Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on environmental liability with regard to the prevention and remedying of environmental damage

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. Introduction

From the Seveso accident of July 1976 to the Baia Mare and Baia Borsa accidents in January and March 2000, whereby rivers were heavily polluted in Romania [1], a long list could, be drawn up of instances where the environment has been heavily polluted or has otherwise significantly suffered [2]. In such cases, there is clearly a need to ensure that the damaged environmental assets are restored; a better solution would be, of course, that the damage does not even occur, so that prevention is also a valuable objective in this context. When an environmental damage nevertheless occurs, the question inevitably arises of "who should foot the bill*". The principle according to which the polluter should pay is at the root of Community environmental policy [3]; it shows that in many cases the operator who causes damage should be held liable, i.e. be financially responsible.

[1] See the Report of the International task Force for Assessing the Baia Mare Accident (December 2000).

[2] One can also refer to the heavy pollution of the Rhine river caused by a fire at the Basle Sandoz plant in 1986 and the collapse of a waste retention dam of the Aznalcollar mining complex, on 25 April 1998, in Spain, which has lead to a flow of toxic waters and mud towards the Doñana National Park. Oil spills caused by tankers wrecks are also numerous from the Torrey Canyon and Amoco Cadiz cases in 1967 and 1978 respectively to the Erika wreck in 1999.

[3] See Article 174(2) of the EC Treaty.

The Commission has therefore decided to submit the present proposal to the European Parliament and the Council of the European Union so that a comprehensive Community scheme aiming to prevent and remedy environmental damage is eventually adopted.

In so doing, the Commission is fulfilling the commitment it has made in its White Paper of 2000 on environmental liability and in the Commission's Sustainable Development Strategy which foresees that « EU legislation on strict environmental liability [should be] in place by 2003. » [4] and is starting to implement an action foreseen by the Sixth Environmental Action Programme [5].

[4] COM(2001) 264 final of 15 May 2001, p. 13 : « Action at EU level : (...) EU legislation on strict environmental liability in place by 2003. »

[5] See Article 3(8) of the Common position adopted by the Council on 17 September 2001 with a view to the adoption of a Decision of the European Parliament and of the Council laying down the Sixth Community Environment Action Programme.

2. Overview of the proposal

The proposal aims to establish a framework whereby environmental damage would be prevented or remedied. Environmental damage is to be defined in the context of this proposal by reference to biodiversity protected at Community and national levels, waters covered by the Water Framework Directive and human health when the source of the threat to human health is land contamination. The proposal leaves it open to Member States to decide when the measures should be taken by the relevant operator or by the competent authorities or by a third party on their behalf. Institutional and procedural detailed arrangements as to how the prescribed results will be achieved are left to a very large extent to the Member States in line with the subsidiarity and proportionality principles. The proposal determines, however, certain rules on the restoration objectives to be achieved and how to identify and choose the appropriate restorative measures so that a minimum common basis is shared by Member States in that respect and enable them to ensure in an effective manner the implementation of the proposed regime.

Whenever possible, in accordance with the « polluter pays » principle, the operator, who has caused the environmental damage or who is faced with an imminent threat of such damage occurring, must ultimately bear the cost associated with those measures. Had the measures been taken by the competent authorities or by a third party on their behalf, the cost of so doing must then be recovered from the operator. When the damage has been caused by certain activities that can be considered as posing a potential or actual risk to man and the environment, the operator should be strictly liable subject to the possibility to avail himself of certain defences; those activities are listed in an Annex to the proposal. In the specific case of biodiversity damage caused by activities other than those listed in the aforementioned Annex, the operator should only be liable if he is at fault or has been negligent. In certain cases where no operator can be held liable, Member States must adopt all necessary measures to ensure that the needed preventive or restorative measures are actually financed through any source that would seem fit to them and can thus be taken. Again the institutional and procedural detailed arrangements as to how the prescribed results will be achieved are left, to a very large extent, to the Member States in line with the subsidiarity and proportionality principles.

Given that environmental assets (biodiversity and waters to a great extent) are often not subject to proprietary rights that would serve as incentives to proper implementation and enforcement of the proposed regime, provisions are made to allow qualified entities, alongside those persons who have a sufficient interest, to request the competent authority to take appropriate action and possibly challenge their subsequent action or inaction.

Finally, appropriate provisions concerning transboundary damage, financial security, relation with national law, reviewing the regime and temporal application of the regime are made.

In practical terms, when environmental damage occurs, Member States are required to ensure that the damage is remedied. This involves assessing the gravity and extent of the damage and determining the most appropriate restorative measures to be taken, in co-operation insofar as possible with the operator liable for the damage under the proposal - the operator of the activity having caused the damage.

The competent authority may require the operator to take the necessary restoration measures, in which case they will be financed directly by the operator. Alternatively the competent authority may implement those measures itself or have them implemented by a third party. A combination of the two approaches is also possible.

When the restoration has been implemented by the competent authority or by a third party on its behalf and one or several operators are liable for the damage under the proposal, the competent authority must, in conformity with the polluter pays principle, recover the restoration costs from the liable operators.

The operators potentially liable under the directive for the costs of remedying the environmental damage are the operators of the activities listed in Annex I having caused the environmental damage. Operators of activities outside Annex I may also be liable under the directive for the costs of remedying bio-diversity damage, but only when they are found to be negligent.

The insolvency of operators is one factor that may hinder cost recovery in line with the polluter pays principle by competent authorities, but the impact of this may be limited by adequate financial insurance of potential damage.

Where one of the exemptions foreseen in Article 9(1) applies, the scheme provided by this proposal will not apply and the matter will be left to national law. In certain cases, the operator will not be able to rely on the exemption if he has been negligent. In those cases, the scheme will apply as described above.

Since the proposal aims to pursue environmental objectives, it is based on Article 175(1) of the EC Treaty. Concerning the legal basis, the fact that the proposal contains provisions on judicial review should not affect the choice of the legal basis since judicial review provisions are merely accessory to the environmental objectives pursued and is needed to ensure that the system will function properly. It is also to be noted that the judicial review provisions do not fall under any of the areas of action identified in Article 65 of the EC Treaty which only concerns judicial co-operation in civil matters having cross-border implications.

3. Why there is a need for Community intervention

Community action is needed to address effectively and efficiently site contamination and the loss of biodiversity in the Community.

Site contamination is a problem since it may pose a threat to human health and the environment as a result of releases of contaminants to ground or surface waters, uptake by plants, direct contact by people and fire or explosion of landfill gases. Some 300,000 sites in the Community have already been identified as definitely or potentially contaminated [6]. It has not been possible to quantify the risks posed by this contamination but the costs associated with its clean-up give a sense of the significance of the problem. Estimates published by the European Environment Agency put partial clean-up costs (just for some Member States or regions and some sites) at between EUR 55 and 106 billion [7] - between 0.6% and 1.25% of the EU GDP. This is a big figure, but one that represents a cumulative effect over many years rather than yearly impacts [8].

[6] Management of contaminated sites in Western Europe, EEA, June 2000.

[7] Austria, EUR 1.5 billion, 300 priority sites ; Flandres, EUR 6.9 billion, total clean-up costs; Denmark, EUR 1.1 billion, total clean-up costs; Finland, EUR 0.9 billion, total clean-up costs; Ger./Bav, EUR 2.5 billion, total clean-up costs; Ger/SaA EUR 1.6-2.6 billion, large scale clean-ups; Ger/SchH EUR 0.1 billion, 26 priority sites; Ger/Thür EUR 0.2 billion, 3 large scale projects; Italy, EUR 0.5 billion, 1250 priority sites; Spain, EUR 0.8 billion, partial clean-up; Sweden, EUR3.5 billion, total clean-up costs; UK, EUR 13-39 billion, 10000 ha contaminated land (from Management of contaminated sites in Western Europe, EEA, June 2000).

[8] It is to be noted that the proposed regime being prospective only, cost associated with the clean-up of these sites will not fall under this proposal since these sites have been contaminated before the adoption of this proposal.

There is thus quite a significant environmental problem which in great part arose because in most Member States liability for environmental damage has only recently been enacted - thus most of the clean-up expenditures associated with the sites contaminated in the past is likely to end up being paid with public money since the original polluters cannot easily be held liable. Liability should in the future ensure that those who contaminate clean-up the pollution or pay for the clean-up and, by doing so, encourage (more) socially-efficient prevention by potentially liable parties.

Liability rules are thus necessary to prevent further contamination and to ensure that the polluter pays principle is applied when contamination arises in spite of the preventive measures adopted.

However, the key issue in the present context is not whether liability rules are desirable - after all many Member States have already enacted them, albeit with different approaches - but whether it is desirable to enact rules at Community level rather than leaving the issue entirely to the national level. Action at Community level is necessary because:

* Not all Member States have adopted legislation to address the problem [9]. Thus without Community action there is little guarantee that the polluter pays principle will be effectively applied across all the Community. Failure to apply it may perpetuate the inefficient patterns of behaviour that resulted in the present stock of historic pollution.

[9] Portugal and Greece are amongst the countries without specific legislation on contaminated sites.

