability at source.  Failing this, polluters must pay the price for clean-up operations.  Greek MEP and Environment Committee member Mihail Papyannaikis stated that “the costs of environmental restoration should be borne by the polluter, not the taxpayer.  A set of clear and strict rules on who pays the bill for cleaning up should certainly make industrial operators think a little bit more carefully about the risks they take”. 

Objections to the draft come from industry and farmers who say it will unfairly increase the legal and economic pressure they face.  Eurochambres, the association of European chambers of commerce, would like to see the draft modified to ensure that enterprises working within existing legal frameworks and not acting negligently are exempted from liability.  However, the Environment Committee has proposed certain amendments to tighten draft legislation in line with concerns of environmentalists such as Friends of the Earth who believe that if business pollutes the environment, the environment will pay the price and taxpayers will foot the bill.  Environment Committee amendments include remove of the “compliance with permit” clause and the introduction of mandatory environmental insurance within five years of the directive’s entry into force.

A vote on the draft Directive is expected to take place at the plenary session of the European Parliament in May 2003.

Some harmonisation of the financial security provisions, notably their mandatory nature is considered necessary to fulfil the aims of ensuring functioning of the internal market and avoiding distortion of competition.

A UK study by the Department for Environment, Food and Rural Affairs stresses that different financial security mechanisms do not serve the same functions.  It is important to know what objectives a requirement for compulsory financial security addresses, in order to connect objectives with particular mechanisms and to ensure that these are available for operators.  Costs, based on a selection of core industries whose activities fall under Annex 1, can not be compared like for like because each mechanism functions differently.

The Greek Presidency has suggested a step-by-step approach to dealing with the issue of financial security:

1. For an initial three-year period, there will be no mandatory financial security.  At the end of this period financial security would become mandatory for activities listed in Annex I, part A.  After a further three years, this obligation would extend to Annex I, parts A&B.

2. The Greek Presidency has introduced several elements of flexibility in to the text.

A distinction is introduced between liability per se and the financial cost allocation in relation to remedial measures for “permit” and “state of the art” defences (Article 8(4A)).

The Member State can put in place appropriate procedures to identify to what extent the costs of remedial measures are to be borne by the operator, case by case.  These defences are now mitigation factors when an operator who has taken preventive measures, proves that he was complying with the conditions of his permit or was operating in accordance with the “state of the art” scientific and technical knowledge.  Alternatively, competent authorities can opt not to adopt remedial measures in such cases (Article 6(4)).

The Presidency believes that the insurance sector would be better prepared to insure environmental damage and that the negative impact on European industry would be minimised if the elements outlined in the Remedial Measures (above) are considered, together with recognition of the fundamental importance of the polluter-pays principle.  They believe it should also be noted that defences made available through the draft Directive would cover most of the activities listed in Annex I, while maintaining an emphasis on preventive measures.

The UK report mentioned above, however, emphasises the problems that may be faced in developing a market for compulsory environmental liability insurance.  It notes that the insurance market may not offer insurance products to meet a requirement for compulsory insurance.  If it does, these products may not be able to cover all operators who require this cover.  The general insurance market is moving away from covering environmental liabilities; many larger companies have historic environmental liabilities on their books and do not want exposure to similar risks.   Insurance companies always “cherry-pick” the best risks. All representatives from the insurance market oppose compulsory insurance.  The US insurance and reinsurance markets, amongst others, have a general fear of environmental liability.  The UK specialist market is very small (maximum £50 million premium income) yet it might have to grow to over £2 billion.

Nonetheless the UK foresees two more optimistic possibilities that might be considered in developing the insurance market.  The first would involve developing a commoditised market, the second supposes that the market offers products without changing structure/methodologies for calculating premiums.

Financial Security Questions for discussion in Council:

1. Is the approach described above for a phased-in implementation of a mandatory financial security sufficient to allow:

- Member States to put into place relevant mechanisms guaranteeing financial security for remediation measures

- the private sector to take the necessary measures to cover the cost of significant environmental damage

2. Would it be desirable and/or possible to further identify the cases in which a financial security should be of a mandatory nature, through development of criteria such as:

- environmental risks entailed by the operation

– type of damage entailed (e.g. to soil, water, protected species and natural habitats)?

The term “biodiversity”, originally proposed by the Commission, has been changed by the Presidency to “protected species and natural habitats”. The intention of the Presidency and some Member States is to be more consistent with the actual coverage of the Directive.  The underlying view is that the Directive should cover damage to protected species and natural habitats as defined by EU legislation, and if the Member State so decides, to other habitats or species which the other Member State designates for equivalent purposes.

Other delegations consider that the Directive’s focus should be on protected natural habitats.  Protected species should only be covered within the limits of these protected habitats.  These delegations believe that the operator could be aware of what species he is damaging outside such identified protected areas.  Thus the operator could not be held responsible for remediation of the damage caused.  Another view held by some delegations is that the Directive should not give the option to Member States to cover other habitats or species, which are designated for equivalent purposes.

Species/Habitat Questions for consideration:

1. Should the definition of “protected species and natural habitats” cover: - protected species and natural habitats as proposed by the Presidency (including the option for Member States to include other protected zones and species) or

- protected species and natural habitats as defined by EU legislation, or

- protected natural habitats, and protected species as far as they occur in these EU protected habitats.