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Neil Hawke* and Pamela Hargreaves**

Environmental Compensation Schemes:experience and prospects

AbstractAbstractAbstractAbstractAbstract This article draws on existing experience of the law, its application andenforcement as it affects environmental funds (or joint compensation schemes) in order toreflect on the more recent use and development of emerging funds. The investigationencompasses funds created through international accords in addition to those created on anational basis. It looks at schemes designed to identify and manage environmental liabilitiesas well as those designed to generate funding for environmental enhancement andprotection. In addition to identifying any differences in approach between these two typesof fund the article isolates those aspects of existing schemes which have contributed towardstheir efficiency and effectiveness and investigates how far those criteria are reflected in theemerging environmental funds. A number of related issues run through the article: thevariability of recognition of the polluter pays principle, the identity and liabilities of fundcontributors, the administration of funds and the achievement of widely differing objectiveswhen compared with traditional civil liability regimes, the extent to which liability fundsin particular are likely to achieve deterrence and promote higher standards of environmentalprotection, and the operational significance of accompanying provision for strict but limitedliability and insurance cover.

THE BACKGROUNDThe environmental compensation schemes described and debated in this article refer towhat are sometimes referred to as joint compensation schemes or environmental funds. Aswill be seen, most of the major schemes or funds have been created through internationalaccord. The experience gained through the various, specialised compensation arrangementsprovide an important template in the further development of what will be referred tohenceforth as environmental funds. The purpose of this article is first to reflect, in outline,on the experience of environmental funds to date, their creation, implementation andenforcement before moving on to look at those criteria which appear to be characteristic oftheir effectiveness and efficiency. Thereafter the article divides into four sections, looking atcontemporary developments and setting them against the foregoing criteria. The first ofthose four sections looks at recent debates in two areas where environmental funds havebeen under active discussion but were not ultimately the subject of legislation. The secondsection takes three areas of environmental regulation where schemes to develop funds areunder active development. The third section examines three schemes which have beenlegislated but are not presently in force. Finally, consideration is given to a scheme that isnow in force in the United Kingdom, the Aggregates Levy and Sustainability Fund. The areaschosen for this purpose are drawn from a mixture of national (United Kingdom) andinternational initiatives.

* Professor of Environmental Law, De Montfort University, The Gateway, Leicester LE1 9BH.** Principal Lecturer in Law, De Montfort University.

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EXISTING SCHEME EXPERIENCEOne of the advantages of environmental funds is that they can be used to clean up theenvironment in circumstances where, for example, a liable party cannot be identified or isinsolvent. A typical example is the United States Superfund which is targeted specifically atrestoring orphaned sites contaminated by hazardous wastes. Admittedly, the broad range ofpotentially responsible parties identified by the Superfund legislation means that a whollyorphaned site is rarely found. Environmental funds can also be used in circumstances wherethere is diffuse pollution involving large numbers of polluters and/or claimants and where acivil liability action would be inappropriate. In these situations funds can provide rapid accessto compensation. An early example of this is the Japanese Air Pollution Health Fund set up in19731 which was aimed at providing compensation for numerous claimants suffering fromhealth problems associated with sulphur dioxide emissions. In a similar vein the NetherlandsAir Pollution Fund2 was designed to deal with traditional damage caused by air pollutionand again had the potential to involve significant numbers of claimants and/or polluters.Victims who were certificated as suffering from designated respiratory diseases had a legalright to compensation under the Japanese fund so there was no requirement to resort first tolitigation. However, the Netherlands scheme requires claimants to exhaust all other routes tocompensation before recourse to the fund. One of the suggested reasons for this is the fearthat claimants might regard compensation funds as an easier option than having to establishliability.3 Nevertheless, the Netherlands fund builds in equitable considerations so that thefund can intervene in cases of claimants suffering undue hardship if they are prepared tosubrogate their rights against the polluter to the fund.4

Both the Japanese and Netherlands funds raise revenue retrospectively on a needs-basedsystem with the aim of satisfying all validated claims.5 Superfund, on the other hand, isdesigned to carry a surplus although recent problems with the reauthorisation of taxes havemeant that that surplus has dwindled considerably. It is a noticeable feature of the HNSConvention discussed below that levies are to be raised retrospectively.

The financial structure of environmental funds is a key issue. If, as with the Netherlandsfund, the revenue is derived from the general taxpayer then the polluter pays principle iscompromised. It is therefore usual to target a particular sector of industry which can clearlybe identified with the pollution. The Japanese fund is a typical example. Here an emissionstax was levied on producers of sulphur dioxide, the amount of levy being proportionate to theamount of pollutant generated. There were two advantages of organising the fund in thisway. Firstly, firms were encouraged to adopt methods of reducing pollution which bringdown the amount payable and secondly, the structure was much more consistent with thepolluter pays principle and therefore went some way towards answering the criticism thatenvironmental funds penalise environmentally efficient businesses at the expense of lessefficient operators. However, although there was a corresponding reduction in pollution levelsin Japan during the 1970s it is worth noting that during the 1980s claims against the fundincreased because of the time-lag in the development of respiratory diseases amongstclaimants. This meant that in 1988 the fund had to be closed to new claimants.

