H O U S I N G

D E V E L O P M E N T

O N

B R O W N F I E L D

S I T E S

Environmental Compensation Schemes:

experience and prospects
Neil Hawke* and Pamela Hargreaves**
Abstract This article draws on existing experience of the law, its application and
enforcement as it affects environmental funds (or joint compensation schemes) in order to
reflect on the more recent use and development of emerging funds. The investigation
encompasses funds created through international accords in addition to those created on a
national basis. It looks at schemes designed to identify and manage environmental liabilities
as well as those designed to generate funding for environmental enhancement and
protection. In addition to identifying any differences in approach between these two types
of fund the article isolates those aspects of existing schemes which have contributed towards
their efficiency and effectiveness and investigates how far those criteria are reflected in the
emerging environmental funds. A number of related issues run through the article: the
variability of recognition of the polluter pays principle, the identity and liabilities of fund
contributors, the administration of funds and the achievement of widely differing objectives
when compared with traditional civil liability regimes, the extent to which liability funds
in particular are likely to achieve deterrence and promote higher standards of environmental
protection, and the operational significance of accompanying provision for strict but limited
liability and insurance cover.

THE BACKGROUND
The environmental compensation schemes described and debated in this article refer to
what are sometimes referred to as joint compensation schemes or environmental funds. As
will be seen, most of the major schemes or funds have been created through international
accord. The experience gained through the various, specialised compensation arrangements
provide an important template in the further development of what will be referred to
henceforth 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 and
enforcement before moving on to look at those criteria which appear to be characteristic of
their effectiveness and efficiency. Thereafter the article divides into four sections, looking at
contemporary developments and setting them against the foregoing criteria. The first of
those four sections looks at recent debates in two areas where environmental funds have
been under active discussion but were not ultimately the subject of legislation. The second
section takes three areas of environmental regulation where schemes to develop funds are
under active development. The third section examines three schemes which have been
legislated but are not presently in force. Finally, consideration is given to a scheme that is
now in force in the United Kingdom, the Aggregates Levy and Sustainability Fund. The areas
chosen for this purpose are drawn from a mixture of national (United Kingdom) and
international 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 EXPERIENCE

One of the advantages of environmental funds is that they can be used to clean up the
environment in circumstances where, for example, a liable party cannot be identified or is
insolvent. A typical example is the United States Superfund which is targeted specifically at
restoring orphaned sites contaminated by hazardous wastes. Admittedly, the broad range of
potentially responsible parties identified by the Superfund legislation means that a wholly
orphaned site is rarely found. Environmental funds can also be used in circumstances where
there is diffuse pollution involving large numbers of polluters and/or claimants and where a
civil liability action would be inappropriate. In these situations funds can provide rapid access
to compensation. An early example of this is the Japanese Air Pollution Health Fund set up in
19731 which was aimed at providing compensation for numerous claimants suffering from
health problems associated with sulphur dioxide emissions. In a similar vein the Netherlands
Air Pollution Fund2 was designed to deal with traditional damage caused by air pollution
and 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 legal
right to compensation under the Japanese fund so there was no requirement to resort first to
litigation. However, the Netherlands scheme requires claimants to exhaust all other routes to
compensation before recourse to the fund. One of the suggested reasons for this is the fear
that claimants might regard compensation funds as an easier option than having to establish
liability.3 Nevertheless, the Netherlands fund builds in equitable considerations so that the
fund can intervene in cases of claimants suffering undue hardship if they are prepared to
subrogate their rights against the polluter to the fund.4
Both the Japanese and Netherlands funds raise revenue retrospectively on a needs-based
system with the aim of satisfying all validated claims.5 Superfund, on the other hand, is
designed to carry a surplus although recent problems with the reauthorisation of taxes have
meant that that surplus has dwindled considerably. It is a noticeable feature of the HNS
Convention discussed below that levies are to be raised retrospectively.
The financial structure of environmental funds is a key issue. If, as with the Netherlands
fund, the revenue is derived from the general taxpayer then the polluter pays principle is
compromised. It is therefore usual to target a particular sector of industry which can clearly
be identified with the pollution. The Japanese fund is a typical example. Here an emissions
tax was levied on producers of sulphur dioxide, the amount of levy being proportionate to the
amount of pollutant generated. There were two advantages of organising the fund in this
way. Firstly, firms were encouraged to adopt methods of reducing pollution which bring
down the amount payable and secondly, the structure was much more consistent with the
polluter pays principle and therefore went some way towards answering the criticism that
environmental funds penalise environmentally efficient businesses at the expense of less
efficient operators. However, although there was a corresponding reduction in pollution levels
in Japan during the 1970s it is worth noting that during the 1980s claims against the fund
increased because of the time-lag in the development of respiratory diseases amongst
claimants. This meant that in 1988 the fund had to be closed to new claimants.

