ENVIRONMENTAL LIABILITY DIRECTIVE REMEDIATION OF DAMAGE 1. The directive (Article 2(1)) defines environmental damage as:-
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1 Chapter Five ENVIRONMENTAL LIABILITY DIRECTIVE REMEDIATION OF DAMAGE 1 1 Introduction This article looks in some detail at the remediation requirements of the Environmental Liability Directive. 2 It compares them with similar requirements in the US and considers how they will be implemented in the UK. 3 2 Environmental Damage The directive (Article 2(1)) defines environmental damage as:- (a) damage to protected species and natural habitats, which is any damage that has significant adverse effects on reaching or maintaining the favourable conservation status of such habitats or species. The significance of such effects is to be assessed with reference to the baseline condition, taking account of the criteria set out in Annex I; 4 (b) water damage, which is any damage that significantly adversely affects the ecological, chemical and/or quantitative status and/or ecological potential, as defined in Directive 2000/60/EC (the Water Framework Directive), of the waters concerned, with the exception of adverse effects where Article 4(7) of that Directive applies; 1 Caroline Blatch, Environment Agency. This article is based on the text of a paper presented at the UK Environmental Law Association (UKELA) Summer Conference held in Manchester on 2-4 July It has also been published in Environmental Law and Management (2004) 16(5) ELM Directive 2004/35/EC of the European Parliament and of the Council on Environmental Liability with regard to the prevention and remedying of environmental damage [2004] OJ L143/56, 30 April 2004, (the directive). 3 For a broader overview and more detailed discussion of the Directive, see Krämer, L. Directive 2004/35/EC on Environmental Liability (2004) 16(1) ELM 5 4 Damage to protected species and natural habitats does not include previously identified adverse effects which result from an act by an operator which was expressly authorised by the relevant authorities in accordance with provisions implementing Article 6(3) and (4) or Article 16 of the Habitats Directive (92/43/EEC) or Article 9 of the Birds Directive (79/409/EEC) or, in the case of habitats and species not covered by Community law, in accordance with equivalent provisions or national law on nature conservation. 1
2 (c) land damage, which is any land contamination that creates a significant risk of human health being adversely affected as a result of the direct or indirect introduction, in, on or under land, of substances, preparations, organisms or micro-organisms. 3 Remediation the procedure As set out in Article 7 of the Directive, when environmental damage has been caused, and the competent authority has established which operator caused the damage and has assessed the significance of the damage, the operator must: identify, in accordance with Annex II, potential remedial measures, and submit those potential remedial measures to the competent authority for its approval. The competent authority must: decide which remedial measures shall be implemented in accordance with Annex II (with the co-operation of the relevant operator, as required), invite the persons referred to in Article 12(1) (persons who have requested action) and in any case the persons on whose land remedial measures would be carried out, to submit their observations, and take those observations into account. So how does the operator identify potential remedial measures, and how does the competent authority decide which remedial measures shall be implemented, in accordance with Annex II? 4 Remediation the standards Annex II of the Directive sets out a common framework to be followed in order to choose the most appropriate measures to ensure the remedying of environmental 2
3 damage. It is based on the US Oil Pollution Act (OPA) Regulations for carrying out natural resource damage assessment (NRDA). Before considering Annex II in more detail, it is appropriate to take a brief look at the legal basis and main features of the US system. 4.1 Influence of the US Oil Pollution Act In the US the two pivotal environmental damages statutes are the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, more commonly known as Superfund) and the Oil Pollution Act 1990 (OPA). CERCLA provides for restoration of natural resources and/or services associated with releases of hazardous substances, while OPA covers similar impacts resulting from discharges of oil. There is a dedicated body of officials, designated by the President and State governors, who serve as trustees to protect, manage and restore public trust resources on behalf of the public. Under CERCLA, a trust fund was set up, established by a tax on industry, which can be used to provide for clean up but not for restoration where no responsible party can be identified. Under both CERCLA and OPA there are separate NRDA regulations. The NRDA regulations under the OPA were developed by the Department of Commerce s National Oceanic and Atmospheric Administration (NOAA). Although the CERCLA and OPA regulations have several differences, in practice CERCLA assessments are now frequently carried out under the approach that has been developed in the OPA regulations. Natural resource damage claims are based on the restoration of public resources and have three basic components. The measure of damages is: 1) the cost of restoring, rehabilitating, replacing, or acquiring the equivalent of the damaged natural resources primary restoration; and 2) the diminution in value of the natural resources pending recovery of the resource to baseline (interim lost value) compensatory restoration; and 3) the reasonable cost of assessing those damages. 4.2 How does Annex II compare to the US system? 3