1 The Law Concerning Compensation and Prevention of Pollution-Related Health Damage (formerly thePollution-Related Health Damage Compensation Law).

2 Based on the General Environmental Act 1993.3 ERM Economics, Economic Aspects of Liability and Joint Compensation Systems for Remedying

Environmental Damage (London, 1996) 97.4 J. Scherer, Restoration and Prevention of Environmental Damage through Joint Compensation Systems,

[1994] European Environmental Law Review 164.5 See ERM, above n. 3, at 94.

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In 1993 when the feasibility of funds was discussed by the European Commission one of thequestions raised was whether they should exist alongside individual, civil liability so as tomaintain a preventative effect.6 A useful guide in this respect is the regime set up to dealwith oil pollution established under the International Convention on Civil Liability for OilPollution Damage 1992 (CLC) and the International Convention on the Establishment of anInternational Fund for Compensation for Oil Pollution Damage 1992 (the Fund). Under theCLC strict liability is imposed on the shipowner but this is tempered by the right to limitliability according to the tonnage of the vessel. The Fund is sustained from contributionsfrom the oil industry as opposed to the general taxpayer and pays compensation to thoseaffected by oil pollution damage in a number of circumstances such as where no liability liesagainst the shipowner under the CLC or when damages exceed the shipowners liability limit.Of particular significance is the requirement for shipowners carrying more than 2,000 tonnesof persistent oil to maintain insurance cover in respect of CLC liability. One of the keyadvantages of this regime is that it provides a rapid route to compensation for victims asthere is no need to establish rights. However, where victims have been compensated by theFund rights of subrogation may lie against the tanker owner and other responsible parties.

The funds described above, in particular the CLC and Fund Conventions and Superfund, areexamples of liability-based funds. Alternatively, environmental funds can play a differentrole where proceeds are used in projects aimed at enhancing or protecting the environment.The UK Aggregates Levy introduced in 2002 aims through the Aggregates SustainabilityFund to address the adverse environmental effects of aggregate extraction but (as will beseen below) with the capacity to deal indirectly with liabilities.

The Japanese experience provides also an example of an environmental enhancement fund.After the original compensation fund was closed to new claimants in 1988 a new Compensationand Prevention Association was set up, financed by a fund consisting of an initial endowmentfrom the Japanese government which was invested and supplemented by contributions fromindustries directly responsible for air pollution. The Association implemented various healthand environmental educational projects directly and disbursed grants to local governmentsto carry out other environmental projects, including tree planting for air purification.Importantly, this fund had very clearly defined objectives. The experience in Central andEastern European countries of environmental funds has, however, been less positive. Theirenvironmental effectiveness has proved difficult to evaluate. For example, a recent evaluationof the Moldovan National Environmental Protection Fund7 describes a complex system ofnational, regional and local funds supported by a levy on imported fuel, payments related tothe damage of fish stocks, pollution charges and non-compliance fees, the latter provingunstable and making very little financial contribution to the fund. Apart from projectsrelated to water resource conservation and environmental education the report found alack of well-developed and well-targeted spending programmes.8 This had led in turn toa dissipation of scarce resources which had been spread too thinly in an attempt to satisfytoo many parties.

6 Communication from the Commission to the Council and Parliament and the Economic and SocialCommittee: Green Paper on Remedying Environmental Damage, COM (93) 47 Final.

7 OECD EAP Task Force Secretariat and the Danish Environmental Protection Agency, Performance Reviewof the National Environmental Fund of Moldova and the Chisinau Municipal Environmental Fund, FinalReport (Paris, 2002).

8 Ibid. Criteria set out in the St. Petersburg Guidelines on Environmental Funds in a Transition to a MarketEconomy, OECD/GD(95)109 (Paris, 1995) as adopted by the OECD EAP Task Force and used as a benchmarkin order to assess the performance of a number of environmental funds in Central and Eastern Europe.

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To put the foregoing funds into perspective this section closes with an outline of two verysignificant, contemporary European fund models to be found in three member states of theEuropean Community. Since 1993 Law No. 92-1444 in France has provided for a Noise Fundthrough the taxation of airline operators. As a result, those living around Paris airports arecompensated for exposure to excessive noise levels. The tax is proportional to the number offlights, the noise level of the aircraft and the category of airport. The tax is levied by theFrench environmental protection agency, Agence de lEnvironnement et de la Matrise delEnergie. The Swedish Environmental Damage Act 1986 requires those who obtain regulatoryapproval under the Environmental Protection Act to subscribe to compulsory insuranceprovided by five insurance companies through a system of prescribed levies. The product ofthe insurance is applied to those situations where liability compensation under the Act of1986 is considered inadequate, usually because the party responsible cannot be identified orbecause a responsible company is insolvent, or because a claim is statute-barred. This schemeis very closely mirrored by the Finnish Environmental Damage Insurance Act 1998.

