APPENDIX 7
Memorandum from the Environmental Industries
Commission (EIC)
Re: EIC SUBMISSION ON INQUIRY INTO CORPORATE
ENVIRONMENTAL CRIME
Thank you for the opportunity to take part in
this inquiry. We set out below the views of the EIC on some of
the questions the Environmental Audit Committee is considering,
as well as raising some additional points we believe to be of
relevance to the Committee's inquiry.
INTRODUCTION
The Environmental Industries Commission (EIC)
was launched in 1995 to give the environmental technology and
services industry a strong and effective voice with Government.
With over 240 Member companies EIC has grown
to be the largest trade association in Europe for the environmental
technology and services industry. It enjoys the support of leading
politicians from all three major parties, industrialists, trade
union leaders, environmentalists and academics.
ADEQUACY OF
ENFORCEMENT BODIES
EIC is concerned that the Government's measures
to stop companies polluting for free are being undermined in practice
by failures to enforce the environmental protection policy measures
that are in place.
This is the message we receive daily from Members
working on the front line of environmental protection. Whether
it is the Part IIA regime in the contaminated land sector; LAPC
in the industrial air pollution control sector; the Building Regulations
in the climate change sector; or Oil Storage Regulations and discharge
consents in the water sector; the message is the same: under-funded
and inconsistent enforcement, coupled with derisory fine levels
by the Courts, is undermining environmental policy objectives.
EIC strongly recommends, therefore, that enforcement
bodies, particularly the Environment Agency, are given resources
adequate to fulfil their responsibilities. The Environment Agency
is faced with major new responsibilities, springing from the Water
Framework Directive, the Emissions Trading Directive, and a host
of other regulations. Generally these new responsibilities come
with little or no additional funding. This clearly cannot continue
without undermining still further their effectiveness.
Whilst environmental legislation must be enforced
in order to deliver its policy objectives, the associated "red
tape" costs must be minimised. There are also clearly limits
to the amount of public resources that can be devoted to enforcement.
Therefore, consideration should be given to innovative approaches
to regulation which encourage the private sector to take on some
of the costs and duties of enforcement, such as the example of
an "MOT" for oil storage tanks given below under "Alternatives
to the Criminal Justice System".
RISK BASED
REGULATION
The Environment Agency and other regulators
are increasing moving towards risk based "smarter regulation".
EIC believes there is a strong case for risk based targeting and
allocation of resources in environmental regulation—however
this approach needs to be introduced carefully and properly resourced
if it is not to undermine the environmental regulatory framework,
particularly by giving a green light to those processes rated
as low risk to ignore regulatory controls.
EIC therefore supports the introduction of risk
based regulation but believes the following principles should
be retained as risk based enforcement approaches are implemented:
— There must be a baseline of inspections
etc for effective environmental regulation irrespective
of any risk.
— There must be an enforcement policy,
including prosecution, which is as rigorous in dealing with non-compliance
in non-targeted areas as that applicable to the targeted areas.
— The assessment of the level of risk
must be done rigorously and reviewed at least yearly—as
well as when there are significant changes to the operation or
ownership of the process.
FINE LEVELS
EIC considers that fines must be high enough
to encourage businesses to make the investment in environmental
technology, effective environmental management systems and staff
training necessary to ensure legal compliance with environmental
regulations. Low fines send the wrong message in trying to create
a culture where environmental compliance is taken seriously by
industry.
The experience of EIC Members is that companies
too often find it more economical to pay a fine than to properly
address their environmental performance. EIC, therefore, believes
that the current fines for environmental offences are both too
low and inconsistent and that they need to be dramatically raised
to have a real economic impact and deter companies from polluting
the environment.
The experience of EIC Members is supported by
recent research on behalf of DEFRA. "Trends in Environmental
Sentencing in England and Wales" reveals "a lack of
consistency in environmental sentencing". It also notes that,
whilst there has been a small recent increase in fine levels in
Magistrates' Courts (to an average £2,730 in 2001-02), fine
levels have actually dropped sharply in Crown Courts (to an average
£4,600 in 2001-02). It is clear that fines at this level
are not a deterrent even to small companies, let alone to large
corporations.
It is instructive to compare these sentences
with those handed out in the USA, which regularly reach millions
of dollars. For example in October 2003 Chevron Texaco paid a
$3.5 million civil penalty for air emissions and reached an agreement
with the US EPA to spend an estimated $275 million to reduce emissions
at five refineries.
In the UK, fines for companies who behave anti-competitively
regularly amount to millions of pounds. Argos was recently fined
approximately £17 million for price fixing, whilst Littlewoods
was fined approximately £8 million.
Experience suggests that a focus on corporate
liability alone is not by itself sufficient to ensure acceptable
standards of behaviour. Making directors and other decision-makers
in a company responsible for the activities of their companies,
is increasingly regarded as an effective mechanism for increasing
standards.
In addition to punishing companies/directors
for environmental damage, cleaning up the damage is also important.