1
2
3
4
5

The Law Concerning Compensation and Prevention of Pollution-Related Health Damage (formerly the
Pollution-Related Health Damage Compensation Law).
Based on the General Environmental Act 1993.
ERM Economics, Economic Aspects of Liability and Joint Compensation Systems for Remedying
Environmental Damage (London, 1996) 97.
J. Scherer, Restoration and Prevention of Environmental Damage through Joint Compensation Systems,
[1994] European Environmental Law Review 164.
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 the
questions raised was whether they should exist alongside individual, civil liability so as to
maintain a preventative effect.6 A useful guide in this respect is the regime set up to deal
with oil pollution established under the International Convention on Civil Liability for Oil
Pollution Damage 1992 (CLC) and the International Convention on the Establishment of an
International Fund for Compensation for Oil Pollution Damage 1992 (the Fund). Under the
CLC strict liability is imposed on the shipowner but this is tempered by the right to limit
liability according to the tonnage of the vessel. The Fund is sustained from contributions
from the oil industry as opposed to the general taxpayer and pays compensation to those
affected by oil pollution damage in a number of circumstances such as where no liability lies
against 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 tonnes
of persistent oil to maintain insurance cover in respect of CLC liability. One of the key
advantages of this regime is that it provides a rapid route to compensation for victims as
there is no need to establish rights. However, where victims have been compensated by the
Fund 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, are
examples of liability-based funds. Alternatively, environmental funds can play a different
role where proceeds are used in projects aimed at enhancing or protecting the environment.
The UK Aggregates Levy introduced in 2002 aims through the Aggregates Sustainability
Fund to address the adverse environmental effects of aggregate extraction but (as will be
seen 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 Compensation
and Prevention Association was set up, financed by a fund consisting of an initial endowment
from the Japanese government which was invested and supplemented by contributions from
industries directly responsible for air pollution. The Association implemented various health
and environmental educational projects directly and disbursed grants to local governments
to carry out other environmental projects, including tree planting for air purification.
Importantly, this fund had very clearly defined objectives. The experience in Central and
Eastern European countries of environmental funds has, however, been less positive. Their
environmental effectiveness has proved difficult to evaluate. For example, a recent evaluation
of the Moldovan National Environmental Protection Fund7 describes a complex system of
national, regional and local funds supported by a levy on imported fuel, payments related to
the damage of fish stocks, pollution charges and non-compliance fees, the latter proving
unstable and making very little financial contribution to the fund. Apart from projects
related to water resource conservation and environmental education the report found a
lack of well-developed and well-targeted spending programmes.8 This had led in turn to
a dissipation of scarce resources which had been spread too thinly in an attempt to satisfy
too many parties.

