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Environmental Liability Directive in Spain

Environment

Next enforcement steps

In Spain, several environmental disasters cost huge amounts of money to the State due to the absence of corporate awareness and insufficient solvency of the liable operators.

A case in point is the ecological catastrophe of Doñana National Park (Seville, 1998), where the State had to disburse 600 million euros from the public accounts just to meet the cleaning costs.

This is why Spain is one of the 8 European Member States which, in order to implement the Directive 2004/35/EC on Environmental Liability (ELD), has decided to make mandatory the setting up of financial securities to address any environmental liabilities deriving from the operator’s occupational activity provided that said activity is included in Annex III of the Spanish Transposition Law 26/2007.

Flashback

Obstacles in the implementation of Financial Security

  1. The Spanish Transposition Law 26/2007 had considered the date of April 30, 2010 which was considerably exceeded, with necessary Ministerial Orders being approved and indicating the ultimate dates for financial securities requirement.
  2. Another obstacle appeared with the large number of operators whose occupational activity was targeted. The Spanish Confederation of Business Organisations (CEOE) estimated that there were 280,000 operators that could be affected by the obligation to underwrite financial security in accordance with the Law.

Adopted solutions: order of priority and limited number of impacted operators

On June 29, 2011, a Ministerial Order established a priority order and a time schedule for the eligibility of mandatory financial Securities for the activities depending on their level of hazard and environmental risk.

The prioritization depends upon three criteria:

(1) index of hazardousness based on the analysis of  (IPPC/IED) -activities,

(2) accidents index

(3) previous obligations following risk analysis, technical studies, and financial securities under civil liability.

The Royal Bylaw 183/2015 amended the Environmental Liability Law 26/2007 provisions with the following changes:

  1. Only operators of higher risk have to constitute compulsory financial securities: some IPPC/IED activities and facilities classified Seveso (Bylaw 1254/1999 on serious accidents). A risk analysis shall be performed to ensure the prevention principle and to calculate the financial security as explained below.

  2. The risk analysis does not need to be validated neither by the authority nor by independent experts, but the operator shall perform a “responsible declaration” to the competent authority.

  3. A new methodology to conduct risk analysis has been presented based on the calculation of an index of environmental damage (IDM) and the quantification and monetization of a baseline scenario.

However, this is still important to bear in mind that although the obligation to provide financial securities now focuses on high-risk operators, all operators of Annex III to the Law 26/2007 are deemed liable, and in case of environmental damage, will have to remediate under a strict and un-capped Liability regime.

Acquiring the financial security - Who and when?

Finally, on October 30, 2018, the Ministry of Agriculture, Fish, Food and Environment, published the dates of enforcement of the financial securities for Environmental Liability via the Ministerial Order (APM / 1040/2017).

    Activities with Priority 1 shall to obtain the financial security before October 31, 2018 (SEVESO sites; combustion large sites and treatment of hazardous waste large sites)

    1. Seveso sites

    2. IPPC Combustion Installations: combustion installations with a thermal power greater or equal to 50 MW* installations for electricity in ordinary or special regime in which fossil fuel, waste or biomass combustion takes place * installation of co-generation facilities, boilers, steam generators or any other combustion equipment or facility existing in an industry, whether or not this is the main activity

    3. IPPC Waste handling : facilities for the recovery or elimination of hazardous waste, with a capacity of more than 10 tons per day that perform one or more of the following activitiesbiological treatment / physical-chemical treatment / recovery or regeneration of solvents / recycling or recovery of inorganic materials other than metals (or compounds) / regeneration of acids or bases /valorization of components used to reduce pollution / valorization of components from catalysts / regeneration or re-use of oils / facilities for valorization or elimination of waste in incineration or co-incineration plants for hazardous waste with a capacity greater than 10 tons

    Activities in Priority 2 (1): the dead-line is one year later, October 31, 2019

    1. oil and gas refineries

    2. facilities for the refining of petroleum or crude oil

    3. coking plants

    4. facilities for the production of cast iron or raw steel (primary or secondary), including continuous casting facilities with a capacity of more than 2.5 tons/hour

