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Environmental Liability

The Potential Economic Impact of Environmental Liability

The American and European Contexts

The European Commission has committed to explore the potential effect on industry competitiveness of the future EC environmental liability law. This study does it by assessing the U.S. industry costs associated with Superfund, the 20 years-old contaminated land cleanup program of the U.S. that first established liability for damage to natural resources, including the distribution of those costs by industry sector. The study also highlights the main differences between Superfund and the White Paper and discusses the possible cost implications of the differences.

The costs considered in the report include the costs of cleaning up contaminated sites (the bulk of the costs of the program) and transaction costs (mainly the costs associated with litigation). Costs with NR damages have largely been omitted in the cost estimates. To date relatively few sites have been associated with the restoration of NR but on the basis of existing evidence such costs are unlikely to greatly increase Superfund costs. The costs of administering the program, while not insignificant, were overlooked since they are relatively small compared to the other costs. Superfund taxes are discussed.

The general picture that emerges is that the cost of the Superfund program is affordable for the American economy in the aggregate – at their peak, all Superfund expenditures by all private and governmental parties represented less than 5% of the cost of complying with all federal environmental regulations in the U.S, and should not be unduly burdensome to most industries. The chemical industry is a good example: it has the highest (clean up and transaction) costs of all industries, but its estimated annual cost represents a small fraction of the industry’s added value and profits. The mining industry is an exception: it devotes the greatest part of added value to Superfund costs of all industries (0.7% in 1990) and because its profitability record has been poor these costs weigh significantly on profits.

The report discusses the most significant differences between Superfund and the proposed European environmental liability regime, one of the more important being that the former is retroactive and the latter is not. The differences are likely to translate into different cost impacts, some pushing costs up, others keeping costs down.

The following documents are available:

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