There has been an increase in the number of legislative requirements for financial provision for environmental liabilities in recent years. More jurisdictions are requiring financial provision for more types of operations.
Legislative requirements for financial provision are covered in some detail in the 2016 IMPEL Report on Financial Provision – Protecting the Environment and the Public Purse, and generally arise from:
- EU Directives and Regulations (for example the Landfill Directive, Mining Waste Directive, Transfrontier Shipment of Waste Regulation and Geological Storage of Carbon Dioxide Directive),
- International conventions, and
- Domestic legislation.
Operators and industries may also choose to acquire financial provision on their own initiative as part of good business practice.
The European Commission has issued guidance (for example, on financial provision mechanisms for the Geological Storage Directive) but Member States generally have discretion in determining the type of financial provision mechanism acceptable to satisfy EU requirements. Some Member States publish domestic legislation or guidance which sets out the types of mechanisms that are acceptable, in which circumstances, and in some cases may specify the amount. Some regulators may supplement financial provisions with other provisions aimed at restricting the accumulation of liabilities. An example of this is the charging of non-refundable fees for inactive inventory by the Alberta Energy Regulator.
It is important to recognise that there is no single approach that can be applied to any given situation in terms of the provision and delivery of financial provision. The interaction between company law, insolvency law and environmental law is complex and differs between countries. Mechanisms which work in one jurisdiction may pose unexpected problems in another due to differences in a range of factors, including legal traditions as well as national legislation. In addition, the mechanisms that are available may vary. Other factors that determine the types of mechanisms that are acceptable to regulators may include the nature of the environmental liability (foreseen or unforeseen), the financial profile of the liability, the nature of the operation and the experience of the regulator with that particular type of measure. Users of this guide are advised to establish these facts for their country, industry, operator and liability.
Financial provision is not a panacea and the protection afforded by financial provision may be limited, in particular in the case of illegal activities. Certain illegal activities (e.g. dumping of waste) occur completely outside of the permitting and legal systems under which financial provisions are established. Illegal activities may also compromise the sufficiency and legal security of financial provisions even when they are in place. An example is the abandonment of a waste processing site where waste is stockpiled in excess of the permit limits; the financial provision would not be sufficient if it was calculated based on the permit limits. Illegal activities may also invalidate financial provisions from a legal perspective due to exclusion clauses for illegal acts. There is some discussion in the chapter on other approaches to environmental liability, which is relevant to enforcement of illegal activities.