Union divided over ‘polluter pays’ principle

Date: 30/05/1996

By Tim Jones

THE idea that polluters should pay for any damage caused by their industries is an appealing one. It satisfies the two principles of justice - retribution and rehabilitation - and saves money that would otherwise have to come from governments and, ultimately, taxpayers.

With it already operating in several member states and prominently in the United States, the European Commission is keen to create some form of common environmental liability system for the Union as a whole.

But, given the continued hostility of the 'big three' EU member states - Germany, the UK and France - to the idea, agreement on such a system is liable to remain a distant dream.

At the end of last year, the Directorate-General for the environment (DGXI) produced a report intended to spark debate on the subject. While many issues were left open, DGXI's intention was clear - a framework was needed to stipulate the kind of liabilities that polluters would face for causing environmental damage in the future.

The stipulation that any new rules would only cover future pollution incidents, and would not be applied retrospectively, came as a relief to industry and, in particular, Europe's insurance companies. The kind of 'joint and several liability' system in the US, which leaves companies open to legal action if they own land, plant or companies polluted in the distant past, was something they were anxious to avoid.

The Commission recognised that a retroactive system could lead insurance companies to pull out of the market and leave old industrial land derelict, since new firms would be frightened of incurring old liabilities.

Environment Commissioner Ritt Bjerregaard then called for two parallel studies to assess the potential economic impact of having a pan-EU liability programme and analyse the existing rules in member states.

The economic impact study is complete and gives an indication of the thinking of the environment directorate as it comes close to making proposals to ministers.

To begin with, it sets out the scale of the problem: environmental damage which is still to be put right amounts to close to 7&percent; of EU gross domestic product. With a bill this large potentially facing industry, a wide variety of liability systems would affect investment decisions.

The study helps narrow down the scope of any future proposals by showing that an economic case for a common system is easier to justify for pollution caused by a specific accident or gradually in a restricted place via material means such as the ground or rivers.

A liability scheme for long-running pollution, often of the air and coming from several sources, would be far more difficult to enforce and could be extremely costly.

The study concludes that any system should be based on strict liability for the polluter and penalties set according to the share of the pollution for which each company involved is responsible. The costs of restoring ecological sites should be carefully established and lending institutions protected in some way from liability run up by their borrowers.

Member states should also be encouraged to develop voluntary environmental liability insurance schemes along the lines of the protection and indemnity (P&I) mutual insurance system, which provides protection against risks not covered by normal marine insurance.

These mutual insurance clubs became more important in the wake of the gigantic environmental claims which followed the Exxon Valdez oil tanker disaster in Alaska in the late Eighties.

However, the study found that compensation funds financed by the industries concerned would be difficult to encourage since the majority of companies are unwilling to pay for pollution caused by their rivals in the market.

The problem for Bjerregaard is that many member states are reluctant to establish a common system, although for different reasons. While the Danes and Germans fear EU-wide legislation could dilute their own tough regimes, the UK doubts that a pan-EU system is needed at all.

The Commission, in the hope of winning over the sceptical member states, will aim to avoid being over-ambitious, focusing largely on damage caused to water supplies and natural habitats.

Nevertheless, Bjerregaard does not want to back off, given her belief that varied standards across the Union - enshrined in the Council of Europe's Convention on Civil Liability for damage resulting from activities dangerous to the environment - could undermine the single market.