Environmental Liabilities for the Power Industry

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Moris McLaughlin
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1 Environmental Liabilities for the Power Industry Presented by: Beverley Parrish Presented to: Willis December 8, 2015 London

2 Agenda Liability for Environmental Damage Tort and Statutory Minimising Liability under the Environmental Liability Directive Environmental Offences Guidelines Key Environmental Risks in the Power Sector Key Types of Environmental Damage Arising and Examples

3 Liability for Environmental Damage Tort and Statutory Tort Negligence Nuisance Rylands vs Fletcher Trespass Statutory liability regimes Water pollution Water Resources Act Contaminated land Part IIA of the EPA Waste EPA Statutory nuisance Environmental damage regulations

4 Mind the Gap Condition precedent Gradual versus sudden and unforeseen Is there a third party? Statutory liability for clean up of your own land Statutory liability for cost of regulator involvement relating to own land Statutory liability for biodiversity damage

5 Minimising Liability under the Environmental Liability Directive General principal is the prevention and remedying of environmental damage Enacted in the UK via the Environmental Damages Regulations (2009) The operator who caused the damage is financially liable Operator responsibilities Take steps to prevent damage Undertake preventive and remedial measures required by Competent Authority Pay costs related to environmental damage

6 Minimising Liability under the Environmental Liability Directive Two types of liability Strict for all activities in Annex III of the Directive Fault based for other activities Not retrospective Exemptions apply Preventive action

7 Minimising Liability under the Environmental Liability Directive What constitutes environmental damage? A measurable adverse change in a natural resource or service Adverse effects on integrity of a SSSI or conservation status of protected species and habitats (Wild Birds and Habitats Directives) Adverse effects on surface water or groundwater consistent with deterioration in status as defined by the Water Framework Directive Land contamination resulting in significant risk of adverse effects on human health

8 Minimising Liability under the Environmental Liability Directive What remediation is required? Primary: Return to pre-existing baseline Complementary: When primary remediation is unable to return site to pre-existing baseline Compensatory: Non-financial measures to compensate for interim loss of resources

9 Minimising Liability under the Environmental Liability Directive Proactive steps an operator could take to minimise liability: Assess facilities and operations to identify areas of greatest risk with regard to environmental damage Collect data to establish baseline conditions Design risk mitigation measures Consider insurance coverage

10 Minimising Liability under the Environmental Liability Directive Impact of the Directive? UK only 25 incidences recorded since 2009 Small issues no case over 100,000 Damage to biodiversity: 7 Damage to water: 3 Damage to land: 15 In EU out of 1230 cases, >1000 in Hungary and Poland

11 Environmental Offences Guidelines Determining the offence category Culpability: Deliberate, reckless, negligent, low/no culpability Harm: Category 1 to 4

12 Environmental Offences Guidelines How much? It s meant to hurt! Starting point and range based on; Large companies > 50m turnover Medium 10m to 50m Small 2m to 10m Micro < 2m Example Large company, deliberate and cat 1 Starting point 1m, range 450k to 3m The Guidance states that for Very large organisations where a defendant company s turnover or equivalent very greatly exceeds the threshold for large companies, it may be necessary to move outside the suggested range to achieve a proportionate sentence.

13 Environmental Offences Guidelines Ensure that no economic benefit has been derived from the offence Sufficiently substantial to have real economic impact

14 Key Types of Environmental Damage Arising and Examples Fossil fuel plants Contamination to land, water and air: Key contaminants well known Human health impacts: Related to air emissions, class action claims, emerging issues ultra-fine particles Ecosystem and biodiversity impacts: e.g., thermal stress from outfalls, long range transport and impact of particulates

15 Air Quality and Deposition ClientEarth: Supreme Court ruling Aberthaw plant: Consistently exceeding limits Tata Steel plant: Class action potential Coal fired plant Italy: Case study Ultra-fine particulates: Not currently directly regulated

Case Study Thermo-electric power plant located in sensitive

convert from fuel oil to coal and employ CCS NGO s claim

particles, organic compounds etc, widespread pollution, and

16 Case Study Thermo-electric power plant located in sensitive location Po Delta Regional Park, Italy Operator wanted to convert from fuel oil to coal and employ CCS NGO s claim increase in CO2, nitrogen and sulphur oxides, ultrafine particles, organic compounds etc, widespread pollution, and resulting human health impacts Previous accusations of causing widespread damage

17 Case Study (continued) Exponent defined the human health and ecological damages in relation to the Porto Tolle coal fired plant emissions Reviewed the EU directives and the applicability to the case of several different damages estimation approaches Our conclusions were accepted by the Court and ENEL and its managers have been recognised as not guilty

18 Case Studies in Environmental Forensics Sudden and accidental? Determining causation Determining baseline

19 Case Studies in Environmental Forensics Sudden and accidental? Secondary lead smelters Hundreds of upsets documented Lead emitted during upsets (no baghouse) sufficient to require soil remediation Met criterion of sudden and accidental

20 Determining Causation: Causal Analysis A framework for the scientific assessment of relationships between an effect and alternative potential causes Based on epidemiological principles for human health

21 Baseline and Background Baseline refers to the condition of a resource but for a release Background is the chemical baseline (e.g., naturally occurring mineral concentrations)

22 Baseline Must Consider Natural Variation

23 Some Causal Relationships are Relatively Straightforward Fish kills from chemical releases Bird mortalities from oil spills

24 Baseline Must Consider Other Sources Oil Spill Sediments D2/P Background Sediments D3/P3

25 Drivers for Environmental Liability Claims Well head Flare pits Wadi Desert vegetation

26 Potential for Methane Migration? Residential Water Well Aquifer Impervious Formation Shale Gas Formation

27 Sources of Methane

28 Summary Third party insurance policies do not cover many environmental claims Even environmental policies do not cover every eventuality Environmental fines set to increase and cases are coming through not covered Environmental forensics can assist in determination of baseline, background causation, sudden and accidental, allocation and apportionment, assessment of insured time periods

Environmental Liability Risk Trends

RISK MANAGEMENT FORUM 2007 GENEVA, 30 SEPT 3 OCT 2007 Environmental Liability Risk Trends Simon White Environmental Branch Manager XL Insurance The Insurance market How does it currently respond to Environmental