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Commercial Question

The Future's Bright, The Future's Green

updated on 15 November 2005


What are the implications for companies under the Environmental Liability Directive?


In furtherance of the 'polluter pays' principle, the European Union has legislated to establish financial liability for the prevention and remedying of environmental damage caused by operators of occupational activities. By holding operators financially liable for environmental damage (or an imminent threat thereof), it is hoped that operators will develop practices and technologies to minimise the risk of causing such damage, and thereby reduce their potential exposure to liability.

In the United Kingdom the Environmental Liability Directive (ELD) supplements existing contaminated land and integrated pollution prevention and control regimes (respectively, under the Environmental Protection Act 1990, and the Pollution Prevention and Control Act 1999).

Who will be liable under the ELD?

Under the ELD an operator whose activity has caused environmental damage or the imminent threat of such damage will be financially liable for the costs associated with remediation and/or prevention of the damage.

The ELD makes a distinction between operators of activities that are regarded as inherently hazardous and operators of all other occupational activities. Operators of the former (a list of which is contained in an annex to the ELD and includes waste management operations and discharging substances into waterways) will be held financially liable for any environmental damage or threat of such occurring by reason of any of their activities. Effectively, operators of hazardous activities will be subject to strict liability for any environmental damage caused by those activities. However, such operators will not be liable for pollution of a diffuse character, where no causal link can be shown.

All other operators will be liable only for damage (or its threat) caused to protected species and natural habitats, and only if the operator has been at fault or negligent.

How will the ELD be enforced?

Member states are required to designate a competent authority, which will enforce the ELD. The competent authority will be required to:

  • establish which operator has caused any damage or imminent threat
  • assess the significance of the damage or threat
  • determine any remedial and/or preventative measures to be taken; and
  • require those measures to be carried out by the operator.

Where relevant, the competent authority may require third parties to carry out preventative or remedial measures. The costs of the competent authority are to be recovered from the operator.

What if the operator refuses to cooperate?

If the operator refuses to carry out the measures required by the competent authority, the authority will be able to carry out the measures itself as a last resort. The competent authority may then seek to recover its costs by way of appropriate guarantees or by obtaining security over the property of the operator.

What does the future hold?

The ELD requires member states to take measures to encourage the development of financial security instruments and markets with the aim of enabling operators to use financial guarantees to cover responsibilities under the ELD. The aim is that operators will still be able to meet their liabilities under the ELD, even if in insolvency.

Member states are required to transpose the ELD into law by 30 April 2007. Draft regulations are expected to be published by the government in Spring 2006.

Tim Johnson is a second-year trainee in Browne Jacobson's Environmental Team (Insurance and Public Risk).