* Most Member States' dedicated legislation does not mandate national authorities to ensure that orphan sites [10] contaminated after the entry in force of the legislation are actually cleaned up [11]. Thus national legislation does not ensure that the environmental objective -clean-up - is attained.

[10] Sites where the responsible parties cannot be found or are insolvent.

[11] Were national competent authorities required to clean-up orphan sites, they would be encouraged to ensure that workable financial assurance mechanisms be put in place. Thus the mandate not only ensures clean-up but it also encourages the setting up of funding mechanisms consistent with the polluter pays principle.

* Without a harmonised framework at Community level, economic actors could exploit differences in Member States' approaches to engage in artificial legal constructions (e.g. spin-off risky operations to legally distinct and undercapitalised companies, move 'front offices' within the Community to exploit liability loopholes without changing much in terms of preventive behaviour) in the hope of avoiding liability - such behaviour would defeat the ultimate purpose of Member States' liability rules and lead to wasteful allocation of resources [12].

[12] The absence of signs of such behaviour in the US (see the study on the Preventive Effect of Environmental Liability done in the context of the economic assessment of the draft proposal) can conceivably be explained by the existence in the U.S. of a harmonising federal law which, while allowing the states ample freedom to tackle local problems, also ensures the different States' approaches do not undermine or weaken each other.

In the specific case of biodiversity, robust indicators of the extent and significance of damage to biodiversity and the rate of biodiversity loss which we have been experiencing in the last years are still being developed. However, the European Commission's proposal for a European Union Sustainable Development Strategy, adopted on 15 May 2001, recognised that the loss of biodiversity in the Community has accelerated dramatically in recent decades making it one of the severe or irreversible threats to the future well-being of European society that warrants priority action.

The two main Community legal instruments dedicated to the protection of biodiversity are the Habitats and the Wild Birds Directives [13]. These directives lack liability provisions applying the polluter pays principle and thus encouraging efficient preventive behaviour by private (and public) parties. Currently few, if any, Member States fill this void by imposing liability for biodiversity damage on private parties. Thus, Community action to protect and restore biodiversity is warranted on two main grounds: ensuring socially-efficient means are used to finance the remedying of damage to biodiversity in the Community and, by doing so, encourage efficient prevention.

[13] Council Directive Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora (OJ L 206, 22.7.1992, p. 7) and Council Directive 79/409/EEC of 2 April 1979 on the conservation of wild birds (OJ L 103, 25.4.1979, p. 1).

4. The economic assessment of the proposal, its benefits and costs

The economic assessment discusses the key efficiency-related issues raised by the proposal: its benefits and costs, including the distribution of the costs by economic actors and the expected impact on industry competitiveness, the effect on prevention, the financial assurance of potential liabilities and the assessment of natural resource damage. The economic impact of the proposal being primarily in changing the distribution of costs, rather than imposing additional aggregate costs, we will use below the term "financial expenditures" instead of "costs" whenever the use of the term costs could be misleading. The findings of the assessment are presented here.

The main benefit expected from the proposal is improved enforcement of environmental protection standards in line with the "polluter pays" principle. This should bring an indirect but not less important benefit: a move towards more efficient levels of prevention. The environmental benefits should be achieved cost-effectively and consistently with principles of social and economic efficiency.

Liability requires parties responsible for damage to remedy it. Damage is defined with reference to existing protection standards built in environmental legislation. Thus liability enforces existing standards and is a powerful deterrent against non-compliance.

Because potential polluters are made liable for the costs of remedying damage they may cause, liability gives good incentives for avoiding damage. When EUR 1 spent on prevention is likely to avoid damage whose restoration costs more than EUR 1, the parties responsible for the potential damage are encouraged to invest in prevention rather than pay for the higher restoration cost. Therefore the proposal should lead the economy towards socially efficient prevention levels environment-wise.

Enforcing existing standards and moving towards more efficient levels of prevention are worthwhile goals in themselves. Enforcement mechanisms are a necessity for the legislation objectives to hold. Moreover, liability, properly designed, is a complement rather than a substitute to other policy tools, as we argue below. In this context, the proposal should pass a cost-effectiveness test [14] - the proposal's objectives should be pursued in full consistency with the principles of economic efficiency and social fairness and the implementation costs should be minimised.

[14] Although we did not attempt to perform a quantified cost-benefit test given that the proposal does not impose significant additional aggregate costs, there are reasons to believe that the benefits of cleaning up contamined land are quite significant. A recent assessment of the benefits of cleaning up the stock of contamined land in the Netherlands (see Howarth et al: Valuing the Benefits of Environmental Policy, the Netherlands, RIVM report 481505 024, March 2001) puts their annual value at between EUR 3.4 billion (2000 prices) and EUR 842 million. These estimates only measure owner benefits reflected in the change of land value and thus only capture some social benefits. This suggests that the estimates are a conservative value of the benefits of clean-up. For reference, the financial expenditures estimated for the present proposal for the whole of the EC (base case) are in the order of EUR 1.5 billion.

The proposal has indeed been developed consistently with principles of economic efficiency and social fairness. Firstly, the proposal does not apply to emissions allowed in permits and damage that cannot be predicted on the basis of the state of scientific and technical knowledge at the time emissions are released or activities take place. Secondly, whenever liability is invoked to ensure that clean-up or remedying of damage takes place, the aim is to secure efficient solutions - e.g. when natural resource damage occurs the restoration purpose set in the proposal is to achieve equivalent solutions rather than replicate, irrespective of the cost, the situation pre-incident.

The proposal should, however, generate sizeable financial expenditures and these were estimated and are presented below, after a brief presentation of the findings of the studies commissioned on prevention, financial assurance and the valuation of environmental damage.

The effect on prevention

The study (http://www.europa.eu.int/comm/environment/liability/preventive.htm) conducted on this topic suggests that the positive incentives provided by liability for efficient levels of prevention should prevail provided there is a consistent, and consistently applied, liability policy at Community level. Significant differences among liability standards at State level (as in the U.S.) or Member State level (as in the Community) could significantly weaken the positive effects of liability on prevention were it not for the existence of a common framework (the federal liability law in the U.S., the proposed directive in the Community). Thus the study suggests Community action is necessary.

The financial assurance of environmental liabilities

Financial assurance of environmental liability is beneficial for all stakeholders: for public authorities and the public in general, it is one of the most effective, if not the only, way of ensuring that restoration actually takes place in line with the polluter pays principle; for industry operators, it provides a way of spreading risks and managing uncertainties; for the insurance industry, it is a sizeable market. However, when the White Paper on Environmental Liability was adopted in February 2000, many stakeholders questioned whether the liabilities that would be created by a Community proposal on this subject were insurable. The Commission undertook to clarify this issue.

As far as insurance for clean-up costs is concerned, coverage has been available in the Community for quite some time, though it may not always be marketed under the same name - common names are environmental liability insurance, environmental impairment liability insurance, environmental clean-up and liability insurance. The supply of this type of insurance products is well established in the market and its conditions relatively standardised [15].

[15] Details on the coverage being offered can even be found on the internet. For example, a well-known insurer active in the European market lists online the characteristics of its 'Environmental Impairment Liability' offering, including its prices ("minimum for a USD 1,000,000 limit is USD 5,000").

Therefore the insurance industry already covers well the market for environmental clean-up costs in Europe. Insurance is typically a globalised industry - thus it is well aware of the trends in different parts of the world and is able to transfer quickly what it learns in one market to other markets. Environmental liabilities, including liability for clean-up costs, were enacted in the U.S. already some 20 years ago, prompting the supply of insurance coverage [16]. The products initially developed for, and the experience accumulated in, the U.S. market could thus be quickly transferred to the EU market when EU countries began imposing liability for environmental clean-up costs.

[16] The depth and immense variety of the products offered by insurers specialised in environmental risks suggests that the market supply of insurance products quickly follows, and even anticipates, regulatory requirements in this field.

That being said, clean-up cost insurance in the EU is likely to be less of a commodity today than it is in the U.S. since the European market is still smaller and more fragmented. Prices are therefore likely to be higher. However, the U.S. experience suggests prices will come down quickly once harmonised regulatory requirements are introduced and insurers gain more experience (consider that the average annual premium for coverage of a new underground storage tank in the U.S., purchased on the private market, was USD1000 in 1989. In 1997, the average was USD 400). As our research shows (see http://www.europa.eu.int/comm/environment/liability/insurance_us.htm), prices of approximately 1.0 to 1.5 percent of the amount assured are currently common in the U.S. The prices for larger firms with good environmental records are comparatively lower.

All in all, there could be little reasonable doubt that liability for the clean-up of environmental contamination was insurable, and insured, in the Community [17], at the time the White Paper was adopted. However whether or not liability for biodiversity damage was insurable was more controversial. This type of liability was little known in the Community, and it was sometimes argued it could not be valued and insured.

[17] Except, of course, for cases where the occurrence and timing of the contamination and associated liabilities are known in advance with certainty, as always with insurance products.