CRITERIA FOR EFFECTIVENESS AND EFFICIENCYIt can be seen from the foregoing that environmental liability funds have the potential toforce the pace of technology and provide funding for improvements to the environment,albeit in relatively narrow areas of environmental concern. However, this statement is temperedby a number of variables. A fund financed by levies from a particular industrial sector cansend a different message to that industry than one funded from general taxation. There is inturn a clear need to maximise the polluter pays principle and to clarify its impact to allaffected parties. Where a levy or other fund contribution is proportionate to the amount ofpollutant generated or the incidence of risk then there may be an incentive for the industryconcerned to take appropriate measures to reduce its adverse environmental impact. In turn,the approach can be underpinned by the creation of an effective insurance regime andcomplemented perhaps by strict and limited liability. In respect of efficiency and effectiveness,the experience of Superfund in the United States can provide valuable lessons. One of themain criticisms of Superfund has been its focus on historic pollution where clean-upexpenditure for past pollution can become the responsibility of current polluters. This is notconsistent with the polluter pays principle and noticeably has not featured in any of theEuropean discussions. In situations where solvent parties can be identified but there is stillorphan damage the efficiency of Superfund has apparently been improved by the Funditself assuming responsibility for that share instead of simply reassigning it to the remainingsolvent parties as is normally the case under joint and several liability.9 Moreover, funds, likeSuperfund, that are nationally based have the advantage of smaller administrative costs andgreater flexibility but run the risk of not involving local communities to the same degree as,say, a regional or local fund. Even a national or international fund has the benefit of markedefficiencies where claims can be determined and satisfied expeditiously and as closely aspossible to the pollution incident. Finally, it is clearly important that there are no overlaps inthe application of funds, a potential danger in the case of international provision.

EMERGING SCHEMESSCHEMES DEBATED BUT NOT DEVELOPEDIn recent years in the United Kingdom there has been discussion of an Emergency Assistanceand Counter-Pollution Fund, and a Genetically Modified Organism Compensation Fund.

9 C. Clarke, Update Comparative Legal Study on Environmental Liability (London, 2000) 75.

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The first of these arose from a report by Lord Donaldson on the prevention of pollution frommerchant shipping: Safer Ships, Cleaner Seas10 (hereafter the Donaldson Report) while thesecond arose from proposals for legislation in a Private Members Bill: the Genetically ModifiedFood and Producer Liability Bill, presented to the House of Commons on 24 June 1999.11

An Emergency Assistance and Counter-Pollution FundThe Donaldson Report recommended12 the establishment of a new fund on an income of10m per year to pay for the subvention for emergency assistance as well as standbyresponse capacity, to be funded by the shipping industry through a charge which reflects theuser pays and the polluter pays principles. Such an approach is heavily characteristic ofenvironmental funds, given the need for very cogent justification if there is to be a socialisationof the charge where the taxpayer is to be liable. It was suggested that the effect of the chargewould be very small and that it should be directly related to the risk of pollution from sea-borne sources. In turn, the Report looks at approaches to collection and considered threepossibilities: a simple charge on ports and related to tonnage; a tonnage charge on ports inrespect of an emergency towing fund and referable also to the tonnage of oil handled for thepurpose of a dispersant fund; and (finally) a charge on individual vessels.13 The first optionwas rejected on the ground that it would negate the polluter pays principle and the secondoption was rejected because it would be only roughly in line with the potential for pollution,while encouraging vessels to carry more bunker oil than necessary. The third option, involvingthe assessment of an amount for each vessel by reference both to bunkers and cargo, wasfavoured since it was seen to be most closely aligned to actual or potential pollution.

A Genetically Modified Organism Compensation FundThis Fund was part of the ill-fated Private Members Bill referred to previously. That Bill wasintended, if legislated, to fix the holder of a consent (whether granted under the EnvironmentalProtection Act 1990, s. 111 or under Directive 90/220, Article 13(4) by another member state)with liability for a deliberate release into the environment of genetically modified organisms.The liability was to be strict, for any damage caused under the terms of the consent. Anypotential defendant would have been required to insure against liability to pay compensationfor such damage. However, the Bill went on to provide for the aforementioned Fund, to beestablished by the Secretary of State under a scheme that would provide for compensationpayments if liability for damage could not be attributed to an identifiable potential defendant.14

Although the Bill failed to reach the statute book, there are some interesting and significant issues which arise from the clauses.

Firstly, the Fund would have been based on just one well-established reason for the creationof an environmental fund, namely the impossibility of attributing liability to a potentialdefendant whether by reference to matters of causation or because a company concernedhas gone into insolvent liquidation, for example. What of the need to fund compensationwhere amounts are vast or so diffuse as to be entirely beyond the financial capacity even of alarge blue chip corporation? A second and related point is the Bills reference to insurance.Hitherto insurers have been reluctant to offer cover for what are regarded as the unforeseeableconsequences of an escape of genetically modified organisms into the environment. If at thetime that the Bill was introduced appropriate insurance cover was available, experience with

10 Cmnd 2560, 1994.11 Cf. the very similar terms of the Genetically Modified Food and Producer Liability (No. 2) Bill, presented

to the House of Commons on 16 November 2000.12 See above n. 10, para. 22.36.13 Ibid., paras. 22.48-22.58.14 Clause 7.