6
7
8

Communication from the Commission to the Council and Parliament and the Economic and Social
Committee: Green Paper on Remedying Environmental Damage, COM (93) 47 Final.
OECD EAP Task Force Secretariat and the Danish Environmental Protection Agency, Performance Review
of the National Environmental Fund of Moldova and the Chisinau Municipal Environmental Fund, Final
Report (Paris, 2002).
Ibid. Criteria set out in the St. Petersburg Guidelines on Environmental Funds in a Transition to a Market
Economy, OECD/GD(95)109 (Paris, 1995) as adopted by the OECD EAP Task Force and used as a benchmark
in 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 very
significant, contemporary European fund models to be found in three member states of the
European Community. Since 1993 Law No. 92-1444 in France has provided for a Noise Fund
through the taxation of airline operators. As a result, those living around Paris airports are
compensated for exposure to excessive noise levels. The tax is proportional to the number of
flights, the noise level of the aircraft and the category of airport. The tax is levied by the
French environmental protection agency, Agence de lEnvironnement et de la Matrise de
lEnergie. The Swedish Environmental Damage Act 1986 requires those who obtain regulatory
approval under the Environmental Protection Act to subscribe to compulsory insurance
provided by five insurance companies through a system of prescribed levies. The product of
the insurance is applied to those situations where liability compensation under the Act of
1986 is considered inadequate, usually because the party responsible cannot be identified or
because a responsible company is insolvent, or because a claim is statute-barred. This scheme
is very closely mirrored by the Finnish Environmental Damage Insurance Act 1998.

CRITERIA FOR EFFECTIVENESS AND EFFICIENCY

It can be seen from the foregoing that environmental liability funds have the potential to
force the pace of technology and provide funding for improvements to the environment,
albeit in relatively narrow areas of environmental concern. However, this statement is tempered
by a number of variables. A fund financed by levies from a particular industrial sector can
send a different message to that industry than one funded from general taxation. There is in
turn a clear need to maximise the polluter pays principle and to clarify its impact to all
affected parties. Where a levy or other fund contribution is proportionate to the amount of
pollutant generated or the incidence of risk then there may be an incentive for the industry
concerned 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 and
complemented 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 the
main criticisms of Superfund has been its focus on historic pollution where clean-up
expenditure for past pollution can become the responsibility of current polluters. This is not
consistent with the polluter pays principle and noticeably has not featured in any of the
European discussions. In situations where solvent parties can be identified but there is still
orphan damage the efficiency of Superfund has apparently been improved by the Fund
itself assuming responsibility for that share instead of simply reassigning it to the remaining
solvent parties as is normally the case under joint and several liability.9 Moreover, funds, like
Superfund, that are nationally based have the advantage of smaller administrative costs and
greater 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 marked
efficiencies where claims can be determined and satisfied expeditiously and as closely as
possible to the pollution incident. Finally, it is clearly important that there are no overlaps in
the application of funds, a potential danger in the case of international provision.

EMERGING SCHEMES
SCHEMES DEBATED BUT NOT DEVELOPED
In recent years in the United Kingdom there has been discussion of an Emergency Assistance
and 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 from
merchant shipping: Safer Ships, Cleaner Seas10 (hereafter the Donaldson Report) while the
second arose from proposals for legislation in a Private Members Bill: the Genetically Modified
Food and Producer Liability Bill, presented to the House of Commons on 24 June 1999.11
An Emergency Assistance and Counter-Pollution Fund
The Donaldson Report recommended12 the establishment of a new fund on an income of
10m per year to pay for the subvention for emergency assistance as well as standby
response capacity, to be funded by the shipping industry through a charge which reflects the
user pays and the polluter pays principles. Such an approach is heavily characteristic of
environmental funds, given the need for very cogent justification if there is to be a socialisation
of the charge where the taxpayer is to be liable. It was suggested that the effect of the charge
would be very small and that it should be directly related to the risk of pollution from seaborne sources. In turn, the Report looks at approaches to collection and considered three
possibilities: a simple charge on ports and related to tonnage; a tonnage charge on ports in
respect of an emergency towing fund and referable also to the tonnage of oil handled for the
purpose of a dispersant fund; and (finally) a charge on individual vessels.13 The first option
was rejected on the ground that it would negate the polluter pays principle and the second
option 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, involving
the assessment of an amount for each vessel by reference both to bunkers and cargo, was
favoured since it was seen to be most closely aligned to actual or potential pollution.
A Genetically Modified Organism Compensation Fund
This Fund was part of the ill-fated Private Members Bill referred to previously. That Bill was
intended, if legislated, to fix the holder of a consent (whether granted under the Environmental
Protection 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. Any
potential defendant would have been required to insure against liability to pay compensation
for such damage. However, the Bill went on to provide for the aforementioned Fund, to be
established by the Secretary of State under a scheme that would provide for compensation
payments 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 creation
of an environmental fund, namely the impossibility of attributing liability to a potential
defendant whether by reference to matters of causation or because a company concerned
has gone into insolvent liquidation, for example. What of the need to fund compensation
where amounts are vast or so diffuse as to be entirely beyond the financial capacity even of a
large 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 unforeseeable
consequences of an escape of genetically modified organisms into the environment. If at the
time that the Bill was introduced appropriate insurance cover was available, experience with

10
11
12
13
14

Cmnd 2560, 1994.