4 As already mentioned, Annex II of the Directive is based on the US OPA Regulations. These take a very comprehensive approach to environmental restoration and have formed the basis of many successful environmental restoration projects. In many ways this was therefore a good example for the Commission to follow. However, when you compare the length of the OPA Regulations with the length of Annex II, the difference is quite striking. Annex II pulls out key principles from the OPA Regulations sometimes it even reproduces extracts from these verbatim but it does so in a highly condensed form. The US document, which extends to about 20 pages, and provides a detailed and coherent picture of the purpose and procedures for undertaking NRDA, is collapsed in the Directive into less than three pages. Clearly there will be a need for guidance, either at the national or European level, before the Annex II remediation framework can be applied properly and consistently in practice. In Annex II there is a significant difference, in terms of remediation standards, between water damage or damage to protected species or natural habitats on the one hand and land damage on the other. For land damage it requires only the removal of any significant risk of the land adversely affecting human health. This difference does not appear in the US system, where all three types of natural resources are treated in the same way. 4.3 Damage to water or protected species or natural habitats Annex II, section 1 states that Remedying of environmental damage, in relation to water or protected species or natural habitats, is achieved through the restoration of the environment to its baseline condition by way of primary, complementary and compensatory remediation. Primary remediation Section 1(a) defines primary remediation as any remedial measure which returns the damaged natural resources and/or impaired services to, or towards, baseline condition. Its purpose is to restore the damaged natural resources and/or services to, or towards, baseline condition (section 1.1.1). The terms natural resource, services and baseline condition are defined in Article 2:- 4
5 Natural resource means protected species and natural habitats, water and land Services and natural resources services mean the functions performed by a natural resource for the benefit of another natural resource or the public Baseline condition means: the condition at the time of the damage of the natural resources and services that would have existed had the environmental damage not occurred, estimated on the basis of the best information available. What if you do not know, even using the best information available, what the baseline condition was prior to the damage? The definition of damage to protected species and natural habitats is particularly wide, in that it extends beyond protected sites. Whilst the competent authorities, particularly English Nature, will hold information about the favourable conservation status of certain species and habitats, they may hold no (or insufficient) information about the favourable conservation status of others, particularly outside protected sites. Clearly this is an issue that has to be addressed, drawing on the information and expertise of all the relevant bodies. It is interesting to note that in the US OPA Regulations on undertaking damage restoration, a pre-assessment screen is required before the restoration planning stage when it must be determined that data sufficient to pursue an assessment are readily available or likely to be obtained at reasonable cost. If this condition is not met then restoration planning does not proceed. Assuming that you have identified what the baseline condition was prior to the damage, the next question is: What if you cannot identify any measures that would return the site to baseline condition? The answer is provided in section 1 of Annex II: Where primary remediation does not result in the restoration of the environment to its baseline condition, then complementary remediation will be undertaken. Complementary remediation Section 1(b) defines complementary remediation as:- 5
6 any remedial measure taken in relation to natural resources and/or services to compensate for the fact that primary remediation does not result in fully restoring the damaged natural resources and/or services. This is not a term that features in the US OPA Regulations, but it was introduced into the Directive as a separate category of remedial action, to deal with situations where primary remedial actions do not return the site back to its baseline condition. For example, if a pollution incident drove species from a woodland and it was impossible to ever re-establish them again, then the woodland would never recover fully its original environmental quality level. This loss would have to be compensated for by complementary remedial actions actions that provide a similar level of natural resources and/or services, including, as appropriate, at an alternative site, as would have been provided if the damaged site had been returned to its baseline condition (section 1.1.2). Another example would be where the cost of returning the site back to its baseline condition is excessive and equivalent environmental benefits could be obtained elsewhere at lower cost. 5 It is not clear, on the face of Annex II, what flexibility the operator may have to select complementary rather than primary remedial actions. We will come back to this issue when we look at how to choose between remedial options. Compensatory remediation Section 1(c) defines compensatory remediation as any action taken to compensate for interim losses of natural resources and/or services that occur from the date of damage occurring until primary remediation has achieved its full effect. Its purpose is: to compensate for the interim loss of natural resources and services pending recovery. This compensation consists of additional improvements to protected natural habitats and species or water at either the damaged site or at an alternative site. It does not consist of financial compensation to members of the public (section 1.1.3). 5 European Commission Non-Paper on Annex II of the Proposal for a Directive on Environmental Liability 6