Whilst there is statutory provision for the criminal courts to
order an offender to remedy the environmental harm caused, it
is not apparent that this is often used. Earlier guidance to magistrates
recommended a greater use of compensation orders but this does
not appear to have occurred (this may be because of uncertainty
in applying the concept to environmental offences). In competition
law, other mechanisms for dealing with offenders, aside from public
law enforcement by way of sanctions, include provision for victims
of any anti-competitive behaviour to sue offending companies for
losses incurred. For example, having been fined for price fixing
of vitamins, Hoffman La Roche was sued by companies incurring
resulting loss.
ALTERNATIVES TO
THE CRIMINAL
JUSTICE SYSTEM
Competition law adopts a dual pronged approach—companies
may be subject to substantial civil penalties, whilst individuals
are subject to criminal sanction and may also be subject to disqualification
as a director. In addition there are significant incentives to
encourage individuals to disclose wrongdoing by corporates, including
immunity from prosecution.
Furthermore there should also be more focus
in the Courts on ordering measures to prevent future pollution
incidents and in particular the use of Best Available Techniques
to prevent and control pollution in the future. This is a major
feature of sentencing for environmental cases in the USA.
Recent research sponsored by Defra has advocated
a new system of civil penalties for environmental offences to
allow a more proportionate response to lesser offences. Part of
the rationale for the suggestion is that criminal prosecutions
can be difficult and time consuming. Experience suggests that
regulators can be reluctant to take the draconian step of initiating
a prosecution.
The competition authorities may provide a useful
model in this regard (the Office of Fair Trading and the Competition
Appeals Tribunal). By analogy the Environment Agency could be
provided with powers to fine companies who fail to comply with
regulations. A right of appeal to a specialist tribunal would
satisfy human rights requirements and ensure that specialist bodies
are taking decisions on sentencing. The use of the criminal law
could be reserved for the most serious offences where the opprobrium
associated with criminal sanction is appropriate. This has the
advantage of avoiding the current position where, as liability
for environmental offences is in most cases strict, companies
who behave well and are, for example, the victims of vandalism
causing environmental damage, will nonetheless be guilty of criminal
behaviour.
It is also worth considering ways to shift the
burden of enforcement onto the private sector. One example is
the Oil Storage Regulations, for which the Environment Agency
have no budget for inspections or even for compiling a directory
of installations covered. EIC has proposed that an MOT-style certification
regime be implemented for oil storage tanks. The MOT should be
supported by a register of technicians who install and maintain
oil tanks and have the power to condemn tanks. It hould also make
it illegal to deliver oil to a tank without an MOT certificate.
This system needs to be a statutory arrangement
rather than a voluntary one. Any voluntary arrangement will result
in irresponsible companies taking business from responsible ones,
thus penalising those who abide by the laws. If a company refuses
to deliver to a tank without an MOT, another less scrupulous company
will deliver, probably at an increased margin. If it were against
the law to deliver to a tank without its MOT, the system would
be much more effective in protecting the environment from oil
spills and provide companies with a level playing field, at little
or no cost to Government.
REGULATION AS
A SPUR
TO COMPETITIVENESS
Environmental protection policy is in place
to correct a market failure—the lack of a price on pollution.
It is therefore essential to the proper functioning of the market.
Pollution that is not paid for by its creator will be a cost to
other industries—in lost resources (forestry and fishing),
lost value (tourism), lost labour (sick days), or higher charges
for insurance, maintenance, etc. Pricing pollution properly encourages
prevention rather than remediation (because it is less expensive),
and makes industry as a whole more competitive.
Experience in a range of industries has indicated
the benefits to companies of clearly prescribed and consistently
enforced environmental standards through competitive advantages
in both the home and export markets. In particular such standards
can increase profits through encouraging industry to examine its
resource efficiency (for further details see the recent European
Commission report "Commission Staff Working Document: The
Effects of Environmental Policy and European Business and its
Competitiveness A Framework for Analysis" 10.06.2004).
Environmental protection policy is also the
key driver of the rapidly growing environmental technology and
services (ETS) industry. The world market for the (broadly defined)
environmental sector is estimated at US$515 billion—comparable
with the aerospace and pharmaceutical industries—and it
is forecast to grow to US$688 billion by 2010. At the heart of
this environmental sector is the ETS industry. The UK lags behind
the leaders in this market—Germany, Japan and the USA—who
have implemented, and enforced, high environmental standards in
advance of other countries. High standards, backed up with credible
and consistent enforcement, breed a strong ETS industry well placed
to exploit markets in other countries as they "catch up".
CONCLUSIONS
— Enforcement bodies are currently
underfunded and underresourced to deliver credible and consistent
enforcement.
— "Risk based" regulatory
policies can deliver more efficient enforcement, as long as care
is taken that a minimum baseline of inspection frequencies applies
to all levels of risk.
— Current levels of punitive fines
are too low to have a deterrent effect, and are much lower than
similar fines in other countries, or fines for other forms of
corporate crime.
— Supplementing fines with criminal
sentences for directors and other decision makers, and costs for
clean-up and remediation, should be considered.
— A system of civil penalties for minor
infractions and failure to comply with regulations would provide
a much more balanced and efficient way of achieving compliance.
— Environmental regulations and their
enforcement make industry as a whole more competitive, encourage
mainstream industry to be more innovative and efficient, and act
as a stimulus to the environmental technology and services industry.
September 2004
| 