Given this background, the Commission conducted a study focused on the issues associated with natural resource damage - a concept similar to biodiversity damage - liability in the U.S. Indeed in that country liability for damage to natural resources has been enacted at the same time as liability for clean-up costs, more than 20 years ago, which makes the U.S. a good test case for the insurability of biodiversity damage. The conclusions of the study show that the fears that biodiversity damage is uninsurable are misplaced.

The study (http://www.europa.eu.int/comm/environment/liability/insurance_us.htm) gives two key insights. First, the liabilities created by the Commission's proposal, including biodiversity damage, can be financially assured. As a matter of fact, natural resource damage liability is currently financially assurable in the U.S. and the associated insurance markets have developed over time with little problems [18]. Thus there are good reasons to believe that the same will happen in the EU vis-à-vis biodiversity damage. All the more so given that the Commission's proposal reaches a better compromise between the environmental, social and economic aims of society than the U.S. approach (as shown below in the point on the differences between Superfund and this proposal).

[18] U.S. law even requires financial assurance of part of the liabilities for natural resource damage. Our study shows that the private insurance market responded quickly to the introduction of the regulatory requirements with the supply of novel insurance products. Thus the regulatory requirements were successfully implemented and enforced.

The second key insight given by the study is that effective regulatory incentives for operators to financially assure their potential liabilities are crucial to ensure the success of liability policies aimed at ensuring the prevention and remedying of environmental damage in line with the polluter pays principle. This proposal follows this up by creating a Community framework enabling the setting-up of such regulatory incentives consistently throughout the EC while leaving Member States discretion in terms of the means to implement the framework.

A second study was conducted on the general issues (http://www.europa.eu.int/comm/environment/liability/insurance_gen.htm) associated with environmental liabilities. The study discusses usefully the economic model of liability, as well as the Dutch and Belgian cases. It also provides useful evidence that clean-up liability is currently insurable in the EU market.

An important policy question discussed in the insurance studies is whether liability should be limited (to specified amounts). Limits have advantages, but also disadvantages. (Lowered) limits will reduce compliance costs and improve insurability. But (lowered) limits will also reduce deterrence and make cost recovery more difficult. The U.S. experience, where environmental liability is generally subject to limits [19], suggests that if a conclusion is to be drawn it is that the limits may in some cases be too low. On these grounds this proposal does not set any limit to liability. However, this does not prevent Member States from setting up limited financial assurance requirements when implementing the proposal.

[19] Though the limits are generally set for 'releases of hazardous substances' or incidents involving a release. In practice, contamination and damages are often caused by more than one release which makes the U.S. liability limits less significant for individual operators than what it might appear to be the case.

The assessment of natural resource damage

The valuation of natural resource damages remains controversial though a necessity to achieving the environmental aims of this proposal. The difficulties perceived in, and the controversy associated with, the assessment of natural resource damage were addressed by retaining a valuation approach that favours restoration over monetary measures - largely because restoration costs are easier to estimate, rely on fewer untested economic valuation methodologies, and are verifiable ex post.

Remedying/restoration is aimed at putting in place equivalent alternatives to the damaged resources rather than necessarily replicating them. Consequently, the proposal gives an explicit preference to the least cost option amongst alternatives likely to deliver similar environmental benefits. The option retained in the proposal was developed with the help of a study on the valuation and remedying of damage to natural resources (http://www.europa.eu.int/comm/environment/liability/biodiversity.htm) and is inspired by the cost-effective approach that has been successfully tried and tested over a long period under the U.S. Oil Pollution Act 1990 [20] (for a summary of this approach see http://www.europa.eu.int/comm/environment/liability/tp_enveco.pdf). The U.S. insurance market, confronted with this same valuation approach, has developed with little difficulty, as explained above.

[20] 33 U.S.C. 40.

Potential financial expenditures associated with the draft directive

The estimate of the financial expenditures with the proposal was derived from the U.S. CERCLA [21] (also known as Superfund) model [22] since:

[21] 42 U.S.C. 103. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) has been in operation for more than 20 years and there is a relative abundance of cost data on its implementation.

[22] Our model also includes cost data on the U.S. States' liability programmes based on CERCLA. For a comprehensive analysis of CERCLA see

* Superfund has a long history and has generated valuable and publicly available data on the number of contaminated sites, costs of clean-up per types of site, distribution of contaminated sites by industry, rate at which new, contaminated sites are identified and number of incidents involving natural resource damage and associated costs. Crucially, there is some data on the number of sites that were contaminated before the entry in force of the law and after its entry in force [23]. Thus it was relatively straightforward to derive financial expenditures estimates from the U.S. case.

[23] See footnote 24 below.

* The U.S. and EU economies are likely to have similar environmental contamination intensities - after one controls for the different size of the economies - because both entities are essentially at the same stage of economic development and share similar environmental protection requirements.

* There are different sources of data and analysis for the U.S. data which were confronted with each other and peer-reviewed over time. This process improved available U.S. data and made them eventually more robust.

* In contrast, European data is essentially unrevised, single-source material - thus subject to wider margins of error. Moreover, it is only available for some Member States or regions, clean-up cost estimates are partial and do not always identify the number of sites they are associated with. There is little available data on incidents of natural resource damage and associated costs. Available data is not ventilated by type of sites, industry responsible or date of contamination, making it essentially impossible to derive meaningful estimates of clean-up costs for a non-retrospective proposal like this one.

Perhaps even more important, CERCLA is sufficiently similar in terms of objectives and means to this proposal to make it a good reference model for the purposes of cost extrapolation - possibly the best available model given that existing European models differ more significantly from this proposal. There are also a number of important differences between Superfund and this proposal, but it was possible to identify the key differences and their likely cost impact.

CERCLA is a law which mandates the U.S. Environmental Protection Agency (EPA) to identify contaminated sites that warrant clean-ups, and then to either initiate these clean-ups

and then compel the parties responsible for the contamination to pay for the clean-ups through a liability process, or compel the responsible parties to undertake these clean-ups directly [24]. Corrective action in relation to contaminated sites is driven mainly by the threat their contamination poses to public health or welfare (e.g. the well being of their surrounding communities), as well as to the environment, including natural resources. This closely matches the objective and means proposed in this proposal.

[24] When the responsible parties cannot be identified or are insolvent, the cost of clean-up was initially covered by funds raised from a trust fund created from excise taxes on petroleum and specified chemical feedstocks and a corporate environmental income tax (since 1996 the Fund has been fed only by general government revenues as the taxes were discontinued). It is this trust fund that explains why CERCLA is also know as "Superfund".

Under CERCLA, as in this proposal, responsible parties are also liable for natural resources damage (NRD). The competent authorities are directed to remedy this damage, either through direct restoration or through replacement of the damaged resource by an equivalent one. As with the clean-ups, the competent authorities can either initiate the restoration and then compel the parties responsible for the contamination to pay for the restoration through a liability process, or compel the responsible parties to undertake the restoration directly.

As far as the differences between CERCLA and the proposal are concerned, the most salient one is that CERCLA is a retrospective programme, i.e. it (also) creates liability for waste legally disposed of before its entry in force. For the purposes of this analysis and since our proposal is not retrospective, CERCLA was stripped off its retrospectiveness, i.e. only the costs associated with the clean-up of sites contaminated by wastes disposed of after the entry into force of the programme were considered.

On that basis, the estimates for the annual financial expenditures associated with the proposal are given in the table inserted at the end of this point [25], abstracting from all the differences between CERCLA and the proposal but retrospectiveness (the impact of the other differences will be discussed subsequently).

[25] Essentially derived from Footing the Bill for Superfund Clean-ups, Katherine Probst et al, Resources for the Future, 1995. RFF has also published a more recent study (July 2001) on the future of Superfund cost by Katherine Probst et al, Superfund's Future, What Will It Cost*; which we have also used. The latter study points to the relative stability and resilience of the expenditures associated with Superfund overtime and thus suggests our estimation approach is well-founded. New contaminated sites have been added at a roughly constant and significant rate and thus we assumed the clean-up costs will remain roughly constant overtime.

The table presents three scenarios, a base case, a high case and a low case. The first is based on the split between the financial expenditures associated with 'old contamination' (contamination caused by activities that preceded the enactment of Superfund) and 'new contamination' (contamination caused by activities that took place after its enactment) in the National Priorities List sites of Superfund, as recently identified. This split is roughly 1/3 for 'new contamination' and 2/3 for 'old contamination'. The high case assumes the 'old' sites and the 'new' sites are split about evenly. The low cases assumes liability policies do have a strong and relatively swift effect slowing down the generation of newly contaminated sites. In this case, the share of 'new' sites is assumed to stabilise at 20% of all sites.

There are good reasons to assume the base case is the more plausible one for the foreseeable future [26], but the high and low cases provide a useful sensitivity analysis of our findings.

