The Environmental Liability Directive (ELD) aims to prevent, remedy and/or compensate for environmental damage. ELD seeks to achieve this through the “polluter pays principle”, ensuring businesses are held legally and financially accountable for environmental degradation that results from their operations. However, Member States have varied considerably in implementing ELD, significantly reducing its effectiveness. The European Parliament is the latest of several European authorities to review ELD’s effectiveness.

A report published by the European Parliament’s sets out the primary areas of concern with ELD, namely: (i) the lack of certainty surrounding key definitions; and (ii) narrowness of scope. For example, the European Parliament considers there is “total uncertainty” regarding the “significance threshold”. As the significance threshold determines whether an incident triggers liability under ELD, the European Parliament considers the clarity of the threshold crucial. Furthermore, ELD only imposes strict liability on operators that cause environmental damage in the course of activities specified in an exhaustive list. Beyond this list, liability for environmental damage is fault-based.

In order to address these areas of concern, the European Parliament sets out a number of recommendations. To foster clarity, the report calls for the European Commission (EC) to remedy vague definitions to enhance consistency across Member States, thereby improving ELD’s effectiveness. Moreover, the report suggests that the EC identify new activities that should be included on the list of activities for which operators are strictly liable, broadening the application of ELD.

Perhaps most controversial, is the European Parliament’s proposal that the EC introduce compulsory environmental insurance for operators. The Federation of European Risk Management Associations has expressed concerns, however, arguing that such a scheme is unnecessary. Companies’ resources are finite, and if money must go to insurance, it could negatively impact investment capacities in prevention and risk management. Furthermore, imposing mandatory environmental liability insurance would create an additional compulsory overhead expenditure for businesses.

If ELD is amended to reflect the European Parliament’s suggestions, businesses may enjoy greater certainty about the legal position relating to liability for environmental damage. However, such changes are likely to be more onerous on businesses than the present environmental liability regime and require greater resources from national regulatory authorities to implement.

This post was prepared with the assistance of Tegan Creedy in the London office of Latham & Watkins.