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.
See above n. 10, para. 22.36.
Ibid., paras. 22.48-22.58.
Clause 7.

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a number of other environmental funds of the sort described previously suggests that such
cover might be forthcoming where the insurers could be reassured that any person responsible
was able to limit liability under the relevant environmental legislation. Thirdly, the Bill gave
power to the Secretary of State to determine who should be required to contribute to the
Fund. This power is of course indicative of another central plank of environmental funds: the
polluter pays principle. Whether it is satisfactory to leave the identity of fund contributors
to delegated powers must be open to severe doubt, particularly where (as here) there are no
statutory criteria. Fourthly, the Bill would have exposed a consent holder to liability for any
damage arising. Apart from the fact that there may well be policy objections to such a strict
liability regime, it is suggested that the lack of a more precise definition of the damage that
can trigger liability has other important consequences. One such consequence is the severe
difficulty in determining an important link between the tangible environmental risks of damage
and those who will be required to contribute to any accompanying fund. In turn, a lot depends
on 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 excludes
mutagenesis and cloning. This reference to a new Directive on environmental release stresses
the growing importance of timing. Apart from the limitations of the Genetically Modified
Food and Producer Liability Bill just referred to there is an increasing need for awareness of
the 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 of
international rules and procedures in the field of liability and redress of damage resulting
from transboundary movements of living modified organisms and taking due account of the
ongoing processes in international law on these matters. Rather than incorporating a liability
regime in Directive 2001/18, the Community has proposed a Directive covering environmental
liability generally.17 Member States are counselled to encourage operators to use appropriate
insurance.18 Furthermore, where no operator can be held liable, or the operator has insufficient
funds, Members States are required to adopt all necessary measures to ensure that preventative
or restorative measures are financed.19 Against this evolving background it may well be the
case 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 environmental
release of genetically modified organisms.

SCHEMES UNDER DEVELOPMENT

Three significant schemes under development feature in this section, two on the international
stage. The first is the proposal to establish a Liability Management Authority in the United
Kingdom in order to deal with clean-up liabilities in the nuclear industry.20 The second is a
proposal for a Protocol to the Barcelona Convention for the Protection of the Mediterranean
Sea against Pollution21 whose purpose will be to provide a comprehensive regime for liability
and compensation covering damage arising from violations of the Convention.22 The third is
the Madrid Protocol on Environmental Protection of the Antarctic under which the parties

