The Environmental Damage (Prevention and Remediation) Regulations 2009 were brought into force on 1 March 2009 in England and put in place a new environmental liability regime that will impose liability on operators of activities that cause or threaten environmental damage after that date. The regime will substantially extend the circumstances in which authorities must be notified of environmental problems. As with any new environmental powers, the impact of the Regulations will be dependent on the way the regime is implemented by the relevant authorities. In-house lawyers need to be aware of this new regime, which will sit alongside existing legislation regarding environmental liability.
This article summarises the key provisions in the Regulations and provides guidance on actions which could be taken to comply with the new regime.
Background
The implementation of the Environmental Liability Directive (2004/35/EC) (ELD) across Europe has been substantially delayed. The European Commission has brought proceedings against nine member states in the European Court of Justice, including the UK, for failure to implement the ELD on or before the April 2007 transposition deadline. Nearly two years on from the deadline, England has finally achieved compliance. Separate sets of Regulations for Wales, Scotland and Northern Ireland were however still not in force at the time of writing and are expected over the next few months. Although the Regulations in England and Wales will be different, the differences are relatively minor and revolve primarily around the applicability of certain exemptions to the deliberate release of genetically modified organisms.
A key issue for in-house lawyers with pan-European sites will be the disparate and potentially patchy approach to implementation of the ELD across different member states, even where this is in respect of the same type of environmental damage. This means that environmental managers will need to analyse, understand and comply with the different requirements imposed by individual member states.
Who is affected?
The Regulations are far-reaching and will impact upon any company whose activities have the potential to harm ecosystems. Specific activities – such as waste management operations, the transportation of dangerous or polluting goods, water abstraction and discharges and the operation of installations pursuant to an integrated pollution prevention control (IPPC) permit – have all been singled out for strict liability treatment if they cause ‘environmental damage’ after1 March 2009. In addition, the Regulations will apply to the intentional or negligent operator of any other activity that causes biodiversity damage to protected species, natural habitats or sites of special scientific interest.
This means that a range of companies – from landowners with discharge consents and no key environmental concerns through to large-scale industrial operators – will have to comply with the new environmental liability regime.
Environmental damage
The Regulations apply to a number of different heads of ‘environmental damage’ including damage to land, surface and groundwater, sites of special scientific interest, protected species and natural habitats. Each head applies different methodologies for assessing damage. For example, environmental damage to land is assessed on the basis of whether or not the contamination results in a significant risk of adverse effects on human health, whereas damage to surface and groundwater is measured against a number of ecological baseline criteria. Sites of special scientific interest will require the damage to have an adverse effect on the integrity of the site, while authorities will have to take a number of different eco-factors into consideration in their assessment of whether or not damage to protected species and natural habitats has a significant adverse effect on their ‘favourable conservation status’. In recognition of the evidential difficulties that are traditionally associated with diffuse pollution, the Regulations are only applicable to environmental damage caused by pollution of a diffuse character if it is possible to establish a causal link between the damage and specific activities.
The unfortunate news for both industry and the authorities is that the determination of environmental damage will involve extensive testing by qualified technicians, which will come at a financial cost. Not only will this front-load the costs associated with environmental incidents, but there are also doubts about whether the limited resources of the authorities will be able to cope. Furthermore, the assessment methodology for many of the heads of damage will require accurate and up-to-date environmental data for the purposes of baseline testing, which will add to the economic and evidential strains that the authorities will face. Needless to say, authorities will subsequently try to pass on such costs to responsible operators, so industry is likely to see escalating regulatory liabilities.
In view of the exclusion under the regime in respect of environmental damage that has taken place prior to 1 March 2009, prudent companies might consider collating existing information on environmental damage that has taken place prior to this deadline. We also understand that to help establish baselines for environmental damage, some companies are commissioning reports documenting and/or updating information on the ecological status of their sites (and neighbouring sites) to the extent that this information has not already been collated.
Immediate action and proactive notification of authorities
The notification responsibilities placed on companies under the Regulations are of key importance and are much broader than under more familiar legislation, such as the pollution prevention control regime, because of the wide scope of damage that may need to be reported and because imminent threats of damage also have to be reported in certain circumstances.
Part 2 of the Regulations establishes the preventative elements of the new regime, which will require operators that cause an ‘imminent threat’ of environmental damage (or an imminent threat of damage that, objectively, could become environmental damage) to immediately take all practicable steps to prevent the damage and, unless the threat has been eliminated, notify all relevant details to the appropriate authority. Similar obligations apply to operators with respect to the prevention of further damage once an event giving rise to environmental damage has already occurred.
Remediation Notices Served by Authorities and Appeal Times
In the case of imminent threats of environmental damage or the prevention of further damage, the authority may serve a notice requiring the operator to take measures (or equivalent measures) to prevent the damage within a specified amount of time. Where actual environmental damage has been caused and following a consultation process involving affected stakeholders (including the responsible operator), the authority is under an obligation to serve a remediation notice – the types of remediation that might be required are detailed below. It is important to note that the authorities have specific step-in rights and that a failure to comply with any of the prevention or remediation obligations will be a criminal offence punishable by a fine not exceeding £5,000 and/or imprisonment for a term not exceeding three months on summary conviction, or up to two years’ imprisonment and/or an unlimited fine on conviction on indictment.
