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Environmental Liability

A Market-Based Analysis of Financial Assurance Issues Associated with U.S. Natural Resource Damage Liability

The financial assurance of environmental liability, in particular of liability for damage to natural resources or bio-diversity, is critical to the environmental effectiveness of this policy instrument and has important economic implications. The European Commission has therefore committed to explore the challenges associated with, and the feasibility of, financial assurance for liabilities arising under the future EC environmental liability law. This study does it by describing the United States’ experience with financial assurance requirements (FARs) for liabilities arising under its environmental statutes, with a particular emphasis on liabilities associated with natural resource damages (NRDs).

The study concludes that financial assurance is an increasingly common component of U.S. environmental compliance programs. The overall picture is of a set of programs that have been implemented with success. By and large, private sector coverage mechanisms are available, and at rates that can be absorbed by most of the firms to which the requirements apply. Coverage availability is improving over time and premiums are falling.

At this time, the U.S. has financial assurance regulations associated with several of its most important federal environmental laws. Financial assurance is required under the Oil Pollution Act (OPA), the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Resource Conservation and Recovery Act (RCRA), and several other federal statutes. The report focuses on OPA and CERCLA because these statutes are the federal statutes that both make polluters liable for NRDs and require financial responsibility. Financial responsibility under these statutes is not for NRD alone but also covers a host of other damages for which firms can be held liable, including pollution response costs and removal costs, real and personal property damage, and lost government revenue.

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