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a number of other environmental funds of the sort described previously suggests that suchcover might be forthcoming where the insurers could be reassured that any person responsiblewas able to limit liability under the relevant environmental legislation. Thirdly, the Bill gavepower to the Secretary of State to determine who should be required to contribute to theFund. This power is of course indicative of another central plank of environmental funds: thepolluter pays principle. Whether it is satisfactory to leave the identity of fund contributorsto delegated powers must be open to severe doubt, particularly where (as here) there are nostatutory criteria. Fourthly, the Bill would have exposed a consent holder to liability for anydamage arising. Apart from the fact that there may well be policy objections to such a strictliability regime, it is suggested that the lack of a more precise definition of the damage thatcan trigger liability has other important consequences. One such consequence is the severedifficulty in determining an important link between the tangible environmental risks of damageand those who will be required to contribute to any accompanying fund. In turn, a lot dependson those activities subject to regulation and which may give rise to those risks. For example,Directive 2001/18 on the environmental release of genetically modified organisms15 excludesmutagenesis and cloning. This reference to a new Directive on environmental release stressesthe growing importance of timing. Apart from the limitations of the Genetically ModifiedFood and Producer Liability Bill just referred to there is an increasing need for awareness ofthe progress of related developments both within the Community, and beyond.

The Cartagena Protocol on Biosafety contains an agreed undertaking by the parties16 to adopt,within four years of its January 2000 Montreal meeting, a process for the elaboration ofinternational rules and procedures in the field of liability and redress of damage resultingfrom transboundary movements of living modified organisms and taking due account of theongoing processes in international law on these matters. Rather than incorporating a liabilityregime in Directive 2001/18, the Community has proposed a Directive covering environmentalliability generally.17 Member States are counselled to encourage operators to use appropriateinsurance.18 Furthermore, where no operator can be held liable, or the operator has insufficientfunds, Members States are required to adopt all necessary measures to ensure that preventativeor restorative measures are financed.19 Against this evolving background it may well be thecase that Member States see the merit of establishing a fund for the purpose of identifying,managing and distributing compensation in respect of damage arising from the environmentalrelease of genetically modified organisms.

SCHEMES UNDER DEVELOPMENTThree significant schemes under development feature in this section, two on the internationalstage. The first is the proposal to establish a Liability Management Authority in the UnitedKingdom in order to deal with clean-up liabilities in the nuclear industry.20 The second is aproposal for a Protocol to the Barcelona Convention for the Protection of the MediterraneanSea against Pollution21 whose purpose will be to provide a comprehensive regime for liabilityand compensation covering damage arising from violations of the Convention.22 The third isthe Madrid Protocol on Environmental Protection of the Antarctic under which the parties

15 OJ L106/12.03.01.16 Art. 27.17 Proposal for a Directive on environmental liability with regard to the prevention and remedying of

environmental damage COM (2002) 17 Final.18 Ibid., Art. 16.19 Ibid., Art. 6.20 Department of Trade and Industry, Managing the Nuclear Legacy, Cmnd 5552, July 2002.21 UN Treaty Series, vol. 1102, at 27.22 See Document UNEP(OCA)/MEDWG.117/3, 1 July 1997.

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have agreed to elaborate rules and procedures relating to liability for damage arising fromactivities occurring in the Antarctic Treaty area and covered by the Protocol.23

The Liabilities Management AuthorityIn the White Paper Managing the Nuclear Legacy the Government outlines its plans to putin place a strategy for the clean-up of the civil nuclear legacy. Responsibility for this currentlylies with British Nuclear Fuels (BNFL) and the United Kingdom Atomic Energy Authority(UKAEA) but under the White Paper their assets and liabilities are to be transferred to anindependent Liabilities Management Authority (LMA). The specific remit of the LMA is toensure that clean-up is carried out safely, securely, cost effectively and in ways that protectthe environment. The LMA will be accountable to the Government and will be legally andfinancially responsible for sites representing the nuclear legacy. However, in keeping withthe White Papers aim of separating strategy and oversight from implementation the LMAwill not be responsible for direct management of these sites: this will lie with site licenseessuch as BNFL and UKAEA. The LMA will contract for the clean-up programme with thelicensees under an incentivisation structure, meaning that site licensees will be responsiblefor delivering the clean-up programme working with contractors and subcontractors. Themanagement of clean-up will be open to competition in order to secure best value for moneyfor the taxpayer although it is thought that initially contracts will probably be awarded toBNFL and UKAEA.

The funding mechanism of the LMA is described in the White Paper as representing a radicaldeparture from conventional government funding arrangements. Some fairly broad aimsare outlined for the new arrangements, in order to boost public confidence in the arrangements,to provide the LMA with the flexibility required to drive forward the clean-up process and toencourage competition for clean-up contracts. Two options for financing nuclear clean-upare currently being examined by the Government, both of which are designed to enhance theeffectiveness of the LMA. These are a segregated fund and a statutory segregated account.