7 Interim losses means: losses which result from the fact that the damaged natural resources and/or services are not able to perform their ecological functions or provide services to other natural resources or to the public until the primary or complementary measures have taken effect. It does not consist of financial compensation to members of the public (section 1(d)). It should be noted that compensatory remediation always has to be carried out whereas complementary remediation only has to be carried out where primary remediation does not result in a return to baseline condition. These provisions are central to the achievement of the Directive s aims, and they are indeed very worthwhile aims. According to these rules, polluters will be required to pay not only to return the environment to its former condition but also to compensate the environment and the public for the loss of environmental services whilst it is being returned to that condition. However, the provisions hinge upon some completely new and complex concepts, such as interim loss and compensatory remediation, and the interpretation and application of these concepts will require a particular kind of knowledge and expertise. Clearly there is a need for comprehensive guidance to operators and competent authorities, to enable them to interpret and apply these provisions consistently, as well as relevant expertise to assist in identifying potential remedial measures and in selecting the most appropriate ones. Lessons may be learned from the US, where there is not only a comprehensive body of guidance and case studies to support the decision-making processes but also a body of natural resource trustees who are dedicated to carrying out this work. 5 Identification of remedial measures We have now looked at the three types of remediation that have to be carried out: primary, complementary and compensatory. But how is the operator supposed to identify potential remedial measures to submit to the competent authority for approval? Before looking at how Annex II, section 1.2 attempts to answer this difficult question, let us reflect for a moment on one of the more difficult questions 7
8 that underlies it, and how the US have approached this question when devising their own system of environmental liability. The question is: How do you select the most appropriate valuation methodology? 5.1 Valuation methodologies economic valuation vs restoration cost Assessing natural resource damage in order to determine what level of compensation should be demanded of a liable party is not straightforward because the injured resource cannot be valued using market prices. The services that the environment provides referred to by economists as public goods have no prices attached to them. For example, clean water in a river is a public good. It provides a range of services including amenity services (people like to walk along rivers, swim, sail and go fishing in them), ecological functions (supporting the population of animals and plants along its course) and water supply. Pollution of a river will disrupt all these services but how can these services be valued? There is no easy answer and discussions about it are often contentious (particularly given the implications of different methods for the scale of damages under a liability regime). Two main approaches have been developed in the US, one using economic valuation techniques to infer a price for an environmental service and the other using the cost of replacing an environmental service as a proxy for its value. There has been a lot of controversy in the US over economic valuation techniques, particularly stated preference techniques such as contingent valuation (CV) (asking people how much they would be willing to pay for a resource etc). It is clear from Annex II of the directive that the Commission favoured the second approach. In the US, the NOAA has done much to develop the methodological underpinnings of the restoration cost approach. The key analytical tool, which has been developed to support it, is Habitat Equivalency Analysis (HEA). This is discussed in more detail later. Turning to Annex II again, section 1.2 deals with the identification of remedial measures, starting with primary remedial measures. 5.2 Identification of primary remedial measures 8
9 Section states: Options comprised of actions to directly restore the natural resources and services towards baseline condition on an accelerated time frame, or through natural recovery, shall be considered. The main point to note is that primary remedial measures can consist of natural recovery where the natural resources and services are left to recover on their own or active remediation to achieve recovery on an accelerated time frame. But, of course, the choice that is made will have a knock-on effect on the level of compensatory remediation that is required to compensate for the interim loss of natural resources and services pending recovery the longer recovery takes the more interim loss there will be. 5.3 Identification of complementary and compensatory remedial measures Section states: When determining the scale of complementary and compensatory remedial measures, the use of resource-to-resource and service-to-service equivalence approaches shall be considered first. Under these approaches, actions that provide natural resources and/or services of the same type, quality and quantity as those damaged shall be considered first. Where this is not possible, then alternative natural resources and/or services shall be provided. For example, a reduction in quality could be offset by an increase in the quantity of remedial measures. The resource-to-resource equivalence approach basically means replacing the lost resources with resources of the same type and quality. Where resources of the same type and quality cannot be identified, then the next step is to identify the services provided by the lost resource and to see whether services of a comparable type and quality can be provided instead by an alternative resource: the service-to-service equivalence approach. How does the service-to-service approach work? 5.4 Habitat Equivalency Analysis In the US, under the OPA NRDA regulations, the NOAA has developed a method for this, known as Habitat Equivalency Analysis (HEA). This provides an analytical 9