15
16
17
18
19
20
21
22

OJ L106/12.03.01.
Art. 27.
Proposal for a Directive on environmental liability with regard to the prevention and remedying of
environmental damage COM (2002) 17 Final.
Ibid., Art. 16.
Ibid., Art. 6.
Department of Trade and Industry, Managing the Nuclear Legacy, Cmnd 5552, July 2002.
UN Treaty Series, vol. 1102, at 27.
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 from
activities occurring in the Antarctic Treaty area and covered by the Protocol.23
The Liabilities Management Authority
In the White Paper Managing the Nuclear Legacy the Government outlines its plans to put
in place a strategy for the clean-up of the civil nuclear legacy. Responsibility for this currently
lies 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 an
independent Liabilities Management Authority (LMA). The specific remit of the LMA is to
ensure that clean-up is carried out safely, securely, cost effectively and in ways that protect
the environment. The LMA will be accountable to the Government and will be legally and
financially responsible for sites representing the nuclear legacy. However, in keeping with
the White Papers aim of separating strategy and oversight from implementation the LMA
will not be responsible for direct management of these sites: this will lie with site licensees
such as BNFL and UKAEA. The LMA will contract for the clean-up programme with the
licensees under an incentivisation structure, meaning that site licensees will be responsible
for delivering the clean-up programme working with contractors and subcontractors. The
management of clean-up will be open to competition in order to secure best value for money
for the taxpayer although it is thought that initially contracts will probably be awarded to
BNFL and UKAEA.
The funding mechanism of the LMA is described in the White Paper as representing a radical
departure from conventional government funding arrangements. Some fairly broad aims
are 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 to
encourage competition for clean-up contracts. Two options for financing nuclear clean-up
are currently being examined by the Government, both of which are designed to enhance the
effectiveness 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 a
statutory body corporate operating like trustees. Money paid into the fund would be invested
and the assets used to fund the clean-up costs. A possible disadvantage of this scheme is the
administrative cost incurred in the investment process. The initial endowment of the fund
would come from BNFLs Nuclear Liabilities Investment Portfolio (NLIP) and thereafter it
would be financed by a combination of investment income, annual government payments
and surpluses from the continued operation of commercial operations such as THORP, SMP
and operational Magnox stations although the operation of these commercial assets would
be funded separately. Failure to deliver an operating surplus will necessitate that the
Governments contribution covers any shortfall.
The alternative option, a statutory segregated account, would be similar to the segregated
fund in that there would be a savings account established under statute, monies from which
could be spent only on clean-up. However, instead of drawing money from a separate fund
the LMA would be financed from the Governments Consolidated Fund. The account would
be credited with the initial transfer of the NLIP to the Fund and thereafter topped up with
payments into the Consolidated Fund from interest and commercial activities.
In the White Paper the Government express a preference for a segregated account which
they 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 accountability
and the independence of the liabilities management process.
The Barcelona Convention
The proposal for a Liability and Compensation Protocol to the Convention has been under
discussion for some years24 and raises two issues of general interest. Firstly, the liability
scheme seems likely to differ from the two-stage regime relating to oil pollution of the sea
built around the Civil Liability and Fund Conventions. The proposal here is for a three-stage
arrangement through which liability will be divided between the operator having control of
the (subject) dangerous activity, the Mediterranean Inter-State Compensation Fund and the
contracting parties.25 Nevertheless, there appears to be uncertainty about the precise identity
of the contributors to the Fund.26 Even if that uncertainty is put to one side, there still appears
to be a remarkable failure to maximise the sort of efficiencies which really ought to characterise
an environmental fund. Above all, the prospect of a socialisation of compensation by the
imposition of some liability on the contracting states effectively compromises the polluter
pays principle. Although strict liability is the likely basis for the Protocol there appears, as
yet, 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 second
major issue is the potential overlap between the proposed Protocol and other international
conventions, the Civil Liability and Fund Conventions in particular. The dangers of duplication
do not need to be stressed, particularly where one conventional regime offers more generous
terms than another. Accordingly an important priority in the design of any liability and
compensation regime here is the need normally to limit any later convention to those
occurrences and incidents which are not regulated by the earlier regime.
The Madrid Protocol
The development of a liability and compensation annex to the Protocol raises very significant
questions, if only by reference to the particularly sensitive environment of the Antarctic. The
question then is what efficiencies should ideally characterise a liability regime in this
environment? In the absence of any really tangible debate by the parties themselves, it is
instructive 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 need
for deterrence against what may be described as careless resort to processes and activities in
the region. Such a priority usually suggests the need for resort to strict liability. In the Antarctic
there may be an argument that most processes and activities are prima facie hazardous and
thus more strongly amenable to strict liability. Arguably, those responsible for damage to the
Antarctic environment might reasonably be taken to know the probable consequences of
careless operations. On the other hand, there is no certainty that strict liability will generate
incentives for preventative action. Furthermore, that view is probably confirmed where an
operators liability is limited under an environmental scheme given that unlimited liability
may be impracticable. Nevertheless, the addition of a requirement to insure against risks
could well mitigate a drift towards what may be described here as perverse incentives, at
least 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 important
cornerstones of any liability and compensation regime here. Strict liability avoids proof of
fault, even though causation still has to be established; limited liability takes account of the

24
25
26

L. Schiano di Pepe, Introducing an International Civil Liability Regime for Damage to the Marine
Environment in the Mediterranean Sea Area [1999] 1 Environmental Liability 8.
Ibid., at 11.
Ibid.