[26] A very high proportion of Superfund's costs is indeed associated with wastes deposited before its entry into force. There is little reason to believe that this would change materially in the near future in spite of the intuitive attraction of the assumption that the share of the expenditures associated with 'new' sites is likely to increase significantly soon. This is explained by the way contaminated sites are 'discovered' and (some of them) eventually included in Superfund. Katherine Probst et al put it this way in their 2001 book Superfund's Future: What Will It Cost: "Information pertaining to contaminated sites is incomplete and inconclusive for a number of reasons. In part, it is not in the interests of property owners to disclose information about site contamination to regulators; such information could reduce the value of their property and make them liable for clean-up costs. Nor is it in the interest of most federal or State program managers to help create a comprehensive and public list of contaminated sites if they do not have adequate resources to address them". This suggests that not only is the process of discovery of new contamination slow but also that, with roughly constant public funding for Superfund, many identified sites remain unlisted for clean-up for a long time. This overall picture appears to be corroborated by information provided in a General Accounting Office Report of November 1998, Hazardous Waste: Unaddressed Risks at Many Potential Superfund Sites, i.e. that at that time 85% of the sites potentially eligible for inclusion in the National Priorities List (Superfund) had already been discovered before 1990. 42% had been 'discovered' before 1985. The same report considers that, as of October 1997, 1789 already identified sites were potentially eligible for placement on Superfund. RFF estimates that from 2001 through 2009 each year 23 to 49 sites will be added to Superfund. If we take the mid-point of this range (36) and assume that all the 1789 sites would eventually be placed on Superfund it would take almost 50 years just to clear this potential, already identified backlog.

This may still look like high expenditures, but the associated costs would not disappear in the absence of Community liability legislation. These costs are real, materialised in environmental damage that would still happen without liability. If anything, social costs would be higher without a proper liability regime, given the absence of efficient incentives towards prevention.

The total expenditure (base case) above should be below 1.5% of the total expenditure in the Community with environmental protection, i.e. below 0.02% of gross domestic product (GDP). And as a measure of the personal effort required, it is enlightening to consider that the cost per person is lower than EUR 4 (EUR 3 if the population of the 12 Candidate Accession Countries is factored in.

So far we assumed that the only relevant difference between Superfund and this proposal was on retrospectiveness. However, there are several other key differences. Some of them may change the total amount of the financial expenditures estimated above. The others are only likely to change the distribution of the expenditures amongst economic actors but not their total amount. For the sake of clarity the differences that may affect the overall expenditures will be presented below separately from the ones that only impact their distribution.

There are four key differences which may change the total expenditures vis-à-vis our estimates. Firstly, Superfund does not cover the clean-up of contamination caused by permitted releases of hazardous substances. It provides a defence against potential liabilities for damage, caused by facilities or projects operating within the terms of their permits or licences, to natural resources identified and authorised in environmental impact statements. And it does not apply to damage caused by the application of registered pesticide products. The proposal has exemptions and defences of comparable reach [27] and goes beyond Superfund in that it does not cover unforeseeable damage on the basis of the state of scientific and technical knowledge at the time the emission was released or the activity took place. Besides reducing total expenditures, the additional exemption proposed by the Commission should also strike a better balance between environmental goals, on the one hand, and economic and social, on the other. In particular, the Commission's proposal should better preserve incentives for innovation since, unlike Superfund, it does not penalise innovative activities retrospectively.

[27] Except in the case of pesticides. However, much of the associated damage may well qualify as diffuse damage which is not covered by this proposal.

Secondly, the proposed valuation approach to biodiversity relies less on monetary valuation than Superfund's [28]. Indeed, the Commission's proposal relies more on restoration, whose costs are easier and cheaper to estimate than monetary estimates of the value of natural resources. Unlike Superfund, the Commission's proposal also gives an explicit preference to least cost options. Thus this difference should also lower the expenditures of this proposal vis-à-vis our estimates (and Superfund).

[28] The U.S. Department of the Interior has recently proposed changing Superfund's approach. Superfund's newly proposed valuation approach is more in line with the Commission's proposal and less controversial.

Third, while our estimates assume that all clean-up expenditures will be additional expenditures newly mandated by the proposal, as was originally the case of Superfund, in fact Member States already have in place clean-up liability legislation though the coverage and strictness of the national programmes do not match this proposal's and vary significantly from Member State to Member State [29]. In any case, the impact of this consideration also goes clearly in the sense of lowering the implementation expenditures of the proposal vis-à-vis our previous estimates.

[29] For example, the existing Member States laws do not impose on public authorities a generalised obligation to clean-up and restore even when no liable party can be found or is able to pay. The proposal also covers environmental damage in a much more systematic way than existing national approaches

Fourth, the proposal attaches liability for damage caused by activities while Superfund is hazardous substance-based. The former approach is apparently wider than the latter but in practice the two approaches should yield similar results and, all else the same, have similar expenditures. This is so because the (negative) impact of most activities on public health and the environment is essentially driven by the release of hazardous substances. Activities (and their level) may have an impact on biodiversity beyond that associated with the release of hazardous substances. However, this should not have a material impact on the expenditures of this proposal given that, on the one hand, the exemptions allowed under the Habitats and Water Framework Directives apply and, on the other, the costs with biodiversity damage are projected to be a small part of total costs.

Thus, taking into account the four key differences between the proposal and Superfund likely to have an impact on the overall magnitude of expenditures, the conclusion is that their combined impact is to lower the expenditures associated with the proposal vis-à-vis the estimates presented in the table above which represent then a ceiling unlikely to be reached in any event.

There are two other significant differences with (only) a distributional impact. The first one is that in Superfund liability attaches to a wide range of potentially responsible parties, from the generators and transporters of hazardous substances to the operators of waste disposal sites. The Commission proposal only attaches liability to the operators. This will not change total expenditures vis-à-vis the Superfund benchmark (given that when there are no private responsible parties the competent authority must still ensure that restoration takes place) but will increase the competent authorities' expenditure share.

The second difference of this type is that Superfund has joint and several liability for the cases where the same damage is caused by several operators, whereas this proposal allows Member States to apply either joint and several or proportional liability [30]. The estimates derived above are thus based on joint and several liability. This liability standard is sometimes considered to facilitate cost recovery from private liable parties and thus to be associated with higher levels of clean-up and restoration (and expenditures) than proportionate liability. However, given that this proposal places a residual obligation on Member States to ensure that clean-up and restoration takes places, the (total) expenditures of a proportional standard should be the same as the expenditures of a joint and several one. However, the latter case should normally increase the expenditure share of the private parties while the opposite should happen with a proportionate standard.

[30] Except for operators who can prove the part of the damage that they are responsible for. These operators can only be held liable for the costs associated with that part of the damage.

The assessment made also touches on the issue of the direct impact of the costs on industry external competitiveness. This is not likely to be significant. Firstly, liability is unlikely to affect all firms in any given industry systematically. Firms that adopt cost-efficient preventive practices are unlikely to be saddled with significant liability-related costs and therefore their international competitiveness will be unscathed. In other words, individual firms may be affected but not whole industry sectors since within each industry sector there will be unaffected firms. These unaffected firms are then likely to take over the business lost by their competitors affected by liability. This being said, in sectors where the pollution content cannot be lowered because it is based on the use of the best available technologies and practices, the impact of liability may be systematic and translate into sector-wide cost differentials (all else the same [31]) vis-à-vis third countries with less strict internalisation policies.

[31] All else is, however, rarely the same and the costs associated with environmental protection policies are often irrelevant in comparison with other cost differentials (e.g. labor costs, infra-structure availability).

Secondly, even with the significantly larger cost impact of Superfund, the U.S. industries with higher clean-up costs [32] did not experience any significant deterioration of their international competitiveness. The chemical industry provides a good illustration of why this may be the case. While this industry faces the largest share (25%) of Superfund's clean-up costs, much larger than the second industry sector more affected, these costs are still a very small part of the industry profits (around 2% [33]). There are industries where the relative impact of clean-up costs on profits or value added is more significant, the better illustration being the mining industry. But this is more the result of persistent poor profitability probably associated with structural factors than of the impact of environmental expenditures.

[32] Chemicals, mining, primary metals, lumber and wood products, fabricated metal products excluding machinery and petroleum refinery.

[33] Profits data for 1991 and 1992.

>TABLE POSITION>

* The meaning of each cost category and the way the associated expenditures were derived is explained in the footnotes associated with the table

5. Public consultation

The preparatory works leading to this proposal rely, inter alia, on a number of previous initiatives on the occasion of which wide debates have been held with interested parties. One can mention in that respect the Commission Green Paper in 1993 (COM(93) 47 final), a Joint Hearing with the European Parliament that year, a Parliament Resolution asking for a Community Directive and an Opinion of the Economic and Social Committee in 1994 and the White Paper on Environmental Liability on 9 February 2000 [34]. Interested parties have also been consulted on a working document released in July 2001 [35]. In light of the public consultation, the proposals set out in the working document have been revised. For further information on the public consultation process and its outcome, see the Annex to the Explanatory Memorandum.

[34] COM(2000) 66 final. The White Paper has elicited numerous comments from Member States and a wide range of interested parties alike (Summaries of those comments can be found at the following site: http://europa.eu.int/comm/environment/wel/main/index.cfm). The White Paper was also the subject of Opinions from the Economic and Social Committee (Opinion of 12 July 2000 (OJ C 268, 19.9.2000, p. 19) and the Committee of the Regions (Opinion of 14 June 2000 (OJ C 317, 6.11.2000, p. 28). The European Parliament has not adopted an official position on the White Paper but the Committee on the Environment, Public Health and Consumer Policy has adopted on 12 September 2000 an Opinion for the Committee on Legal Affairs and the Internal Market on the White Paper on Environmental Liability (doc. PE 290.139). The Environment Council has also debated the issue of environmental liability in April and December 2000 (See Council Press Release No 486 of 18.12.2000) (Document No.: 14668/00).

