Financial Guarantees in the Environmental Liability Directive: Next Time Better
Authors: Bocken Hubert 
Published: April 2022

The European Directive 2004/35/CE on environmental liability with regard to prevention and remedying of environmental damage contains two provisions on financial assurances. Article 8, 2 provides that the competent authority shall recover, inter alia, via security over property or other appropriate guarantees, from the operator who has caused the damage or the imminent threat of damage, the costs it has incurred. Article 14 mainly requires the Member States to take measures to encourage the development of financial security instruments and markets by the appropriate economic and financial operators, including financial mechanisms in case of insolvency, with the aim of enabling operators to use financial guarantees to cover their responsibilities under the Directive. It also opens up the possibility for a Commission proposal with respect to a harmonised system of mandatory financial security. These provisions are generally described as containing a rejection of the idea of compulsory financial guarantees, more particularly, compulsory insurance. This contribution questions and rejects this interpretation.First the historic background and the main provisions of the directive are briefly described. Compared to other legislative instruments on environmental liability, the ambitions of the provisions of the Directive on financial assurances appear modest.Before analysing the provisions on financial assurances in detail, the article points to the fact that a systematic and teleological interpretation is predominant in the case law of the ECJ and that this method of interpretation is also relevant with respect to the Directive on environmental liability. Next, the legislative history of the provisions on financial assurances is examined, not so much to find authoritative statements on the intent of the legislator, as to understand the evolution of the text and of the policy objectives of its drafters. It is concluded that the Directive, while clearly not imposing compulsory insurance, necessarily requires Member States to set up a system of financial guarantees that effectively enables the competent authority to recover from a defaulting operator the costs it has made in carrying out ex officio measures.It appears that the financial guarantees and the liabilities they have to cover referred to in Art. 8 and in Art. 14 are of a similar nature. There thus is an apparent contradiction between the two provisions. This contradiction can only be overcome if the provisions are explained as each addressing a different aspect of the issue of financial assurances. In this interpretation, Art. 8 addresses the issue of financial assurances from the viewpoint of the protection of public interests and protects the competent authority against insolvency of the operator; Art. 14, 1 on the other hand, requires measures that encourage the development of financial guarantees in order to allow the operators to protect themselves against liability. Read in this manner, the Directive is internally consistent and adopts a two-pronged approach towards the issue of financial assurances.The third part of the article deals with the implementation of the financial assurance provisions of the Directive. With respect to Art. 8, 2, the main question is to determine when guarantees are to be considered "appropriate’’. One regrets that the Directive does not give more indications on this point. Article 8, 2 is only a weak legislative answer to the problem of guaranteeing recovery of expenses made by public authorities. There are various ways of implementing Art. 8, 2. Rationally speaking, guarantees which are only put in place after an incident causing environmental damage has actually occurred, cannot