The segregated fund would be set up by statute and be managed either by the LMA or astatutory body corporate operating like trustees. Money paid into the fund would be investedand the assets used to fund the clean-up costs. A possible disadvantage of this scheme is theadministrative cost incurred in the investment process. The initial endowment of the fundwould come from BNFLs Nuclear Liabilities Investment Portfolio (NLIP) and thereafter itwould be financed by a combination of investment income, annual government paymentsand surpluses from the continued operation of commercial operations such as THORP, SMPand operational Magnox stations although the operation of these commercial assets wouldbe funded separately. Failure to deliver an operating surplus will necessitate that theGovernments contribution covers any shortfall.

The alternative option, a statutory segregated account, would be similar to the segregatedfund in that there would be a savings account established under statute, monies from whichcould be spent only on clean-up. However, instead of drawing money from a separate fundthe LMA would be financed from the Governments Consolidated Fund. The account wouldbe credited with the initial transfer of the NLIP to the Fund and thereafter topped up withpayments into the Consolidated Fund from interest and commercial activities.

In the White Paper the Government express a preference for a segregated account whichthey indicate would be a simpler and cheaper option to implement. A segregated fund on the

23 See International Legal Materials 30 (1991) at 1461.

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other hand would provide a measure of transparency which would enhance both accountabilityand the independence of the liabilities management process.

The Barcelona ConventionThe proposal for a Liability and Compensation Protocol to the Convention has been underdiscussion for some years24 and raises two issues of general interest. Firstly, the liabilityscheme seems likely to differ from the two-stage regime relating to oil pollution of the seabuilt around the Civil Liability and Fund Conventions. The proposal here is for a three-stagearrangement through which liability will be divided between the operator having control ofthe (subject) dangerous activity, the Mediterranean Inter-State Compensation Fund and thecontracting parties.25 Nevertheless, there appears to be uncertainty about the precise identityof the contributors to the Fund.26 Even if that uncertainty is put to one side, there still appearsto be a remarkable failure to maximise the sort of efficiencies which really ought to characterisean environmental fund. Above all, the prospect of a socialisation of compensation by theimposition of some liability on the contracting states effectively compromises the polluterpays principle. Although strict liability is the likely basis for the Protocol there appears, asyet, to be no attempt to consider the potential for allowing an operators limitation of liability,two factors that might be expected to encourage complementary insurance cover. The secondmajor issue is the potential overlap between the proposed Protocol and other internationalconventions, the Civil Liability and Fund Conventions in particular. The dangers of duplicationdo not need to be stressed, particularly where one conventional regime offers more generousterms than another. Accordingly an important priority in the design of any liability andcompensation regime here is the need normally to limit any later convention to thoseoccurrences and incidents which are not regulated by the earlier regime.

The Madrid ProtocolThe development of a liability and compensation annex to the Protocol raises very significantquestions, if only by reference to the particularly sensitive environment of the Antarctic. Thequestion then is what efficiencies should ideally characterise a liability regime in thisenvironment? In the absence of any really tangible debate by the parties themselves, it isinstructive to speculate about the likely nature of those efficiencies.

In the first place it is more than likely that a leading priority will be one that stresses the needfor deterrence against what may be described as careless resort to processes and activities inthe region. Such a priority usually suggests the need for resort to strict liability. In the Antarcticthere may be an argument that most processes and activities are prima facie hazardous andthus more strongly amenable to strict liability. Arguably, those responsible for damage to theAntarctic environment might reasonably be taken to know the probable consequences ofcareless operations. On the other hand, there is no certainty that strict liability will generateincentives for preventative action. Furthermore, that view is probably confirmed where anoperators liability is limited under an environmental scheme given that unlimited liabilitymay be impracticable. Nevertheless, the addition of a requirement to insure against riskscould well mitigate a drift towards what may be described here as perverse incentives, atleast on the assumption that insurers are sufficiently proactive in setting operating standards.In reality it seems that strict liability, limited liability and insurance are likely to be importantcornerstones of any liability and compensation regime here. Strict liability avoids proof offault, even though causation still has to be established; limited liability takes account of the

24 L. Schiano di Pepe, Introducing an International Civil Liability Regime for Damage to the MarineEnvironment in the Mediterranean Sea Area [1999] 1 Environmental Liability 8.

25 Ibid., at 11.26 Ibid.

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impracticability of unlimited liability and often persuades insurers to participate; andinsurance allows a spreading of risk, liability and compensation.

In the Antarctic there is unlikely to be a multiplicity of individual claimants following adamaging occurrence although interests such as fisheries may well be affected. It appearstherefore that the priority is not necessarily the individual claimant and victim but rather theneed for an effective, immediate response to the damage, as well as measures to prevent anyundue spread of pollution. With this priority in mind it is not difficult to conclude that insurersby themselves, or indeed the perpetrator, would be unable to mount a timely environmentalrescue operation. Against this background it appears necessary to include, along with strictliability, limited liability and insurance provision, a fund facility. Such an Antarctic Fundwould be sustained no doubt by those state and private entities who are defined as users ofthat environment. In turn, the Fund would be armed with a response infrastructure whichwould mark it out from the International Oil Pollution Fund, for the reasons just given. Itmight be argued at this point that all that is required is a fund, defined contributors and aneffective environmental response capability, probably along the lines of the Counter-PollutionFund, discussed earlier. However, the three elements of strict liability, limited liability andinsurance serve very important purposes here. Firstly, they fix and render enforceable aproportion of the polluter pays principle and secondly, they may permit subrogation throughwhich the responsible party (or his insurers) can be required to account to the fund, thusallowing replenishment.

