EU Parliament Passes “Polluter Pays” Directive

May 15, 2003

The European Union Parliament in Strasbourg has passed what could be a far reaching directive, mandating that whoever causes environmental pollution will be responsible for the costs of cleaning it up.

Part of the proposed legislation would make proof of financial responsibility in the form of insurance coverage, or financial guarantees a requirement for all companies doing business in the EU.

The proposals must now be considered by the environment ministers of EU member countries, and a final text determined before the measure becomes law, but the passage by the EU Parliament is a clear victory for environmentalists, who have campaigned hard to impose financial responsibility on companies in the wake of a number of catastrophic oils spills and extensive damage caused by industrial activity.

A BBC report characterized the measure as “a clear signal that companies dealing with toxic materials, or operating businesses which carry risks for the environment, must expect in future to work under tougher conditions. ”

Proponents of the legislation argued that it has largely been left to local communities to bear the major share of clean-up costs from oil spills, toxic waste, chemical pollutants, and mining accidents rather than the companies who operate the facilities. The proposed measures would specifically cover what the BBC described as “two much-disputed areas: transport of materials at sea, and nuclear pollution.”

Business interests warned that the imposition of liability on EU companies would greatly increase the costs of doing business and could threaten the survival of several key industries. They pushed for the inclusion of exceptions to the proposals for companies that operate under an official permit, and use “state-of-the-art” technology, but these were rejected by the EU Parliament’.

If the legislation is finally adopted, insurers may expect to receive a flood of calls for coverage of environmental risks, but the cost of cleaning up an oil spill starts at several billion dollars, and pricing mandated environmental risks promises to be an underwriter’s nightmare.

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