The late implementation of the Environmental Liability Directive has not prevented the European Commission from issuing a progress report.

The 2004 Environmental Liability Directive ("ELD") set out an EU-wide framework for the prevention and remediation of environmental damage.

The final ELD text did not go so far as to require mandatory financial security (e.g. insurance) for EU operators in respect of ELD-related liabilities. It did, however, try to prepare the ground for the possible introduction of such a requirement in the future by:

  • requiring that member states take measures to encourage the development of financial security instruments and markets in this area; and
  • requiring the European Commission to report by 30 April 2010 on: the effectiveness of the ELD in terms of actual remediation of environmental damage; and the availability of insurance and other types of financial security. If appropriate, in the light of the report, the ELD required the Commission to submit proposals for a system of harmonised mandatory financial security.

Most member states missed the ELD transposition deadline of April 2007, many of them spectacularly. Nevertheless, on 12 October 2010 (a little later than the ELD envisaged), the Commission published its report.

In relation to the effectiveness of the ELD in terms of the remediation of environmental damage, the report notes that there have been about 50 ELD cases across the EU to date. Various plausible theories are put forward in the report to explain the low liability rate. Overall, the report concludes that there is too little information at this early stage to draw concrete conclusions about the effectiveness of the ELD in remedying environmental damage.

In relation to financial security, the report notes that although the ELD does not require it, no fewer than eight member states have introduced mandatory financial security requirements for operators. However, member states as a whole have taken limited action to encourage the development of financial security instruments.

The report acknowledges that insurance is currently the most popular financial security instrument. Even following the financial crisis, evidence suggests that the ELD insurance market is growing in the EU and that an increasing variety of products are available. It is thought that greater legal clarity around certain concepts of the implemented ELD will improve matters further.

Overall, however, because of the lack of practical experience in the application of the ELD, the report concludes that there is not currently sufficient justification for introducing a harmonised system of mandatory financial security. Further study is needed.

The Commission does not intend to let the issue drift. Indeed, the report states that the Commission will re-examine the option of mandatory financial security, possibly even before its comprehensive planned review of the ELD in 2014.

Following on from the report, a number of other issues are also going to be considered without delay with a view to possible ELD amendments, including: the incomplete coverage by the ELD of the marine environment (a hot topic following the recent Deepwater Horizon Gulf of Mexico oil spill); the divergence of national transposing rules in some areas; the different approaches taken by member states to liability defences and to the coverage of protected species and natural habitats; and the sufficiency of actual financial ceilings set for established financial security instruments.

Overall, the Commission's report is rather bland. This, however, is the result of a lack of information and coordination on implementation at this early stage, rather than any lack of substance to the ELD itself. With implementation starting to become bedded down in the member states and the Commission looking at a number of areas in detail over the coming months (including financial security), significant future developments in this area cannot be discounted.

This article first appeared in "Insurance Day" on 19 November 2010.

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