SCHEMES LEGISLATED BUT NOT IN FORCEThe three schemes appearing in this section are the Basel Protocol on Liability andCompensation,27 the Convention on Civil Liability for Damage caused during Carriage ofDangerous Goods by Road, Rail and Inland Navigation28 (CRTD) and the Convention onLiability and Compensation for Damage in Connection with the Carriage of Hazardous andNoxious Substances by Sea29 (HNS).

The Basel ProtocolThe Protocols objective is to provide what is described in Article 1 as a comprehensiveregime for liability and for adequate and prompt compensation arising from damage due tothe transboundary movement of hazardous wastes and other wastes, and their illegal traffic.The reality is that the Protocol gives rise to a rather complicated regime, if only by referenceto the facility in Article 3.6 allowing parties to create their own regimes, but only wheredetailed requirements are satisfied, one of which is the requirement that any such regimeshould meet Protocol standards including a strong reliance on strict liability under Article 4.The possibility that competing regimes may appear gives rise to the likelihood of differentliability triggers according to the location of damage covered by the Protocol. Added to thiscomplication is the criticism that the Protocol (surprisingly) appears not fully to recognisethe polluter pays principle because liability at the time of a subject occurrence is not fixedon the person in operational control of the waste which causes the damage in question.

If liability has been identified the Protocol adopts an interesting approach since a minimumfinancial liability is triggered by reference to the tonnage of waste causing the damage, eventhough that damage turns out to be minimal. As such the regime might even be characterisedas a double strict liability regime. In turn, that liability is required to be satisfied through

27 http://www.basel.int/pub/Protocol.html.28 International Transport Treaties Supplement, 14 March 1990.29 IMO LEG 68/11, 30 March 1993; IMO LEG 69/3, 17 May 1993.

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compulsory insurance or some other financial guarantee under Article 14. Compensationpaid through insurance or some other financial guarantee may of course be inadequate.Where this is the case, Article 15 provides only that additional and supplementary measuresmay be taken using existing mechanisms. Nevertheless, the parties are invited to keep underreview the need for and possibility of establishing a new mechanism. Against this backgroundthe parties went on to agree to enlarge the scope of the Technical Cooperation Trust Fund onan interim basis.30

Essentially, the Fund may now be used for emergency assistance, including rapid assessmentof the magnitude of damage that has occurred or may occur; for emergency measures toprevent or mitigate damage; to help identify parties and entities in a position to provideassistance; to compensate damage to the environment and its reinstatement; to build capacity,transfer technology and deploy other measures to prevent accidents and damage to theenvironment. The Funds vulnerability lies in its reliance on voluntary contributions. Theinformality of the arrangements concerning the Fund stresses also the importance of a coherentarrangement linking liability elements of any scheme with the funding elements.

The CRTD ConventionThis Convention provides for the strict liability of a carrier where damage is caused bydangerous goods during their carriage by road, rail or by an inland navigation vessel (Article5). The liable party is able to limit liability in defined circumstances and by reference toamounts prescribed by the Convention in Article 9 although there is no limit on proceedingswhich may be taken against other parties such as a consignor of goods. Interestingly, Article11 makes provision for what is described as a limitation fund: an ad hoc fund constituted bythe carrier with the court or other competent authority (even though liability cannot belimited in the particular case) in any one of the states in which an action for compensation isbeing brought. That fund is to be constituted by reference to the liability limits of the carrierprescribed in Article 9 and can comprise a sum of money, a bank or other guarantee consideredto be adequate by the court or competent authority. Any other person providing the carrierwith insurance or other financial guarantee may also constitute such a fund having the sameeffect. Article 13 goes on to stipulate that a carriers liability shall be covered by insurance orother financial security where dangerous goods are carried in the territory of a State Party.Perhaps significantly the Convention does not take account of the volume of any shipmentfor the purpose of fixing liability limits and financial guarantees. In the event it appears thatConvention limits are adequate given that the size of individual shipments is not very large.That reference to the size of the transaction and its potential threat may suggest that there isno pressing need for a fully developed fund mechanism characterised (say) by the Civil Liabilityand Fund Conventions. However, the limitation fund is discretionary and (as its name suggests)is capped by reference to the liability limits prescribed. The size of those limits is clearlycrucial in the operation of this regime. Given the likely size of claims it is arguable that animportant efficiency occurs on evidence that they do not usually exceed the prescribed ceilingby reference to which limitation of liability operates.

The International Convention on Liability and Compensation for Damage in Connection withthe Carriage of Hazardous and Noxious Substances by SeaThe International Convention on Liability and Compensation for Damage in Connectionwith the Carriage of Hazardous and Noxious Substances by Sea 1996 (HNS) was adoptedunder the auspices of the International Maritime Organisation. Modelled on the CLC andFund Conventions, it allows compensation to be paid to victims who suffer damage arising

30 Decision V/32: http://www.basel.int/Protocol.html. The detailed operation of the Fund is described in theUnited Nations Environment Programme Document UNEP/SBC/BUREAU/5/5/3 of 27 March 2002.