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impracticability of unlimited liability and often persuades insurers to participate; and

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

SCHEMES LEGISLATED BUT NOT IN FORCE

The three schemes appearing in this section are the Basel Protocol on Liability and
Compensation,27 the Convention on Civil Liability for Damage caused during Carriage of
Dangerous Goods by Road, Rail and Inland Navigation28 (CRTD) and the Convention on
Liability and Compensation for Damage in Connection with the Carriage of Hazardous and
Noxious Substances by Sea29 (HNS).
The Basel Protocol
The Protocols objective is to provide what is described in Article 1 as a comprehensive
regime for liability and for adequate and prompt compensation arising from damage due to
the 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 reference
to the facility in Article 3.6 allowing parties to create their own regimes, but only where
detailed requirements are satisfied, one of which is the requirement that any such regime
should 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 different
liability triggers according to the location of damage covered by the Protocol. Added to this
complication is the criticism that the Protocol (surprisingly) appears not fully to recognise
the polluter pays principle because liability at the time of a subject occurrence is not fixed
on 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 minimum
financial liability is triggered by reference to the tonnage of waste causing the damage, even
though that damage turns out to be minimal. As such the regime might even be characterised
as a double strict liability regime. In turn, that liability is required to be satisfied through

27
28
29

http://www.basel.int/pub/Protocol.html.
International Transport Treaties Supplement, 14 March 1990.
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. Compensation
paid 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 measures
may be taken using existing mechanisms. Nevertheless, the parties are invited to keep under
review the need for and possibility of establishing a new mechanism. Against this background
the parties went on to agree to enlarge the scope of the Technical Cooperation Trust Fund on
an interim basis.30
Essentially, the Fund may now be used for emergency assistance, including rapid assessment
of the magnitude of damage that has occurred or may occur; for emergency measures to
prevent or mitigate damage; to help identify parties and entities in a position to provide
assistance; to compensate damage to the environment and its reinstatement; to build capacity,
transfer technology and deploy other measures to prevent accidents and damage to the
environment. The Funds vulnerability lies in its reliance on voluntary contributions. The
informality of the arrangements concerning the Fund stresses also the importance of a coherent
arrangement linking liability elements of any scheme with the funding elements.
The CRTD Convention
This Convention provides for the strict liability of a carrier where damage is caused by
dangerous goods during their carriage by road, rail or by an inland navigation vessel (Article
5). The liable party is able to limit liability in defined circumstances and by reference to
amounts prescribed by the Convention in Article 9 although there is no limit on proceedings
which may be taken against other parties such as a consignor of goods. Interestingly, Article
11 makes provision for what is described as a limitation fund: an ad hoc fund constituted by
the carrier with the court or other competent authority (even though liability cannot be
limited in the particular case) in any one of the states in which an action for compensation is
being brought. That fund is to be constituted by reference to the liability limits of the carrier
prescribed in Article 9 and can comprise a sum of money, a bank or other guarantee considered
to be adequate by the court or competent authority. Any other person providing the carrier
with insurance or other financial guarantee may also constitute such a fund having the same
effect. Article 13 goes on to stipulate that a carriers liability shall be covered by insurance or
other 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 shipment
for the purpose of fixing liability limits and financial guarantees. In the event it appears that
Convention 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 is
no pressing need for a fully developed fund mechanism characterised (say) by the Civil Liability
and 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 clearly
crucial in the operation of this regime. Given the likely size of claims it is arguable that an
important efficiency occurs on evidence that they do not usually exceed the prescribed ceiling
by reference to which limitation of liability operates.
The International Convention on Liability and Compensation for Damage in Connection with
the Carriage of Hazardous and Noxious Substances by Sea
The International Convention on Liability and Compensation for Damage in Connection
with the Carriage of Hazardous and Noxious Substances by Sea 1996 (HNS) was adopted
under the auspices of the International Maritime Organisation. Modelled on the CLC and
Fund 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 the
United 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 or
person providing financial security. The HNS Convention covers loss of life or personal injury
on board or outside the ship carrying hazardous and noxious substances, loss of or damage
