It is all very well for European environmental legislation to demand ecosystems are returned to their 'baseline condition' but how do you determine what that is, asks Jeremy Randall
There has been significant press coverage regarding the impact of European Union environmental legislation, such as the Water Framework Directive and the Environmental Liability Directive, which is designed to protect and improve the environmental ecosystem.
All of these directives have a common starting point, which is the baseline condition of a particular system. Once the baseline is established, significant impact can be quantified and improvement strategies established.
The challenge, however, lies in agreeing the criteria for quantifying something that is very difficult to measure - such as ecological conditions - and something that is part of a very sensitive inter-dependent system subject to numerous influences. These influences could include contamination incidents, long-term diffuse pollution and shifts arising from climate change. Therefore, the directives will seek to establish a baseline on a dynamic situation.
So in terms of environmental exposure and insurance implications, what does 'baseline condition' mean? The liability under the ELD is to remedy the damaged environment. In the case of protected species, natural habitats and water, this could mean returning the environment to the condition it was before the event gave rise to the damage, which is the baseline condition. If the damage is so extensive - or if even more damage may result from attempting remediation - then the polluter could be required to improve a similar site.
For example, if only 70% of the damaged resource can be restored to its baseline condition, then the equivalent 30% shortfall must be undertaken elsewhere. This is termed 'complementary remediation'. Additionally, remediation may also be required to compensate society for the loss of use or enjoyment of the resources or service. If an operator fails to take adequate preventative or remedial measures, the regulator can step in, recovering costs from the operator. All of these actions are based upon the judgement of the baseline condition.
However, a very real challenge when assessing damage to biodiversity is that the impact may not be immediately apparent. An incident may occur during a dormant period or may affect a breeding ground, the remediation of which may affect the species in the longer term. So unlike contamination to a water body, where it is possible to rely upon chemical analysis, there may be protracted monitoring, resulting in problems with closing off liabilities. While any monitoring is being undertaken, the ecosystem can be more vulnerable, and diffuse pollution from sources such as agriculture, recreation and transport could have a greater than 'normal' effect.
Furthermore, quantification of the biodiversity baselines includes not only the assessment of the obvious chemical quality, but also measuring factors, such as biology (including microscopic organisms like plankton, aquatic plants and animals); how the water environment physically works; and soil quality.
The directives are not retrospective, however - for instance, the ELD does not apply to damage caused by an emission, event or incident that took place before 30 April 2007. But it may prove very difficult to differentiate the impact from an emission prior to this date and a later incident.
Fuel depot example
One interesting illustration is an incident that occurred when there was large release of red diesel from a fuel storage depot. Despite good controls on the site for containing a release, the combination of the volume and the prevailing weather conditions meant that the bulk of the diesel escaped from the site in a ditch. The ditch fed into a stream, which fed storm water from the road network, a small industrial estate and a railway line. The stream went down a sharp incline accumulating in a series of lakes, having passed along the way through a nature reserve. The nature reserve was used by local residents and contained some specific flora and fauna. The incident occurred during winter, when the plants were dormant.
Bordering the nature reserve was a golf course on a steep slope, onto which there was an abundant application of weed and pest control, as well as fertilisers. The golf course was drained by a number of ditches that fed to the lake, again mostly via the nature reserve. As might be expected, the water within the golf course drainage system was rich in nutrients. The lakes were used as fishery and as an amenity for the local community. A short distance downstream, they fed a Site of Special Scientific Interest.
As the nature reserve was in a small hollow and it received water from a large area, it flooded regularly, carrying any contaminants that were in the storm water over most of the reserve. The flood would rapidly subside and low levels of residual contaminants would be left across the reserve. Within the reserve there were also two small ponds, which were breeding grounds for newts and frogs.
As soon as the operator was aware of the escape, spill responders were at the location, containing the contamination. The emphasis was on recovering as much of the diesel as possible, but the situation was not helped by a series of violent storms, during which it was not possible to control the floodwater. The nature reserve had no vehicular access directly into it, and the small paths quickly degenerated into mud. Working alongside the regulators and site owners, it was agreed to try and minimise possible disruption. So, having removed all visible contamination, an investigation was undertaken that revealed the results of the history of contamination preceding this event.
The following spring there was evidence of vegetation dying back, but throughout this period there was regular low-level diffuse pollution from all the identified sources. The reserve vegetation did appear to recover quickly but one plant species, which was reported as having been present prior to the spill, could not compete with a more aggressive plant from the same species.
There had never been any thorough baseline study, so discussions quickly degenerated into qualitative, unsubstantiated statements. There was minimal data other than anecdotal to corroborate the condition of the site, and there had certainly been no consistent long-term monitoring.
The reserve was also subject to fluctuations in the water quality entering the drainage system and streams as the industrial units changed hands and working practices changed on the golf course. So what was the baseline condition at any point in time?