10 framework for estimating how much restoration is needed to compensate for the interim loss. 6 HEA directly addresses the type and scale of the restoration without directly valuing the interim loss in economic terms. The first step is to identify the services provided by the lost resource. In CERCLA, Part 11 (Natural Resource Damage Assessments), services are defined as the provision of habitat, food and other needs of biological resources, recreation, other products or services used by humans, flood control, ground water recharge, waste assimilation, and other such services that may be provided by natural resources (11.71 (e)). 7 Having identified the services, trustees then perform HEA calculations to work out the amount of the restoration needed, by establishing an equivalency between the quantity of lost services and the quantity of services generated through the compensatory restoration project over time. It may be helpful to convey the key principles of HEA using a hypothetical example. HEA a hypothetical example 8 Let us imagine that in 2000 a heavy fuel oil was accidentally released from a pipeline leading to the contamination of 100 acres of marsh. This injured the functions or services of the marsh habitat which were to provide food and shelter for animals, water quality improvements for downstream resources and shoreline stabilization. In addition, the loss of marsh reduced the production of fish which provided recreational services. In this example, primary remediation would consist of actions that restore the injured resource to its baseline level, that is to the level at which the habitat would provide the same level of services that it was providing prior to the damage. Let us say that ecologists determined that this would involve transplanting appropriate vegetation to the damaged area so that in time the marsh fully recovers. 6 Under the US regulations there are only two types of remediation: primary and compensatory, not complementary. 7 The term services is defined in the Environmental Liability Directive as the functions performed by a natural resource for the benefit of another natural resource or the public. 8 This examp le is adapted from Habitat Equivalency Analysis: An Overview, Damage Assessment and Restoration Program, National Oceanic and Atmospheric Administration (NOAA) US Department of Commerce (1995, revised 2000) 10
11 However, as recovery would not be instantaneous, there would be a time lag during which the services provided by the marsh would be below their baseline level. This loss of services would constitute the interim loss resulting from the natural resource damage and separate actions would be required to compensate for this loss. How could this be done? Let us imagine that ecologists were able to identify a nearby site of marshland, which could be upgraded to improve the quality of environmental services it provided. This could therefore be the site for compensatory remedial actions. In order to determine the appropriate levels of primary restoration and compensatory actions, it is necessary to know the loss of services relative to their baseline level. At baseline, habitat services are considered to be at 100 per cent. But how can the service levels be measured? In our example, let us say that local ecological experts considered the population of a certain class of shrimp to be a key species in the marsh habitat and its presence closely linked to the level of services provided by the marsh. The ecologists therefore decided that the service levels of the damaged site and of the site identified for the compensatory actions were related to the population density of the shrimp. Studies showed that after the damage occurred, the population of shrimp fell by 50 per cent at the damaged site; at the site proposed for the compensatory project the shrimp population was only 25 per cent of the baseline level. The extent and nature of the damage is a key measure in the HEA. In our example it is equivalent to the product of the spatial extent of the injury (100 acres) and the initial reduction in service level from baseline at the injured site (50 per cent). The product of these two measures gives the effective acres of an injury, which in this example was equal to 50 effective acres. Primary remediation involved transplanting the appropriate marsh vegetation to the damaged site so that in time the marsh fully recovers. Let us say that this was undertaken in 2001 and recovery began in the next year and was expected to follow a linear growth path to reach baseline condition in eight years time. In the meantime there would be an interim loss the reduction in marsh services (expressed as effective acres) each year due to the injury. The loss reduces each year as the marsh recovers, until full recovery is reached in To calculate the level of 11
12 compensatory remediation (in this case, how many acres of marshland would have to be upgraded at the compensatory remediation project site) it would be necessary to consider a number of factors:- how long the damage will persist the relative service level of the damaged resources the relative service level of the replacement resources, and the lifetime of the replacement project. An important part of the calculation involves allowing for the time profile trees take time to grow, marsh takes time to recover but once they have grown/recovered they will often persist indefinitely (the replacement marsh will persist even after the damaged marsh has reached baseline condition again). The value of the losses and benefits has to be adjusted, or discounted, to take account of this. Finally, a figure will be arrived at for the total number of acres of marshland which should be included in the compensation project in this case 11.8 acres. So, in our example, the total cost of the natural resource damage claim would be equal to:- the cost of restoring the damaged 100 acre site (primary restoration), and the cost of upgrading 11.8 acres of marshland at another site (compensation for interim losses) Alternative valuation techniques What if it is not possible to use the first choice resource-to-resource or service-toservice equivalence approaches? Section of Annex II states: If it is not possible to use the first choice resource-to-resource or serviceto-service equivalence approaches, then alternative valuation techniques shall be used. The competent authority may prescribe the method, for example monetary valuation, to determine the extent of the necessary complementary and compensatory remedial measures. If valuation of the lost resources and/or services is practicable, but valuation of the 12