to 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 duplicate
the cover provided for by other international conventions so it excludes pollution damage as
defined 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 HNS
Convention does extend to non-pollution damage caused by persistent oil such as damage
caused 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 prevent
or minimise damage such as the cleaning up or removal of hazardous and noxious substances
from a wreck presenting a pollution hazard can be recovered.
The geographical scope of the Convention is such that it only covers damage caused by
hazardous and noxious substances in the territory of a state which is party to the Convention
and as regards pollution damage does not extend to damage beyond 200 nautical miles from
the 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 from
the CLC and Fund Conventions. Under the first tier registered shipowners are strictly liable
for loss or damage up to a certain amount which is covered by insurance. Insurance is
compulsory for shipowners engaged in the transport of hazardous and noxious substances
in order to ensure that they are able to meet their liabilities. As with the CLC there are a
number of exceptions such as where the damage is wholly caused by the action of a third
party done with intent to cause damage. Again, mirroring the CLC, the shipowner has the
right 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 compensation
when 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 insurers
cannot meet a claim in full, when the shipowner is exonerated from liability or is financially
incapable of meeting his obligations. If the damage is shown to be the result of a deliberate
act or omission by the victim or as a result of the negligence of that person then the Fund
may not be obliged to pay compensation but there is no such exoneration in respect of
preventive measures.
The HNS Fund is financed by contributions from companies which receive HNS after sea
transport in a Member State in excess of prescribed thresholds. The amount of levy paid is
proportionate to the quantities of hazardous and noxious substances received. Interestingly
such levies only become payable after an incident and levies can be spread over a period of
years. A system involving separate accounts for different substances has been devised in
order to prevent cross-subsidisation so that each account will meet the cost of compensation
payments 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 OPERATION
The Aggregates Levy Sustainability Fund
Although the use of environmental levies is increasing particularly in northern Europe, levies
on aggregates are less widespread than those for water and waste.32 Aggregate levies currently
exist in various forms in a number of Community states33 although the Netherlands has
abandoned plans for any form of levy on aggregate extraction. A distinction may be drawn
between levies contributing to the general budget as with the Danish Raw Materials Tax and
the Swedish Gravel Tax and, more unusually, levies where the revenue is earmarked for a
particular environmental function. The United Kingdom Aggregates Levy is of particular
interest in that 10 per cent of the revenue raised is used to finance the Aggregates Levy
Sustainability Fund (the Fund) which is aimed at addressing the adverse environmental
effects of quarrying not already covered by regulation. The financial impact on the aggregates
industry is lessened by the recycling of revenue back to the industry through a 0.1 per cent
cut in the employers National Insurance labour costs.
Both the Swedish and Danish levies differ in their structure since they are designed to reflect
the 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 the
same time. The aims of both taxes are to limit the use of natural resources and to encourage
the recycling of construction waste. On the other hand, the aim of the Swedish Gravel Tax35
is to conserve a valuable natural resource. Since gravel is relatively cheap to extract and is
now in short supply in certain regions of Sweden, the relevant industries are being encouraged
to switch to alternative materials such as hard rock, which has therefore been exempted
from the tax. Alternatively, there is no exemption for exports of gravel in order to reflect the
conservation 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 its
European counterparts.36 However, a study commissioned in 2001 to report on the economic
and environmental implications of the use of environmental taxes and charges in the
Community suggested that in Denmark, where the rate was set at a low level, there had been
very little effect on the extraction of raw materials. However, it was thought that an impressive
increase in the level of recycling of demolition materials in Denmark was attributable to
individuals choosing to avoid the high costs of disposal under the waste tax rather than
choosing to avoid the raw materials tax.37 Similarly, the rate of the gravel tax in Sweden was
set quite low because of fears that a higher rate might lead to established gravel pits closing
down before their stocks had been fully exploited.38
The Aggregates Levy Sustainability Fund has a number of interesting features. Deliberately
designed as a national rather than a regional fund, it is aimed at minimising the demand for
primary aggregates, promoting environmentally friendly methods of extracting and
transporting aggregates and reducing the environmental impacts associated with quarrying.