Having removed the source, a monitoring programme was agreed with all parties with monitoring positions and agreed indicators such as chemical analysis, soil structure, plant species and microscopic organisms. The residual contamination resulting from the incident degraded naturally at high levels partly because the reserve's biological system had adapted over time to the impact of numerous low level contamination from several surrounding sources. And the lack of baseline data meant it was not possible to agree whether the demise of certain species was already occurring before the incident, whether it could be due to the incident, or whether it may be due to later events.
Ultimately, the polluter agreed to pay for enhancements to facilities within the reserve. If the impact of the incident had been greater and there had not been a history of contamination incidents, the costs for compensatory remediation would have been onerous, without sufficient information to obtain a resolution.
The objective of all the recent EU directives - such as those focused on the water framework, birds, habitat and environmental liability - is improvement to the environment in its broadest sense. The outcome will be greater emphasis on the monitoring of environmental and ecological quality, which will be used to establish plans to improve and enhance local ecosystems.
Case in point
For example, enacting the Water Framework Directive has resulted in the UK being split up into nine river basin districts in England and Wales, three in Scotland and two in Northern Ireland. The Environment Agencies are responsible for developing a river basin plan for each district on a six-year cycle. The plans will include assessments of the pressures and human impacts on each district, with the objective of restoring and maintaining good chemical and ecological quality of groundwater, rivers, lakes, estuaries and coastal waters.
It is very likely that a number of the river basin districts will fail to meet acceptable standards and there will be action plans to restore quality. Therefore, we can expect to see, at the very least, a characterisation of the quality of all river basins, with a particular emphasis on where there is recognised sensitivity, such as Special Protection Areas, which are designated as SSSIs or Areas of Special Scientific Interest.
Many businesses and agriculture in the UK will be directly impacted as plans are established. The increased monitoring will assist in establishing broad baseline conditions but, as the plans progress, the baseline conditions should of course change as the ecological and environmental quality improves.
Consequently, in the future there will be a greater emphasis on understanding environmental baseline conditions. However, unlike something that is relatively stable - such as establishing historic land condition prior to a change in ownership - these baseline conditions can and will vary over time, due to a range of different factors (see box).
The environment and regional ecosystems are complex and sensitive to stress. Nobody can say for definite what is going to happen, other than that baseline conditions will change.
Most responsible businesses are aware of the impact of their operations. But this is now insufficient as they need to consider the impact to the environment beyond their site boundaries. The emphasis should consider: risks to species and habitats protected under legislation; potential damage to ecosystems associated with rivers, lakes, groundwater and coastal waters; and diffuse pollution to land falling within the scope of the water.
Therefore, it is vital for companies to be aware not only of the current baseline, but also the local predictions of how that baseline will change with time.
Having said that, a great deal can be achieved relatively inexpensively by identifying the risks. Operators should also ask to be kept informed by the pertinent regulators and landowners about plans and changes that will alter the baseline, potentially raising their risks. At the same time, companies must make sure that if there is a significant risk, independent and regular monitoring takes place. This can be as simple as visual observations.
Once the relationship has been established, it may be possible to agree that there are a small number of indicators, such as specific species that can be monitored at certain times of the year. But it is vital that if there is a perceived risk, regular monitoring should be undertaken as an operator will need to be able to identify the responsibility for any deterioration prior to any incident and determine what the actual baseline was.
Ultimately, any environmental baseline is not an absolute set of simple numbers, but a tool that can be used as an indicator if it has been monitored over time. Long-term baseline information is part of the answer. If a risk has been identified, there must be some awareness of the current condition of that risk.
The impact of EU driven directives
Pressure for development and changes in industry
Climate change: while there may still be arguments about the cause, there appears to be a growing acceptance that this is happening. The environmental impact may seem small, but subtle changes can have a disproportionately large effect on an ecosystem.
Invasive species: these are more prolific plants and animals that supplant native species. One of the most talked about at the moment is Japanese Knotweed, which, once established, will spread rapidly in favourable conditions.
Changes in practices: for example, approximately 75% of land in the UK is used by agriculture, and so this industry represents a major contributor to diffuse pollution. The government will be seeking to find ways to reduce diffuse pollution, although this will be difficult within an industry that is already having trouble being competitive.
Increased pressure for recreational use on rivers, lakes and coastal areas.
Jeremy Randall is chairman of the Raw Group.
- Roundtable: Is a single customer view taking off in insurance?
- O’Connor replaces Fairchild at the helm of Broker Network
- Home insurance insurtech Buzzvault launches
- Stackhouse Poland makes fourth acquisition of the year
- Aviva promises to 'reinvent' insurance and end dual pricing
- Ed unveils CEO Hearn’s replacement and plots Bermuda office
- CBL Corporation expected to be placed in liquidation, sees further delays to watershed meeting