Despite the best attempts of lobbyists to extend the period of appeal during the consultation process, companies will only have 28 days to challenge decisions. In-house lawyers will need to be aware of this short time frame to ensure that they will be in a position to make an informed decision on the merits of any appeal. Any decision will be likely to require the engagement of environmental consultants, which will add to the costs of any enforcement action.
Types of remediation
The ELD was intended to bring the ‘polluter pays’ principle into EU law and it is in Part 3 of the Regulations that the principle takes on its greatest significance. Authorities have the duty to notify operators that have caused environmental damage requiring them to submit remediation proposals within a specified period of time. Following the receipt of the remediation proposals (or after the specified time has expired if they have not been received), and after the appropriate authority has consulted with, at a minimum, the owners of the land that will be affected by the remedial measures, the authority must serve a remediation notice on the operator deemed responsible specifying amongst other things the measures required for remediation (along with its reasons) and the period within which the remediation must be completed.
The requirements for remediation will be shaped by the provisions of Schedule 4, which identify the objective of remediation as the achievement of ‘the same level of natural resource or services as would have existed if the damage had not occurred’. Offending companies will be responsible for removing any significant risk to human health and for such primary, complementary (where primary remediation proves inadequate) and compensatory (non-financial) remediation as is required to achieve the baseline-driven objective. A number of ecological factors need to be considered in the determination of an acceptable remediation package, with the remediation of land requiring, at a minimum, that the operator ensure that any relevant contaminants no longer pose a significant risk of adverse effects on human health, taking account of the use of the land and any planning permission in existence at the time of the damage.
The financial impact of remediation under the Regulations will depend entirely on the magnitude of the damage, making it difficult for companies and their assurers to quantify the potential risks. Each case will turn on its own facts as remediation will involve a consideration not only of the incident giving rise to the liability, but also factors such as the ecosystem affected and its impact on other parties. Added uncertainty in the form of a new regime and concepts such as ‘complementary’ and ‘compensatory’ remediation, which are unfamiliar to regulators and the regulated alike, could lead to an increase in insurance premiums, at least in the short term. Furthermore, there is a risk that for low-level environmental damage, the costs arising in connection with an incident (including the involvement of consultants and advisers) will be disproportionate to the costs of liability.
Exemptions
There are a number of important exemptions that companies may take advantage of to avoid the scope of the Regulations. The Regulations are, amongst other things, not applicable to damage that took place before the coming into force of the Regulations on 1 March 2009 or damage caused by acts of terrorism, national defence or international security, exceptional natural phenomena (provided the operator took all reasonable precautions), incidents which fall to be determined by certain conventions on oil liability and specified types of water damage. In addition, the Regulations provide for a number of grounds of appeal which operate as quasi-exemptions, such as compliance with the terms of a permit, the instructions of a public authority or the state of scientific and technical knowledge existing at the time, or that the damage was the result of an act of a third party. In addition, it should also be mentioned that a limitation period operates to prevent enforcement for incidents that are 30 or more years old.
Enforcing authorities
Regulations 10 and 11 separate the regulatory competences of the different authorities by type of environmental damage with the Environment Agency, Natural England (the Countryside Council for Wales is the equivalent body in Wales), local authorities and the Secretary of State all taking on specific enforcement responsibilities. Certain heads of damage are shared responsibility, and will no doubt require effective communication between the authorities. Generally, the authorities will be responsible for damage caused by activities carried out pursuant to an environmental permit that they have granted, with the Environment Agency having additional responsibility for damage to water (and in some cases the sea), local authorities for damage to land, the Secretary of State for damage to sea (in most cases) and Natural England for damage to protected species and ecosystems on land.
The effectiveness of the Regulations and in turn their impact on industry will depend in no small part on the ability of the regulators to exercise their powers of enforcement in a comprehensive and consistent manner across the entire spectrum of environmental damage. Only time will tell whether this will be achievable, given the size of the task and the costs that will be involved. Needless to say, industry is sceptical about whether any serious level of co-ordination will take place across the different regulators.
A practical point for companies is to ensure that the appropriate personnel responsible for environmental matters are aware of the different bodies that may need to be contacted upon the occurrence of an incident and the circumstances in which they should be contacted. For ease of reference, Table 1 of Defra’s consultation guidance is a useful resource for determining the enforcing authority and is freely available from Defra’s website (www.defra.gov.uk). We also suggest that environmental management systems are reviewed, for example to look at procedures relating to identification and internal reporting of incidents.