32
33
34
35
36
37
38

ECOTEC, Study of the Economic and Environmental Implications of the Use of Environmental Taxes and
Charges in the European Union and its Member States (Brussels, 2001).
Denmark, France, Spain, Italy, Austria, Sweden and Greece.
Levied on certain raw materials, including gravel, commercially extracted or imported.
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, activity
within a gravel pit and for aftercare are exempt from the charge.
1.60 per tonne as opposed to 42 pence per tonne in Denmark and 6 pence per tonne in France, for
example.
See ECOTEC, above n. 32, at 196.
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 are
responsible for its disbursement. Since the funding basis is easily identifiable the Fund goes
a long way towards reflecting the polluter pays principle. Even so there is still an advantage
to the polluter in that the Fund can deliver environmental benefits on a localised basis so that
in many cases the polluter himself may benefit. As a way of reducing the local effects of
aggregate extraction the Fund is able to finance projects that involve the buying out of aggregate
extraction permissions at, for example, dormant sites where extant permissions, if activated,
could have adverse environmental effects. English Nature, for example, envisages such projects
as being part of a larger scheme aimed at delivering increased biodiversity or the conservation
of geological features. In particular they state that priority will be given to proposals that
contribute to new approaches to dealing with damaging and potentially damaging mineral
permissions. Funding applied in this way can therefore result in the avoidance of
environmental damage or even further such damage. It is also anticipated that the Fund will
be used to help Mineral Planning Authorities in the revocation of old aggregate permissions
where compensation would be payable and towards projects aimed at restoring abandoned
i.e. orphan sites. However, this would only be on the basis that the relevant mineral operator
has no remaining residual liabilities.

CONCLUSIONS
Criteria for the efficiency and effectiveness of existing schemes were the subject of preliminary
conclusions earlier in the article. From those criteria it is clear that how far the structure of
a 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 the
need to target environmental responsibilities as efficiently as possible either where a
responsible party can be identified, or where this is not possible. In the first case the Basel
Protocol is arguably weak in failing to define widely enough the scope of liability while the
Barcelona 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 the
HNS Convention appear to reflect the polluter pays principle well since contributions come
from well defined, sector-based entities. On the other hand, general taxation forms the basis
of the Netherlands air pollution scheme while the proposed Liabilities Management Authority
looks likely to require substantial contributions from the taxpayer. Against this background
though, the role of insurance is often critical although frequent references have been made
to the practical need for limited liability as a means of engaging such an important source of
funds.
There appears a strong justification for fund administration and application as close as possible
to the polluting incident, accompanied by an expeditious settlement of claims without resort
to litigation. Superfund, the Netherlands fund and the Aggregates Levy Sustainability Fund
are all nationally administered. However, international conventions are capable of developing
a local involvement, as is the case with Superfund and delegation of many functions to the
states of the US.
The Swedish Gravel Tax raises a levy with the aim of conserving natural resources in certain
parts of the country but is still nationally administered. However, revenue from this tax and
from the Danish Raw Materials Tax is not specifically targeted towards environmental
enhancement and in this respect the Aggregates Levy Sustainability Fund can be welcomed
in that it represents something of a departure from this approach. The efficiency of an
environmental fund can be compromised in the face of a lack of well defined environmental
objectives and insufficient revenue and this is particularly demonstrated by the Moldovan
Environmental Fund.
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Finally, where the purpose of the fund is to identify and manage environmental liabilities
there is typically a statutory framework characterised by strict liability, albeit that liability
can be limited, together with compulsory insurance cover. The CLC and Fund Conventions
together with the HNS Convention are obvious examples and in these circumstances the
fund 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 Madrid
Protocol currently under development should reflect this model, suitably refined to reflect
the peculiar needs of the Antarctic environment. This and the range of other existing and
emerging funds demonstrate that they can play an increasingly important role in very specific
areas of environmental liability and enhancement rather than in any way displacing a general
regime of civil liability and compensation.

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