13 replacement natural resources and/or services cannot be performed within a reasonable time-frame or at a reasonable cost, then the competent authority may choose remedial measures whose cost is equivalent to the estimated monetary value of the lost natural resources and/or services. In drafting the Directive, the Commission considered two forms of valuation approach: value-to-value and value-to-cost. The value-to-value approach means that the monetary value of the benefits of proposed remedial actions and the monetary value of the interim losses are both estimated. The value of damages is set equal to the value of environmental resources delivered by the remedial actions. In the US it has been more common to use value-to-cost, since this is simpler, and this is the approach that is referred to in section of Annex II. It basically means that the monetary value of the interim losses is estimated and the equivalent money is spent on compensatory remedial actions irrespective of what the money buys. In other words, the value of the damages is set equal to the cost of the environmental resources delivered by the remedial actions. The actual value of these environmental resources may be more or less than the cost of providing them. 5.6 Example from the US the Fort Lauderdale Mystery Oil Spill case (see Figure 2 below) Of particular interest are the actions selected for compensation: Loss of public beach use For primary restoration they considered only the cleaning of the beaches. But for compensatory restoration they used the value-to-cost approach, which involved putting a value on one beach trip ($26), multiplying it by the number of beach trips lost (18,000) to obtain a figure of $566,000, then spending this amount of money on enhancing the quality of beaches (for example, through dune stabilisation) and improving access to beaches. Injured sea turtles For primary restoration they considered measures to accelerate the return of the sea turtle population to their baseline level, rather than relying on natural recovery, and they chose the same measures to compensate for the interim losses 13
14 pending recovery. The resource-to-resource approach was used because natural resources of the same type and quality could be provided (turtle hatchlings). The action chosen was the enforcement of regulations, which provided for correct beach lighting. Without correct lighting, turtle hatchlings become disorientated, head for the town instead of the moon, and never make it to the sea. The impact of the enforcement of lighting regulations on hatchling survival was known, so it was possible to work out what enforcement measures were needed in order to save the requisite number of turtle hatchlings. 6 Choice of remedial options Once the operator has identified potential remedial measures and submitted them to the competent authority for approval, the competent authority must decide which measures must be implemented. According to Annex II, section 1.3.1: The reasonable remedial options should be evaluated, using best available technologies, based on the following criteria: - The effect of each option on public health and safety, - The cost of implementing the option, - The likelihood of success of each option, - The extent to which each option will prevent future damage, and avoid collateral damage as a result of implementing the option, - The extent to which each option benefits [ ] each component of the natural resource and/or service, - The extent to which each option takes account of relevant social, economic and cultural concerns and other relevant factors specific to the locality, - The length of time it will take for the restoration of the environmental damage to be effective, - The extent to which each option achieves the restoration of [the] site of the environmental damage, - The geographical linkage to the damaged site. 14
15 There is no hierarchy here the criteria all appear to be given the same weight. But when one considers how these will be applied in practice, another question arises: what degree of flexibility does the operator have to carry out off-site works instead of on-site works, or conversely what power does the competent authority have to insist on on-site rather than off-site remediation? Whilst there needs to be some flexibility for operators to find a means of restoring the environment as a whole in the most cost effective way, at the same time there is a need, in many cases, to ensure that the site where the damage occurs is restored, as far as possible. It is worth noting that the above criteria for evaluating remedial options include location as an important factor: The extent to which each option takes account of relevant social, economic and cultural concerns and other relevant factors specific to the locality and The geographical linkage to the damaged site. 9 However, these criteria have to be balanced against the cost of implementing the option. In balancing all these factors, particularly location and cost, there may be difficult decisions to be made as to where to draw the line. There has already been talk of operators remedying environmental damage in the UK, for example, by undertaking projects abroad. Such proposals may provide some real challenges for the competent authorities, particularly when one considers the problems that have already been encountered in finding suitable sites for compensatory measures under the Habitats Directive. 10 This reference to cost appears again. Section states: When evaluating the different identified remedial options, primary remedial measures that do not fully restore the damaged water or protected species or natural habitat to baseline or that restore it more slowly can be chosen. This decision can be taken only if the natural resources and/or services foregone at the primary site as a result of the decision are compensated for by increasing complementary or compensatory actions to provide a similar level of natural resources and/or services as were foregone. This will be the case, for example, when the 9 There is another reference to geographical linkage in section on the purpose of complementary remediation: Where possible and appropriate the alternative site should be geographically linked to the damaged site, taking into account the interests of the affected population. 10 Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora [1992] OJ L206/7. 15
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