[35] The integral text of the submissions received (in principle in their original language), for which no request for confidentiality has been made, can be found at the following site: http://europa.eu.int/comm/environment/liability/followup.htm.

It is clear, however, that not all suggestions made by the various interested parties could have been taken into account. In the first place, industry and environmental non-governmental organisations (NGOs) have opposite views on the subject and, even more importantly, suggestions, which could not be reconciled with the objectives of the proposal and the reasons why the proposal is deemed necessary, could not be taken on board.

As explained above, the Commission is of the opinion that a Community liability instrument is needed. The Commission also believes in the context of environmental damage that there is a need for allowing public interest groups and NGOs to act on behalf of the environment given the absence of proprietary interest in relation, for example, to biodiversity.

Conversely, the Commission is of the opinion that a certain number of suggestions made by environmental NGOs could not be incorporated in this proposal. This is so concerning in particular the scope of the proposed regime. The Commission when it proposes a new legislative initiative must take into account all the interests in presence, and strike an appropriate balance between all of them in light of the environmental objectives pursued and the wider socio-economic context. Opting for a fully retrospective regime or a regime where the usual principles in terms of burden of proof and causal link would have been significantly altered was not deemed to be advisable.

As far as traditional damage (personal injury and damage to goods) is concerned, it is not covered by the proposal although the White Paper on Environmental Liability suggested otherwise. There are a variety of reasons for that evolution. Firstly, it does not appear necessary to cover traditional damage under the proposed scheme, at least in the first place, to achieve ambitious environmental objectives and implement to meaningful extent the "polluter pays" and preventive principles. Secondly, traditional damage can only be regulated through civil liability [36]. National legal systems (legislation and case law) are quite developed with respect to traditional damage, which constitute their subject matter by excellence. Having said that, recent and future developments at international level on that subject are likely to require the Commission to consider afresh the matter, at least if the Community wishes to adhere to those international civil liability instruments supplementing international environmental agreements. It is to be noted, however, that those various sectoral international initiatives [37] do not always appear as fully consistent among themselves so that it seems difficult at this stage to formulate a general position as to how those initiatives should be considered by the Community. Further reflections are needed on that subject in light of the developments taking place at the international level.

[36] See the study dedicated to review recent developments in environmental liability law in the Member States and on environmental liability in some OECD countries (http://europa.eu.int/comm/environment/liability/legalstudy.htm), which highlights that, in most countries, contaminated sites and, where it exists, damage to biodiversity have up to now been mainly matters for public/administrative law, while harm to persons and property is subject to private, civil law adjudication. The Commission is of the opinion that it might be difficult to provide for a common legal framework both for civil and public/administrative liability. This reason also explains why the proposal does not cover traditional damage.

[37] There is one sectoral instrument that has been signed but is not in force yet: the 1999 Basle Protocol on Liability and Compensation for Damage resulting from Transboundary Movements of Hazardous Wastes and their Disposal. There are several other ongoing or future initiatives: a potential joint liability instrument under the 1992 Helsinki Convention on the Transboundary Effects of Industrial Accidents (TEIA Convention) and 1992 Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes (Water Protection Convention) and (a) possible (in the medium term) liability instrument(s) under the Convention on Biological Diversity and the Cartagena Protocol on Biosafety. For the sake of completeness, reference can be made to the only existing horizontal international environmental liability regime, which is the 1993 Lugano Convention on Civil Liability for Damage resulting from Activities dangerous to the Environment. This Convention is, however, not yet in force and there is no likelihood that the Community would adhere to it in the near future.

With respect to financial security, the proposed regime does not make it compulsory. The closed scope of dangerous activities, the limitation to certain natural resources and the limitation to significant damage are all aspects which contribute to making the risks to be covered by the regime better calculable and manageable. The proposed regime allows the necessary flexibility for the first years of its implementation, since it clearly entails a certain number of novelties for insurers and other financial security providers.

It is to be noted in relation to the definition of biodiversity for the purpose of the proposal that the definition of "biological diversity" in Article 2 of the Convention on Biological Diversity could not be considered at this stage as providing a suitable basis for the proposed regime, including as far as liability to be attached to genetically modified organisms is concerned. The Convention's definition goes beyond habitats and species and subsumes the idea of "variability" so that it could be argued that damage to biological diversity would encompass injury to "variability among living organisms". Such an approach raises delicate questions as to how such damage would be quantified and what would be the threshold of damage entailing liability [38]. This is being said without prejudice to any further development on that issue notably in the context of the implementation of the Convention on Biological Diversity and the Protocol on Biosafety.

[38] It is to be noted that similar questions are raised within the context of the Intergovernmental Committee for the Cartagena Protocol on Biosafety (see the Note by the Executive Secretary on "Liability and redress for damage resulting from the transboundary movements of living modified organisms. Review of existing relevant instruments and identification of elements" [UNEP/CBD/ICCP/2/3 - para. 77, page 24] - http://www.biodiv.org/biosafety/mtg-iccp-02.asp).

The Commission is aware, in any event, that legislating, especially in such a field, can only be an iterative process where the experience gained in the implementation of the scheme and new legal and technical developments on the subject should be reviewed and lead to the regime being improved where appropriate.

6. Content of the proposal

6.1. Article 1 - Subject matter

The proposal aims to establish a framework based on environmental liability whereby environmental damage would be prevented or remedied.

6.2. Article 2 - Definitions

Appropriate definitions should be given to notions instrumental to the good interpretation and application of the scheme foreseen by the proposal.

Environmental damage should be defined whenever possible by reference to the relevant provisions of Community environmental law - the Habitats and Water Framework Directives - so that common criteria could be used and uniform application could be promoted. Account should nevertheless be taken of specific situations where the aforementioned Directives allow for certain derogations to the level of protection afforded to the environment. Biodiversity should also be defined by reference to areas of protection or conservation that have been designated in pursuance of national or sub-national legislation on nature conservation. Environmental damage should also cover those situations where serious potential or actual harm to human health exists when this serious harm results from land contamination.

Damage to water, soil and habitats consecutive to the accidental or deliberate release of substances or materials or radiations, into the air should be included in the notion of damage since such airborne elements could cause environmental damage within the meaning of this Directive.

6.3. Article 3 - Scope (in conjunction with Annex I)

Occupational activities which present a risk for human health and the environment should be covered. Those activities should be identified, in principle, by reference to the relevant Community legislation which provides for regulatory requirements, including, where appropriate, registration or authorisation procedures, in relation to certain activities or practices considered as posing a potential or actual risk to man and the environment.

In that context, the proposal should cover, with respect to dangerous substances or preparations, organisms and micro-organisms , and plant protection and biocidal products, their manufacture, use and release into the environment.

Due regard should also be given to the relevant provisions of Community transport legislation which identify dangerous or polluting goods relevant for the purpose of this proposal; it is appropriate in that context to extend those relevant provisions to other transport modes in the absence of more specific Community provisions. However, considering the existence of specific Community legislation on plant protection and biocidal products and genetically modified organisms and micro-organisms, all transport activities concerning those elements should be covered irrespective of their possible coverage under the aforementioned relevant Community transport provisions. The circumstance that all modes of transport are not at present regulated by Community transport legislation or that transport is to a large extent not regulated by the specific legislation on plant protection, biocidal products or genetically modified organisms and micro-organisms is irrelevant for the purpose of this proposal since transporting those products, organisms and micro-organisms poses a risk, actual or potential, for man or the environment.

This proposal should also apply, in relation to biodiversity damage, to any occupational activities other than those already directly or indirectly identified by reference to Community legislation as posing an actual or potential risk for man or the environment.

There are a certain number of international conventions dealing with the issue of civil liability in relation to specific fields such as oil pollution and nuclear damage. Most Member States are parties to these conventions which, even though they do not necessarily provide for the same requirements than those of this proposal, present the advantages of ensuring a global or regional harmonisation. As far as those conventions display shortcomings, the Community should, in accordance with its task of promoting measures at international level to deal with regional or world-wide environmental problems (Article 174(1) of the EC Treaty), try to improve the existing international arrangements. In the wake of the Erika oil spill, the Community has committed itself to improving maritime safety and the functioning of the International Oil Pollution Compensation Fund as far as liability issues are concerned [39]. When the review of the operation of the IOPC Fund undertaken under the auspices of the International Maritime Organisation is completed, the Community will have to determine if the results achieved in that context are satisfactory or not; in the latter case, consideration should be given to a specific Community initiative on that subject.

[39] See COM(2000) 802 final of 6.12.2000.

Therefore, express account should be given to existing Euratom legislation and relevant international conventions in the field of nuclear damage, oil pollution damage and damage caused by the carriage of hazardous and noxious substances and dangerous goods.