    5. application of molten metal protection layers with a treatment capacity of more than 2 tons/hour of crude steel

    6. ferrous metal foundries with a production capacity of more than 20 tons/day

    7. chemical facilities for the manufacture of salts such as ammonium chloride, potassium carbonate (potash), sodium carbonate (soda), perborates and argentic nitrate

    8. chemical facilities that use a chemical or biological process for the manufacture of medicines

    9. chemical facilities for the manufacture of explosives

    10. landfills of all types of waste that receive more than 10 tons/day or that have a total capacity of more than 25,000 tons but excluding landfills of inert waste

    Before the above mentioned respective dates, operators with Priority 1 or 2 activities also have to perform an Environmental Risk Assessment and to obtain the respective report following the guides and models approved by the Spanish Minister and available in its web page. When, according to the assessment, the major reference cost is higher than the legal thresholds (3), the operator shall constitute a financial security covering the minimal amount stated in the report.

    For activities in Priority 3 (2):

    The calendar has not been decided yet and shall be fixed in a future Order. Legally speaking it is under the operators’ responsibility to identify whether its activities fall or not in the scope of the Law and Orders above mentioned

    How to be compliant?

    The financial security may be constituted by any of the following means which can be alternative or complementary in terms of guaranteed amount and events:

    • insurance policy
    • guarantee granted by a financial institution
    • technical reserve in the form of an ad hoc fund consisting of financial investments backed by the public sector

    But we should mention that many provisions of the Law are drafted assuming that the main financial tool will be insurance. In addition, only an insurance policy can implement an effective risk transfer. Furthermore, the Insurance Market has been developing the most suitable solutions for years. The amount guaranteed shall:

    • be exclusively used to cover the environmental liabilities incurred by the operator
    • be independent and distinct from any other liability
    • not be diminished or exhausted to cover any other expenses, claims or requirements e.g., defence expenses, claims arising from one single event triggering ELD and other extensions in the same policy (4)

    An important provision deals with the security limit and its reinstatement in Spain: when the operator develops its activity in more than one operated site (or facility), he can choose between two options (5):

    • 1. either constitution of independent financial securities per operating site, or
    • 2. one single financial security including all the operated sites. The risk analysis achieved to determine the security limit will consider each and every single operating site. Exceptionally, one Operator can cover in one single security several operated sites when all the sites and their associated risks have same degree of homogeneity and the risk analysis allows it. In this case the warranty limit will be the highest of value among all sites.
    • Thus, if several facilities are covered by one single security, the above mentioned By-Law requires that in case of loss in one facility, the total limit shall not be reduced nor exhausted regarding the other facilities.

    What are the sanctions?

    According to Law 26/2007, failure to arrange financial securities to which the operator is obliged to provide, or failure to maintain such securities in force during the entire period of operation is considered as a very serious statutory violation and can be sanctioned as follows:

    • Fine from € 50,001 up to € 2,000,000.
    • Withdrawal of the license to operate or suspension of activity for at least one year and at most two years.

    Our recommendations

    Finally, this is important to underline that the requirements according to the Law and the above mentioned tools are minimal provisions.

    Therefore the best advisable practice is not just to transfer only the minimal requirements of risk according to the Law in order to legally comply , but also to cover the Environmental exposures with all the extensions of coverage that a complete Risk Assessment recommends for Environmental Liability, Land and Water Clean-up Costs (within and beyond the insured sites), restoration costs, emergency costs, transportation etc. and of course, the ELD with a limit according to a realistic perspective that in most of cases will be much higher than the minimal requirements arising from the guides and models legally approved.

    Our local ECOSPHERE policy can be adapted to suit your needs and provide financial security for your exposures in Spain.

    Juan Fernández-Montes / Senior Underwriter Environment

    Contact him

    (1) Other IPPC installations quoted in  Order APM / 1040/2017

    (2) Rest of activities quoted in Order APM / 1040/2017 and falling under Annex III of the ELD

    (3) Art. 33 Royal Decree 2090/2008

    (4) Art. 25.1 Law 26/2007

    (5) Art. 40 Royal Decree 2090/2008