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from the carriage of such substances at sea. In accordance with the aim of facilitating adequate,prompt and effective compensation, claims may be brought directly against the insurer orperson providing financial security. The HNS Convention covers loss of life or personal injuryon board or outside the ship carrying hazardous and noxious substances, loss of or damageto property outside the ship, loss or damage caused by contamination of the environment,loss of income in fishing and tourism and the costs of preventive measures. It does not duplicatethe cover provided for by other international conventions so it excludes pollution damage asdefined in the CLC and the Fund Conventions and damage from radioactive pollution.Although this means that pollution damage caused by persistent oil is not covered, the HNSConvention does extend to non-pollution damage caused by persistent oil such as damagecaused by a fire or an explosion. As such it goes further than the CLC and Fund Conventions.Under the HNS Convention damage could encompass loss of income from fishing and tourism.Additionally, the cost of reasonable measures taken by any person after an incident to preventor minimise damage such as the cleaning up or removal of hazardous and noxious substancesfrom a wreck presenting a pollution hazard can be recovered.

The geographical scope of the Convention is such that it only covers damage caused byhazardous and noxious substances in the territory of a state which is party to the Conventionand as regards pollution damage does not extend to damage beyond 200 nautical miles fromthe baselines from which the breadth of a party states territorial sea is measured.31

The HNS Convention is based on the two-tier system established on a template drawn fromthe CLC and Fund Conventions. Under the first tier registered shipowners are strictly liablefor loss or damage up to a certain amount which is covered by insurance. Insurance iscompulsory for shipowners engaged in the transport of hazardous and noxious substancesin order to ensure that they are able to meet their liabilities. As with the CLC there are anumber of exceptions such as where the damage is wholly caused by the action of a thirdparty done with intent to cause damage. Again, mirroring the CLC, the shipowner has theright to limit liability but can lose this if the damage results from his reckless act or omission.Under the second tier a compensation fund (the HNS Fund) provides additional compensationwhen full compensation is not available to the victims through the shipowner or his insurer.Compensation can be payable under this second tier when the shipowner or his insurerscannot meet a claim in full, when the shipowner is exonerated from liability or is financiallyincapable of meeting his obligations. If the damage is shown to be the result of a deliberateact or omission by the victim or as a result of the negligence of that person then the Fundmay not be obliged to pay compensation but there is no such exoneration in respect ofpreventive measures.

The HNS Fund is financed by contributions from companies which receive HNS after seatransport in a Member State in excess of prescribed thresholds. The amount of levy paid isproportionate to the quantities of hazardous and noxious substances received. Interestinglysuch levies only become payable after an incident and levies can be spread over a period ofyears. A system involving separate accounts for different substances has been devised inorder to prevent cross-subsidisation so that each account will meet the cost of compensationpayments arising from substances contributing to that account.

31 The Exclusive Economic Zone, as defined by Art. 57 of UNCLOS.

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SCHEME IN OPERATIONThe Aggregates Levy Sustainability FundAlthough the use of environmental levies is increasing particularly in northern Europe, levieson aggregates are less widespread than those for water and waste.32 Aggregate levies currentlyexist in various forms in a number of Community states33 although the Netherlands hasabandoned plans for any form of levy on aggregate extraction. A distinction may be drawnbetween levies contributing to the general budget as with the Danish Raw Materials Tax andthe Swedish Gravel Tax and, more unusually, levies where the revenue is earmarked for aparticular environmental function. The United Kingdom Aggregates Levy is of particularinterest in that 10 per cent of the revenue raised is used to finance the Aggregates LevySustainability Fund (the Fund) which is aimed at addressing the adverse environmentaleffects of quarrying not already covered by regulation. The financial impact on the aggregatesindustry is lessened by the recycling of revenue back to the industry through a 0.1 per centcut in the employers National Insurance labour costs.

Both the Swedish and Danish levies differ in their structure since they are designed to reflectthe varying environmental considerations which underpin them. In Denmark, for example,the Raw Materials Tax34 operates in tandem with a waste tax, which was implemented at thesame time. The aims of both taxes are to limit the use of natural resources and to encouragethe recycling of construction waste. On the other hand, the aim of the Swedish Gravel Tax35is to conserve a valuable natural resource. Since gravel is relatively cheap to extract and isnow in short supply in certain regions of Sweden, the relevant industries are being encouragedto switch to alternative materials such as hard rock, which has therefore been exemptedfrom the tax. Alternatively, there is no exemption for exports of gravel in order to reflect theconservation basis of the tax. There is no tax on exports of raw materials in Denmark.

