polluter pays principle

By Jörn Kassow and Patrick Braasch

A German appeals court has indicated in a groundbreaking civil action that major CO2 producers may be directly liable for global environmental damage caused by climate change.

Mr Saúl Luciano Lliuya, a Peruvian farmer, has alleged that RWE AG, Germany’s second-largest electricity producer, is responsible for the impact of climate change in the Peruvian city of Huaraz — even though RWE does not operate in Peru. His claim invokes German civil law rules, according to which, property owners may claim damages from the person responsible for causing the pollution to the extent that the pollution in question would constitute unlawful interference. These rules generally correspond to the “polluter pays” principle that polluters should bear the costs of managing pollution to prevent damaging human health or the environment. Although the relevant legal principles are firmly established in German case law, the courts have not yet applied them to hold a single emitter of fossil fuels financially responsible for climate change impacts.

By Paul Davies and Michael Green

The Environmental Liability Directive (ELD) aims to prevent, remedy and/or compensate for environmental damage. ELD seeks to achieve this through the “polluter pays principle”, ensuring businesses are held legally and financially accountable for environmental degradation that results from their operations. However, Member States have varied considerably in implementing ELD, significantly reducing its effectiveness. The European Parliament is the latest of several European authorities to review ELD’s effectiveness.

A report published by the European Parliament sets out the primary areas of concern with ELD, namely: (i) the lack of certainty surrounding key definitions; and (ii) narrowness of scope. For example, the European Parliament considers there is “total uncertainty” regarding the “significance threshold”. As the significance threshold determines whether an incident triggers liability under ELD, the European Parliament considers the clarity of the threshold crucial. Furthermore, ELD only imposes strict liability on operators that cause environmental damage in the course of activities specified in an exhaustive list. Beyond this list, liability for environmental damage is fault-based.