New delay to ‘polluter pays’ plan

Date: 25/07/1996

By Michael Mann

EUROPEAN Commission plans to harmonise the 'polluter pays principle' across the EU will not see the light of day until the autumn, despite earlier suggestions that proposals would be ready before the end of July.

They are not now expected before October, giving officials from various directorates-general time to thrash out their outstanding differences over the plan.

Even then, the Commission will not bring forward concrete legislative proposals, but rather a paper which will form the basis of an 'orientation debate' in the full college of Commissioners.

Still deeply nervous about revealing their hand, officials in DGXI (environment) are beginning informal meetings with their colleagues. They have already compared notes with the insurance industry on the findings of two independent studies on the economic and legal implications of an EU-wide liability scheme.

Among other things, these found that the level of environmental damage still to be rectified amounted to close to 7&percent; of the Union's GDP.

European business is clearly deeply concerned at the possible effects of the Commission's approach, as are the 'big three' member states - France, Germany and the UK - although for quite different reasons.

The UK and France are not convinced of the need for an extra legislative burden on industry, while Germany fears its own tough regime could be diluted.

Stressing its oft-repeated mantra of competitiveness, the European employers' federation UNICE claims that the “harmonisation of environmental liability ... is likely to increase the burden on industry and have a negative effect on competitiveness”.

UNICE points particularly to one of the economic study's findings, which concluded: “It seems unlikely ... that existing liability systems in EU member states are currently creating any significant distortion of trade.”

Aware of the inherent problems in trying to push things too far, the Commission will limit itself to a basic framework to stipulate the kind of financial liability firms will face for causing environmental damage in future.

The system will be limited to future pollution, because of concern in the insurance sector that the kind of “joint and several liability” in operation in the US would discourage industry from making major investment decisions.

Under this type of arrangement, “if you cannot find the person responsible for the pollution damage, the last one there has to pay the whole lot”, said an insurance expert.

A Commission official said “gradual and accidental damage” would be covered, providing that a “causal link could be firmly established in solid economic terms”, although he stressed that no attempt would be made to make new rules retrospective.

But officials deny that any EU liability scheme would be limited in scope to water supplies and natural habitats. “It would cover all types of damage and include impairment of the environment in a wide sense,” said one.

Officials are also aware of the market's limitations in establishing compensation funds financed by industry, since the majority of firms would be unwilling to pay for cleaning up pollution caused by their market rivals.

The Commission will have to set up a hard and fast system to establish the cost of restoring sites to their former state and provide protection for lending institutions.

But the insurance sector remains sceptical of attempts to quantify the costs of repairing pollution damage. “Certainly, the experience in the US is that clean-up targets have never been that realistic. Often people wanted to restore sites to a better condition than they were in the first place,” said an analyst.

The industry remains convinced that the best approach is a market-based solution, but has prepared itself for the possibilty that it might have a legislative system imposed from above.

But uncertainty within the Commission gives only a mild foretaste of the potential problems to come. Whatever the Commission proposes will have to fight its way through the co-decision procedure and will face strong opposition from European business and some of the Union's most powerful member states.