Requests for action by ‘interested parties’
Any person who is affected or likely to be affected by environmental damage, or who otherwise has a sufficient interest, may notify the appropriate authority about the occurrence or imminent threat of environmental damage. Once notified, the authority has a duty to consider the information and, if practicable, consult with the relevant operator, and inform the complainant of the action that they intend to take. Although the Regulations expressly provide the authorities with the powers to disregard vexatious claims, there is a real possibility that the activities of industry will be exposed to greater scrutiny than previously experienced. Not only will this affect the balance sheets of companies operating in susceptible sectors, but concerns have also been voiced about the administrative strains that activism might place on the authorities. Guidance from Defra has indicated that the category of people who are, or are likely to be, affected by environmental damage, includes groups as diverse as birdwatchers, residents’ organisations and those whose health may be at risk from contaminants. The category of ‘sufficient interest’, on the other hand, includes parties with a less direct connection to the damage, such as environmental organisations registered with the Charity Commission. The range of potential complainants should not be underestimated; however, much will depend on whether the authorities exercise their judgment in a robust and balanced fashion in deciding which people have sufficient interest under the Regulations.
Apportionment of liability
Issues of causation are left to the parties under the Regulations. The unfortunate position for industry is that the authorities can pursue just one responsible operator and that company will then have to seek contribution from other parties that also caused the environmental damage. This may prove to be an expensive burden for an individual company to bear in an incident involving multiple and sustained liability by a number of different parties over a prolonged period of time. Although it is true that the polluter will pay in the end (if they can be traced), industry is concerned that where facilities are in areas of high risk they will become the victims of unfavourable insurance treatment. Concerns have also been expressed that the companies with the deepest pockets will be targeted where there are multiple offenders.
Administration and enforcement costs
In addition to their liability for the reasonable costs incurred by the authorities if they exercise their step-in rights in relation to either prevention or remediation, offending companies will be liable for the administrative costs of the authorities. This will include the costs of, amongst other things, handling the prevention process, establishing remediation measures, carrying out consultations and monitoring the remediation. Although this should help the authorities recoup their costs where liability can be established, the huge sums that could be involved will have to be factored into the decision-making processes of companies facing enforcement action.
Insurance
There is no requirement under the Regulations for mandatory insurance or other financial security in relation to the specific liabilities imposed. We do however note that this will be reviewed again in 2010 by the European Commission.
Overlap with other legislation
The Regulations will sit above and alongside other legislation concerning damage to the environment (ie the Water Resources Act 1991 and the Environmental Protection Act (EPA) 1990). Where these pieces of legislation impose additional obligations they will need to be complied with.
Conclusions
In summary, the key elements of the new environmental liability regime are that:
- Operators will be required to take all practicable steps immediately to prevent environmental damage (or further environmental damage) where there is a threat of such damage and must notify the competent authorities unless the threat has been eliminated.
- Operators of certain specified commercial activities that cause environmental damage and any operator who intentionally or negligently causes biodiversity damage to protected species, natural habitats or sites of special scientific interest will be subject to new and far-reaching liabilities for remediation of such damage.
- A number of exemptions may be applicable.
- Different authorities are responsible for different types of environmental damage.
- Operators who are served with a remediation notice will need to appeal within 28 days or comply with the notice, or face prosecution.
- Operators who can establish that environmental damage was caused by more than one person can bring civil actions to reclaim costs from other responsible parties.
- Third parties can bring environmental damage to the attention of the authorities.
Past practice has informed practitioners and in-house lawyers of the dangers of misreading the impacts of environmental developments. For example, the failure of competent authorities to effectively implement the contaminated land regime set out in Part IIA of the EPA 1990 has given rise to much scepticism on whether the same and, in some cases, new competent authorities will be able to implement this regime. Nevertheless, there is the potential that this new environmental liability regime could bring big changes to the way that liability is assessed and it is going to be interesting to see how authorities (such as Natural England) that have not previously wielded this type of enforcement power might take action in relation to environmental damage.
We recommend that practitioners and in-house lawyers consider reviewing and updating existing environmental management systems to ensure that environmental damage is identified, proactive steps are taken to prevent environmental damage or minimise further damage and reporting takes place internally and externally. The extremely tight time frames for appeals against notices under the Regulations and the potential for heavy costs in relation to remediation will make this a key concern for in-house lawyers.
By Georgie Messent, partner, Burges Salmon LLP.
E-mail: georgie.messent@burges-salmon.com.
The Carbon Reduction Commitment: how will it impact your business?
In next month’s IHL, Burges Salmon will summarise the likely impacts of the Carbon Reduction Commitment (CRC) for your business. The CRC is a new mandatory emissions trading scheme that will affect any public or private sector organisation with over 6,000 MWh of metered electricity usage in 2008. If your business passes this threshold, the CRC could give rise to substantial cost implications, as it will have to participate in the scheme.
Burges Salmon and consultants from Environ will be broadcasting a live webinar at 4pm on 21 April 2009 to expand on the issues that will be highlighted in the article. If you wish to attend this free webinar, please go to www.burges-salmon.com and follow the links from the homepage to complete the simple registration process.