Where Community law already establishes a regulatory framework one of the purposes of which is to prevent the occurrence of accidents [40], these detailed regulatory requirements should not be disrupted by the proposed regime which aim is to supplement the existing arrangements and not to substitute them.

[40] See Council Directive 96/61/EC of 24 September 1996 concerning integrated pollution prevention and control (OJ L 257, 10.10.1996, p. 26) and Council Directive 96/82/EC of 9 December 1996 on the control of major-accident hazards involving dangerous substances (OJ L 10, 14.1.1997, p. 13).

The proposed regime, which does not provide for additional rules of conflict of law when it specifies the powers of the competent authorities, is without prejudice of the rules on international jurisdiction of courts as provided, inter alia, in Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [41].Given the scope of the proposal and the exclusion therefrom of traditional damage, no question of compatibility should arise in relation to laws relating to the protection of workers' health and safety at work. The same holds true with respect to the relevant Community legislation in the field of product liability [42] and product safety, [43] which do not cover damage to the environment. The legislation on product liability and product safety is, therefore, fully applicable. In the absence of potential overlapping, there is no need to provide for a specific provision in the proposal aiming to clarify the relation between the proposal and those laws.

[41] OJ L 12, 16.1.2001, p. 1.

[42] OJ L 210, 7.8.1985, p. 29. Directive amended by Directive 1999/34/EC of the European Parliament and of the Council of 10 May 1999 (OJ L 141, 4.6.1999, p. 20).

[43] Council Directive 92/59/EEC of 29 June 1992 on general product safety (OJ L 228, 11.8.1992, p. 24).

It should lastly be made clear that the proposal does not apply to diffuse pollution, to activities the sole purpose of which is to serve national defence.

6.4. Article 4 - Prevention

Next to the general preventive effect attached to the proposed regime [44], there is also a need to set up a regulatory framework for the taking of specific preventive measures when an imminent threat of environmental damage arises. Prevention in this context implies that the competent authority either requires the operator to take the necessary preventive measures or takes itself such measures immediately or, in any case, when the operator does not take the necessary measures. Where an operator is aware or should be aware of an imminent threat, he should act immediately without waiting for the competent authority to require him to do so. Should the preventive measures taken by the operator be ineffective, the relevant operator should inform the competent authority of the situation.

[44] That is the prevention effect attached to liability from an economic viewpoint (see section 2 above).

6.5. Article 5 - Restoration (in conjunction with Annex II)

Restoration in the context of the proposed regime implies that the competent authority either requires the operator to take the necessary restorative measures or takes itself such measures immediately or, in any case, when the operator does not take the necessary measures. Restoration should take place in an effective manner ensuring that the restoration objectives are achieved in compliance with the minimum criteria according to which restoration measures should be identified and chosen. As a rule, the value of the damage should be that of the restorative measures so that no monetary valuation is needed. However, competent authorities should be entitled to use, where appropriate, monetary valuation techniques. Research undertaken within the framework of Community research and development programmes can provide valuable information and tools with respect to the characterisation and valuation of environmental damage. The active co-operation of the operator and other interested parties, if need be, is likely to contribute to the cost-effectiveness of the measures to be taken.

Several instances of environmental damage might occur within a short period of time. In such a case, the competent authority should be entitled to decide which instance of environmental damage must be remedied first. To make that decision, the competent authority should have regard, inter alia, to the nature, extent, gravity and possibilities of natural recovery of the different instances of environmental damage concerned.

6.6. Article 6 - Additional provisions in relation to prevention and restoration

In light of the importance of the need to ensure appropriate prevention and restoration, Member States should ensure that the necessary restorative or preventive measures are taken when the "polluter pays" principle cannot be implemented. In such cases, Member States should adopt whatever provisions they deem fit in conformity with their legal systems provided that they ensure effectively that the necessary preventive or restorative measures are financed. Such alternative financing schemes should in any case be without prejudice to the liability of the operator should he be identified later on or regain sufficient financial means to bear the cost of the measures taken.

6.7. Article 7 - Cost recovery

Community action should further the implementation of the "polluter pays" principle, as is foreseen by Article 174(2) of the EC Treaty. The operator causing environmental damage or creating an imminent threat that such a damage occurs should therefore be, in principle, financially responsible. When the preventive or restorative measures are taken by the competent authority or by a third party on its behalf, the cost should be recovered from the operator.

6.8. Article 8 - Cost allocation in relation to certain biodiversity damage

Where biodiversity damage has been caused by an operator in the course of another occupational activity than one of those identified by this proposal as posing an actual or potential risk for man or the environment, that operator should not be financially responsible if he was not at fault or negligent.

6.9. Article 9 - Exemptions and defences

This Directive should not cover damage or imminent threat thereof which is the result of certain events beyond his control or of specific emissions or events which are allowed by the applicable laws and regulations or have been authorised by a permit The same approach is also applicable when the damage has been caused by emissions or activities which were not considered harmful according to the state of scientific and technical knowledge at the time the emission was released or the activity took place. There might be cases, however, where it is justified that, although the operator should not bear the cost of prevention or restoration, Member States are nevertheless required to take action in relation to the damage in question. Where damage has been intentionally caused by a third party, Member States should be required to ensure that the damage in question is remedied, being understood that the third party having caused the damage should bear the cost. Similarly, when damage has been caused by the fact of having to comply in compulsory manner with rules or orders emanating from public authorities, Member States should also be required to ensure that restoration is carried out. Insolvency practitioners fulfil a task of great importance to the benefit of the collectivity of creditors and should not, therefore, be personally financially responsible insofar as they act in accordance with the relevant national provisions and are not at fault or negligent.

6.10. Article 10 - Cost allocation in relation to certain preventive measures

It is clear that the operators must always bear the cost of the measures which they must take in any case because they are required to do so by laws and regulations (other the proposed regime) or the permit which governs their activities.

6.11. Article 11 - Cost allocation in multiple party causation cases

Several operators may cause the same damage. In such cases, Member States should either provide for joint and several liability or for apportionment on a fair and reasonable basis of the financial responsibility. If an operator can establish that he has only caused part of the damage, this operator should only be obliged to bear the cost related to that part of the damage.

6.12. Article 12 - Limitation period for recovery

Competent authorities should be entitled to recover cost from the operator during a period of five years from the date on which the preventive or restorative measures have been carried out.

6.13. Article 13 - Competent authority

From one Member State to another, the powers necessary to implement and enforce the proposed regime might be given either to courts or quasi-judicial bodies or to administrative authorities. In line with the principle of subsidiarity, Member States should be free to maintain their institutional arrangements insofar they are compatible with the achievement of the proposal's objectives. Some of the tasks to be carried out, namely establishing which operator has caused the damage or the imminent threat of damage, assessing the importance of the damage and determining the restorative measures, should, however, be carried out in any case by administrative authorities or by third parties on their behalf, since those tasks require particular expertise and ways of proceeding which are not always and entirely compatible with the manner judicial bodies operate. This does not imply, however, that the findings of the competent authority in those different respects may not be reviewable by courts should the operator contests their exactness. Provisions enabling the operator to avail himself of legal remedies should be foreseen. The operator should be associated to the procedure since his knowledge of the activity that has caused the damage would usually be useful.

6.14. Article 14 - Request for action

Environmental protection is a diffuse interest on behalf of which individuals will not always act or will not be in a position to act. It is therefore appropriate that qualified entities be given a special status to ensure the good functioning of the proposed regime. Persons adversely affected or likely to be adversely affected by environmental damage and qualified entities should therefore be entitled to request that the competent authority take action in certain conditions and circumstances. The operator should be given the opportunity to let his views known with respect to the request of action and the accompanying observations. The competent authority should inform the applicant of the outcome of the request for action within appropriate time-frames.

6.15. Article 15 - Judicial review

It is important to ensure that the action or inaction of public authorities could be reviewed in case the rules set out in the proposed regime would be breached.

6.16. Article 16 - Financial security

Insurance or other forms of financial security compulsory are usually acknowledged as increasing the efficiency of liability. The use of insurance or other forms of financial security should therefore be encouraged.

6.17. Article 17 - Co-operation between Member States

In case of transboundary damage, the Member States concerned should actively co-operate to prevent or remedy the damage

6.18. Article 18 - Relation with national law

Member States should remain free to maintain or adopt more stringent provisions than those set out in the proposed regime. In addition, Member States should be able to address the issue of "double recovery".

6.19. Article 19 - Temporal application

The proposed regime should have no retrospective effect. Appropriate arrangements are needed for the situation where it is likely that the damage was caused before the date of implementation of the regime but there is no certainty. In any case, Member States remain free to regulate damage not covered by the proposed regime.

6.20. Article 20 - Review (in conjunction with Annex III)

Member States should report to the Commission on the experience gained in the application of the proposed regime so as to enable the Commission to consider, taking into account the impact on sustainable development, whether any review is appropriate. Minimum guidance as to the contents of the national reports should be specified.

6.21. Articles 21 to 23 - Implementation, Entry into force and Addressees

Those provisions are standard ones in Directives.