The UK Aggregates Levy has been criticised as being set at a rate considerably higher than itsEuropean counterparts.36 However, a study commissioned in 2001 to report on the economicand environmental implications of the use of environmental taxes and charges in theCommunity suggested that in Denmark, where the rate was set at a low level, there had beenvery little effect on the extraction of raw materials. However, it was thought that an impressiveincrease in the level of recycling of demolition materials in Denmark was attributable toindividuals choosing to avoid the high costs of disposal under the waste tax rather thanchoosing to avoid the raw materials tax.37 Similarly, the rate of the gravel tax in Sweden wasset quite low because of fears that a higher rate might lead to established gravel pits closingdown before their stocks had been fully exploited.38

The Aggregates Levy Sustainability Fund has a number of interesting features. Deliberatelydesigned as a national rather than a regional fund, it is aimed at minimising the demand forprimary aggregates, promoting environmentally friendly methods of extracting andtransporting aggregates and reducing the environmental impacts associated with quarrying.

32 ECOTEC, Study of the Economic and Environmental Implications of the Use of Environmental Taxes andCharges in the European Union and its Member States (Brussels, 2001).

33 Denmark, France, Spain, Italy, Austria, Sweden and Greece.34 Levied on certain raw materials, including gravel, commercially extracted or imported.35 Levied on the extraction of sand and gravel. Any company or body that exploits a site requiring a permit

under the Nature Conservation Act, the Water Act or the Roads Act is liable for the tax. However, activitywithin a gravel pit and for aftercare are exempt from the charge.

36 1.60 per tonne as opposed to 42 pence per tonne in Denmark and 6 pence per tonne in France, forexample.

37 See ECOTEC, above n. 32, at 196.38 As of 1 January 2002 the tax was SEK 5 (0.55 per tonne): this is likely to rise.

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Organisations such as English Nature, English Heritage and the Countryside Agency areresponsible for its disbursement. Since the funding basis is easily identifiable the Fund goesa long way towards reflecting the polluter pays principle. Even so there is still an advantageto the polluter in that the Fund can deliver environmental benefits on a localised basis so thatin many cases the polluter himself may benefit. As a way of reducing the local effects ofaggregate extraction the Fund is able to finance projects that involve the buying out of aggregateextraction permissions at, for example, dormant sites where extant permissions, if activated,could have adverse environmental effects. English Nature, for example, envisages such projectsas being part of a larger scheme aimed at delivering increased biodiversity or the conservationof geological features. In particular they state that priority will be given to proposals thatcontribute to new approaches to dealing with damaging and potentially damaging mineralpermissions. Funding applied in this way can therefore result in the avoidance ofenvironmental damage or even further such damage. It is also anticipated that the Fund willbe used to help Mineral Planning Authorities in the revocation of old aggregate permissionswhere compensation would be payable and towards projects aimed at restoring abandonedi.e. orphan sites. However, this would only be on the basis that the relevant mineral operatorhas no remaining residual liabilities.

CONCLUSIONSCriteria for the efficiency and effectiveness of existing schemes were the subject of preliminaryconclusions earlier in the article. From those criteria it is clear that how far the structure ofa fund accords with the polluter pays principle represents an initial, critical benchmark.However, funds are developed, at least by reference to the liability model, by reference to theneed to target environmental responsibilities as efficiently as possible either where aresponsible party can be identified, or where this is not possible. In the first case the BaselProtocol is arguably weak in failing to define widely enough the scope of liability while theBarcelona Convention, still under development, appears to spread the liability net too widely.Established funds such as the CLC and Fund Conventions, the French Noise Fund and theHNS Convention appear to reflect the polluter pays principle well since contributions comefrom well defined, sector-based entities. On the other hand, general taxation forms the basisof the Netherlands air pollution scheme while the proposed Liabilities Management Authoritylooks likely to require substantial contributions from the taxpayer. Against this backgroundthough, the role of insurance is often critical although frequent references have been madeto the practical need for limited liability as a means of engaging such an important source offunds.

There appears a strong justification for fund administration and application as close as possibleto the polluting incident, accompanied by an expeditious settlement of claims without resortto litigation. Superfund, the Netherlands fund and the Aggregates Levy Sustainability Fundare all nationally administered. However, international conventions are capable of developinga local involvement, as is the case with Superfund and delegation of many functions to thestates of the US.

The Swedish Gravel Tax raises a levy with the aim of conserving natural resources in certainparts of the country but is still nationally administered. However, revenue from this tax andfrom the Danish Raw Materials Tax is not specifically targeted towards environmentalenhancement and in this respect the Aggregates Levy Sustainability Fund can be welcomedin that it represents something of a departure from this approach. The efficiency of anenvironmental fund can be compromised in the face of a lack of well defined environmentalobjectives and insufficient revenue and this is particularly demonstrated by the MoldovanEnvironmental Fund.

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Finally, where the purpose of the fund is to identify and manage environmental liabilitiesthere is typically a statutory framework characterised by strict liability, albeit that liabilitycan be limited, together with compulsory insurance cover. The CLC and Fund Conventionstogether with the HNS Convention are obvious examples and in these circumstances thefund acts as a top-up when, for a variety of reasons, full compensation is not available and/or a rapid response to an environmental hazard is required. It is suggested that the MadridProtocol currently under development should reflect this model, suitably refined to reflectthe peculiar needs of the Antarctic environment. This and the range of other existing andemerging funds demonstrate that they can play an increasingly important role in very specificareas of environmental liability and enhancement rather than in any way displacing a generalregime of civil liability and compensation.