EPA Issues Guidance Documents on Environmental Liabilities
In 2014 the EPA released its ‘Guidance on Assessing and Costing Environmental Liabilities’, a long awaited update to the 2006 version of the document. The guidance makes some substantial changes regarding how the EPA wants liabilities costed. Some of these changes are outlined below:
RMP/CRAMP
The EPA now requires that closure costs should be calculated assuming that a third party is required to carry out all of the work involved. In other words immediate closure should be assumed with all staff at the facility ceasing to work. Currently many facilities have estimated closure costs based on the closure event being known well in advance. This allowed the facility to use its resources to manage much of the work involved under the day-to-day running costs of the site. The new approach adds substantially (in our experience up to 30%) to the estimated costs of closure with the following additional costs being included for the duration of the closure period:
- Management/Staff salaries;
- Insurance;
- Utilities such as electricity and water;
- Security.
ELRA
The error in the previous guidance document whereby environmental liability costs are multiplied by the probability of occurrence has finally been addressed. For example, we don’t insure our houses for their value and multiply it by the probability of them being destroyed by a fire. We insure for the full value of the house. The EPA is now applying the same logic to site risks. The maximum likely cost associated with all risks is estimated and a financial provision put in place to cover the worst case risk.
In November 2014 the EPA issued a document titled ‘Draft Guidance on Financial Provision’. It appears to be the EPA position that closure costs (RMP/CRAMP) can only be covered by a ‘secured fund’. Other financial instruments such as bonds or insurance may be used to cover other potential liabilities. It emphasises that more than one financial instrument may be used.
It also appears that the EPA intends to deal with financial provision on a case by case basis. While this may seem a prudent approach to take, it will mean that the process of agreeing financial provisions will be a slow one with both legal and financial concerns to be addressed on both sides of any agreement. This won’t be an easy journey.
Links to documents below:
http://www.epa.ie/pubs/consultation/draftguidanceonfinancialprovision.html#.VRBRu_msUas
January 2015