Annex - Public consultation

The European Commission adopted a White Paper on Environmental Liability on 9 February 2000 [45]. The objective of the White Paper was to explore how the polluter pays principle, one of the key environmental principles in the EC Treaty, can best be applied to serve the aims of Community environmental policy. The White Paper explores how a Community regime on environmental liability can best be shaped. Having explored different options for Community action, the Commission concludes that the most appropriate option is a Community framework directive on environmental liability.

[45] COM(2000) 66 final.

The background to the White Paper includes a Commission Green Paper in 1993 (COM(93) 47 final), a Joint Hearing with the European Parliament that year, a Parliament Resolution asking for a Community Directive and an Opinion of the Economic and Social Committee in 1994.

The White Paper has elicited numerous comments from Member States and a wide range of interested parties alike [46]. The White Paper was also the subject of Opinions from the Economic and Social Committee [47] and the Committee of the Regions [48]. The European Parliament has not adopted an official position on the White Paper [49]. The Environment Council has also debated the issue of environmental liability in April and December 2000 [50].

[46] Summaries of those comments can be found at the following site: http://europa.eu.int/comm/environment/wel/main/index.cfm.

[47] Opinion of 12 July 2000 (OJ C 268, 19.9.2000, p. 19).

[48] Opinion of 14 June 2000 (OJ C 317, 6.11.2000, p. 28).

[49] The Committee on the Environment, Public Health and Consumer Policy has adopted on 12 September 2000 an Opinion for the Committee on Legal Affairs and the Internal Market on the White Paper on Environmental Liability (PE 290.139).

[50] See Council Press Release No 486 of 18.12.2000 (Document No.: 14668/00).

On 25 July 2001, the Environment Directorate-General released a working paper which set out the principles on which the future regime could be based. The working paper was sent to:

* the Member States;

* the EEA States;

* the accession countries;

* certain international organisations (EFTA and UNEP);

* European associations of local and regional authorities (CEMR - Council of European Municipalities and Regions and ARE - Assembly of the European Regions);

* European environmental NGOs (EEB - European Environmental Bureau, WWF - World Wildlife Fund, Greenpeace, BirdLife, Friends of the Earth and International Friends of Nature) and consumers association (BEUC);

* European industrial and professional federations and associations: Union of Industrial and Employer's Confederations of Europe (UNICE), European Chemical Industry Council (CEFIC), Union Européenne de l'Artisanat et des Petites et Moyennes Entreprises (UEAPME), European Round Table of Industrialists (ERT), Centre européen des Entreprises à Participation Publique et des Entreprises d'Intérêt Economique Général (CEEP), Network for Industrially Contaminated Land in Europe (NICOLE), European Association of BioIndustries (EuropaBio), Fédération Européenne des Activités du Déchet et de l'Environnement (FEAD), Liaison Group of the European Mechanical, Electrical, Electronic and Metalworking Industries (ORGALIME), EU Committee of the American Chamber of Commerce in Belgium, Comité des Organisations Professionnelles Agricoles de l'UE & Comité de la Coopération Agricole de l'UE (COPA / COGECA), Contaminated Land Rehabilitation Network for Environmental Technologies (CLARINET), Comité Européen des Assurances (CEA), Fédération Bancaire de l'UE, International Association of Oil and Gas Producers (OGP), European Petroleum Industry Association (EUROPIA), Union Pétrolière Européenne Indépendante (UPEI), International Tankers Owners Pollution Federation (ITOPF), European Environmental Law Association (EELA), European Property Federation (EPF), European Atomic Forum (FORATOM).

Meetings (5) were organised with Member States, accession countries, environmental NGOs, the industry and local and regional authorities.

Comments were also invited through publication of the working document on DG Environment website.

Belgium, Denmark, France and the Netherlands have sent written comments. Poland has also submitted written comments. Four environmental NGOs (BirdLife International, WWF EPO - World Wildlife Fund European Policy Office, EEB - European Environmental Bureau and Friends of the Earth Europe) have sent common comments. ECSA - European Community Shipowners' Association, ICS - International Chamber of Shipping and INTERTANKO -International Association of Independent Tanker Owners have also submitted common comments. In addition, the following interested parties have sent comments: AFEP-AGREF - Association française des entreprises privées; AVENTIS; BDI - Bundesverband der Deutschen Industrie; BERGKAMP Lucas (Prof. & Partner, HUNTON & WILLIAMS); BIPAR - European Federation of Insurance Intermediaries ; BNFL - British Nuclear Fuels Plc; CBI - Confederation of British Industry; CEA - Comité européen des assurances; CEEP - European Centre of Enterprises with public participation and of enterprises of general economic interest; CEFIC - European Chemical Industry Council; CEMBUREAU - The European Cement Association; CEMR - Council of European Municipalities and Regions; CLECAT - European Organisation for Forwarding and Logistics; CODACONS - Coordinamento di Associazioni per la Tutela dell'Ambiente e dei Diritti di Utenti e Consumatori; ECGA - European Carbon and Graphite Association; EELA - European Environmental Law Association; EFCA - European Federation of Engineering Consultancy Associations; ELO - European Landowners Organisation; EPF - European Property Federation; ERT Environmental Group - European Round Table of Industrialists; ESA - Environmental Services Association; EURELECTRIC - Union of the Electricity Industry; EuroGeoSurveys - Association of Geological Surveys of the European Union; EUROMINES - European Association of Mining Industries; EUROPIA - European Petroleum Industry Association ; FBE - European Banking Federation; FEAD - European Federation of Waste Management and Environmental Services; FIEC - European Construction Industry Federation; FLA - Finance and Leasing Association; FORATOM - European Atomic Forum; Freshfields Bruckhaus Deringer; IBEC - Irish Business & Employers Confederation; IFAW - International Fund for Animal Welfare; IoD - Institute of Directors; ITOPF - International Tanker Owners Pollution Federation; IV - Industriellenvereinigung; Leaseurope; MEDEF - Mouvement des entreprises de France; Leaseurope ; NFU - National Farmers' Union; NICOLE - Network for Industrially Contaminated Land in Europe; NIREX Ltd; Nordic Family Forestry; OGP - International Association of Oil and Gas Producers; RUIZ Marta (lawyer); SMMT - The Society of Motor Manufacturers and Traders; Suez; Syngenta International; Thames Water ;TVO - Teollisuuden Voima; UEAPME - Union européenne de l'artisanat et des petites et moyennes entreprises; UEPC - Union européenne des promoteurs-constructeurs; UIC - Union des industries chimiques; UKELA - UK Environmental Law Association (with separate submissions from the Scottish Law Working Party of UKELA); UNICE - Union of Industrial and Employers' Confederation of Europe; VCI - Verband der Chemischen Industrie; VDEW - Verband der Elektrizitätswirtschaft; VDMA - Verband Deutscher Maschinen- und Anlagenbau; WKÖ - Wirtschaftskammer Österreich; ZVEI - Zentralverband Elektrotechnik- und Elektronikindustrie.

Outline of the main views of the interested parties

The main views of the interested parties can be summarised as follows [51]:

[51] The integral text of the submissions received (in principle in their original language), for which no request for confidentiality has been made, can be found at the following site: http://europa.eu.int/comm/environment/liability/followup.htm.

Member States

* On the whole, the reliance on public law mechanisms has been welcomed, although some regrets have been expressed that civil liability and traditional damage are not covered any longer.

* The need for as a precise legal regime, including definitions, as possible has been underlined.

* The need to ensure the full implementation of the "polluter-pays" principle and the importance of carefully considering the new role to be played by public authorities in relation to "orphan damages" (i.e. when the polluter cannot pay for making good the damage) have been stressed, notably in relation with the potential financial consequences for public authorities.

* Attention has been drawn to the particular situation of the owner or occupier of the land affected by environmental damage caused by a third party.

* Concerns have been expressed about proposals departing from the environmental area, which touch upon issues more relating to company law or civil procedure.

* Reference was made to the need to clarify the relation with international conventions; in addition, mention was made of different initiatives at international level in the field of civil liability in the light of which the need for the Commission to pursue its reflections on the subject was underlined.

* Doubts have been expressed with respect to the inclusion of interim losses.

* The future Community regime should not prevent Member States to adopt more stringent provisions.

Accession countries

* On the whole, the proposals set out in the working document have not raised objections; some comments made even suggest that proposals should be more comprehensive.

* Some concerns have been expressed with respect to the potential financial consequences for public authorities.

Industry and professional associations

If industry welcomes the fact that traditional damage (personal injury and damage to property) is left out and the fact that no direct action should be given to NGOs against operators, the same concerns as were already expressed in the past, have been repeated. The main points being that industry:

* insists on the need to have clear and precise provisions in general and definitions in particular;

* is generally opposed to any alleviation/reversal of the burden of proof;

* is generally opposed to joint and several liability;

* wishes to see strict liability restricted to a limited number of activities (some industry representatives consider that there is no reason to depart from fault-based liability);

* insists that complying with a permit/state-of-the-art/development risk should be retained as defences;

* is generally opposed to granting any kind of privileged status to NGOs as far as access to justice is concerned;

* is concerned about the difficulties relating to the evaluation of environmental damage;

* is worried about the difficulty operators could encounter in finding appropriate insurance coverage, though it welcomes that financial security is not made compulsory;

* invites the Commission to take account of the existing international conventions in the relevant fields (e.g. oil pollution, nuclear damage);

* is worried about the use of economic valuation techniques;

* Industry is also concerned by the new proposals in the working document on "piercing the corporate veil".

Environmental non-governmental organisations

* The Commission's intention to present a legislative proposal soon is welcomed but there is a fear that the level of ambition is not high enough. More particularly, comments from environmental NGOs point in the following directions:

* In general, they suggest a wide-ranging review of the minimalist approach set out in the Working Paper to consider new developments in the field of genetically modified organisms (GMOs), integrated products policy (IPP), the review of the Community's policy in the field of dangerous chemicals and the need to follow up the Erika tanker oil spill.

* They consider that the scope of strict liability is too limited (all potentially dangerous activities should be covered or, at the very least, those activities they have listed in their comments).

* They insist that biodiversity damage outside protected areas and damage to protected areas under international conventions to which the Community and Member States are contracting parties should be covered. Liability should also apply to species protected by national legislation and all types of areas protected at national and sub-national levels. Liability should apply to all bird species protected under the Wild Birds Directive.

* They consider that, if the distinction between strict and fault-based liability is to remain, it is imperative that the fault based liability regime is also extended to pollution of water resulting from activities which may be classified as non-dangerous. (in the case, e.g. of water pollution by sewage sludge or waste water).

* They insist that soil contamination harmful for the environment and potentially harmful to human health should be covered.

* They consider that traditional damage should be covered.

* They request that the significance thresholds be substantially lowered so that the future regime be applicable to cases which fall in between the trivial and sensational.

* They ask that the Commission look for solutions to historical damage, especially in the case of contaminated soils.

* They recommend that 'compliance with a public order' does not allow licensed or authorised activities to be exempt from liability including commercially grown genetically modified crops.

* They welcome joint and several liability in cases where apportionment is not feasible.

* They welcome liability of controlling legal persons and persons providing financial security.

* They consider that citizens and affected groups should have legal standing and that they should be able to bring direct actions against operators at least in certain cases; there should be appropriate financial relief for citizens (i.e. alleviation of court costs and damages claims) who bring cases against polluters, especially where imminent damage could occur.

* They recommend that financial security should be made obligatory at Community level.

* They welcome in general restoration conditions for damage.

* They consider that the burden of proof should be alleviated.

* One NGO also recommends that monetary valuation techniques used where comparable restoration is not possible should include stated preference techniques; it supports also a retroactive regime.

Local and regional authorities

* Concerns have been expressed about the fact that the planned regime would lay down demanding obligations on public authorities in the implementation of the regime, especially when no polluter may be held liable.

* Concerns have also been expressed about the fact that the action of public authorities could be challenged by qualified entities.

On the basis of the comments made by interested parties, the proposals set out in the working document have been reviewed.

The following points can be made in that respect (in the order of the Articles of the proposal):

* The notion of "professional and commercial activities" has been replaced by that of "occupational activities" to ensure more clarity in the intended scope of application.

This change stems from the comment that the notion of "professional and commercial activities" could be interpreted as not covering non-profit making activities carried out in the course of a occupational activity and occupational activities carried out by public enterprises or bodies, while the intention is to cover such non-profit making activities.

* The relation with international conventions has been clarified.

This change stems from the request to clarify the relation between the international and the Community levels. International conventions, in relation to which the Directive should apply without prejudice to, have been listed.

* The extent to which instructions from public authorities might be used as a defence has been further specified.

This change stems from the comment that the notion of "compliance with an order from a public authority" or "compliance with a compulsory measure" might be interpreted as exempting from liability activities subject to permit or authorisation, while the intention is not to retain regulatory compliance as a defence.

* The choice is now left to Member States to choose between joint and several liability or fair and equitable apportionment of liability where it is not possible to apportion liability on the basis of the best available evidence.

This change stems from the comment that joint and several liability was not always the standard rule in Member States in a public law context.

* The possibility is now given to member States to prioritise damages in the circumstances where too many of them would occur at the same time (but this flexibility should not allow them to leave certain damage unremedied).

This change stems from the comment that exceptional circumstances might happen for which allowance should be made.

* Provisions on limitation periods have been reviewed.

This change stems from the comment that limitation periods play a different role in a public law context than in civil liability law. It is now made clear that no limitation period is attached to the possibility for competent authorities to take or order the taking of restorative measures; conversely, a limitation period applies with respect to the time period given to competent authorities to instigate cost recovery proceedings.

* The role and powers of public authorities in the implementation of the future regime have been clarified.

This change stems from the comment that the circumstances and conditions in which competent authorities should be obliged to act further to a request for action should be specified.

* Provisions on the role of NGOs and on judicial review procedures have been reviewed so as to make them more operational.

This change stems from the comment that it is not always possible in practice to adopt a final decision as to which restorative measures should be taken within four months. It is now made clear that the competent authorities should act within a reasonable time frame that is consistent with the proper achievement of the proposal's objectives. Moreover, there is a duty to inform within four months the person who or qualified entity that has lodged a request for action.

* The right of Member States may adopt more stringent provisions is reinstated.

This right flows directly from Article 176 of the Treaty but, further to questions put by several interested parties for whom this situation was not known, it is repeated in the proposal for reasons of legal clarity.

* Provisions relating to the temporal application of the regime have been reviewed.

This change stems from the comment that a full reversal of the burden of proof might lead to unfair situations. It is now made clear that the competent authority has to adduce some convincing evidence in the first place before it can be required from the operator to rebut the adduced evidence.

In addition to these specific changes, various issues on which attention was drawn, such as the need for precision and clarity in general, the full implementation of the "polluter pays" principle, the issue of insurability, have been particularly borne in mind.

With comparison with the working documents, some proposals set out therein have been dropped. This is the case with respect to provisions aiming to extend liability to certain natural and legal persons ("piercing the corporate veil") and provisions on summary judicial proceedings aiming to avoid fund dissipation by a polluter.

This change stems from the consideration that those provisions are not absolutely necessary - insofar as the States are required to take subsidiary action - and, for some of them, unprecedented both in Community and national law, and have therefore raised serious objections given the interference with national law on civil procedure.

It should also be mentioned that some of the concerns which have been expressed are unfounded. NGOs point out that the proposed regime will not apply to "unclassified chemicals" but the proposal does not require that the chemicals have been classified at Community level; the relevant Community legislation [52] requires that chemicals manufacturers, pending classification at Community level [53], must on their own initiative make a provisional assessment of the dangerous properties of chemicals substances and classify, label and package them accordingly. They have also pointed out that not only sites designated under national legislation but also sites designated under sub-national (regional or provincial) regulations should be covered. It has always been intended so.

[52] Article 6 of Council Directive 67/548/EEC of 27 June 1967 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the classification, packaging and labelling of dangerous substances as amended by Council Directive 92/32/EEC of 30 April 1992.

[53] That is until such time where the chemicals concerned have been introduced into Annex I to Council Directive 67/548/EEC as amended.

Concerning the legal basis, the fact that the proposal contains provisions on judicial review should not affect the choice of the legal basis since judicial review provisions are merely accessory to the environmental objectives pursued and is needed to ensure that the system will properly function. It is also to be noted that the judicial review provisions do not fall under any of the areas of action identified in Article 65 of the EC Treaty which only concerns judicial co-operation in civil matters having cross-border implications.

2002/0021 (COD)

Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on environmental liability with regard to the prevention and remedying of environmental damage

[Text with EEA relevance]

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 175(1) thereof,

Having regard to the proposal from the Commission [54],

[54] OJ C [...], [...], p. [...].

Having regard to the opinion of the Economic and Social Committee [55],

[55] OJ C [...], [...], p. [...].

Having regard to the opinion of the Committee of the Regions [56],

[56] OJ C [...], [...], p. [...].

Acting in accordance with the procedure laid down in Article 251 of the Treaty [57],

[57] OJ C [...], [...], p. [...].

Whereas:

(1) There are currently many contaminated sites in the Community posing significant health risks and the loss of biodiversity has dramatically accelerated over the last decades. Failure to act could result in increased site contamination and greater loss of biodiversity in the future. Preventing and remedying, in so far as is possible, environmental damage contributes to implementing the objectives and principles of the Community's environment policy as set out in Article 174 of the Treaty.

(2) The prevention and remedying of environmental damage should be implemented through the furtherance of the principle according to which the polluter should pay, as indicated in Article 174(2) of the Treaty. One of the fundamental principles of this Directive should therefore be that an operator whose activity has caused the environmental damage or the imminent threat of such damage will be held financially liable in order to induce operators to adopt measures and develop practices to minimise the risks of environmental damage so that their exposure to financial liabilities is reduced.

(3) Since the objective of the proposed action, namely to establish a common framework for the prevention and remedying of environmental damage at a low cost to society, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level by reason of the scale of the proposed action and the implications in respect of other Community legislation, namely Council Directive 79/409/EEC of 2 April 1979 on the conservation of wild birds [58], Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora [59], and Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy [60], the Community may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.

[58] OJ L 103