Environmental law and practice in the UK (England and Wales): overview

A Q&A guide to environment law in the UK (England and Wales).

This Q&A provides a high level overview of environment law in the UK (England and Wales) and looks at key practical issues including emissions to air and water; environmental impact assessments; waste; contaminated land and environmental issues in transactions. In addition, answers to questions can be compared across a number of jurisdictions to assist in the management of cross-border transactions (see Country Q&A Tool).

This Q&A is part of the global guide to environment. For a full list of jurisdictional Q&As visit www.practicallaw.com/environment-guide.

Contents

Environmental regulatory framework

1. What are the key pieces of environmental legislation and the regulatory authorities?

A significant proportion of environmental legislation in England and Wales originates from EU law, which is directly applicable or implemented through national legislation. The principal environmental regimes are:

  • Environmental Permitting Regime (EPR), combining the pollution prevention and control (PPC) regime and waste management licensing and industrial emissions (see Question 5).

  • Water (see Question 6).

  • Waste (in relation to aspects not dealt with under EPR) (see Question 12).

  • Contaminated land (see Questions 14 to 17).

  • Conservation of nature, wildlife and habitats.

  • Environmental impact assessments (EIAs) (see Question 11).

Health and safety and planning matters are regulated separately from environmental matters, but are interlinked. For example, the clean-up of contaminated land is generally required under the planning regime (during redevelopment) rather than the contaminated land regime (see Question 14).

The UK government passes legislation for England, and on some matters in Wales. For all remaining matters in Wales, the National Assembly for Wales has powers to legislate. In England the main body responsible for developing environmental policy and drafting environmental legislation is the Department for Environment, Food and Rural Affairs (DEFRA) although the Department for Business, Energy & Industrial Strategy generally handles issues relating to climate change (see box, The regulatory authorities). Apart from where the UK government has competence, the Welsh government develops environmental policy for Wales.

This article refers to the government in the UK, unless specified.

The Environment Agency (EA) (in Wales, Natural Resources Wales (NRW) is the main body responsible for issuing permits and enforcement, although in some cases the local authority (LA) carries out these functions (see box, The regulatory authorities).

Environmental liability can arise under:

  • Criminal law.

  • Civil law.

  • Public or administrative law.

  • Company law.

Criminal law

The sanction for breach of most environmental laws is prosecution of an individual or company by the relevant regulator in the criminal courts. The maximum penalties are usually as follows:

  • Lower courts: GB£50,000 and/or six months' imprisonment. Unlimited fine for offences committed after 12 March 2015. Legislation has long been in place to increase the maximum term of imprisonment to 12 months but, as yet, this change has not been brought into force

  • Higher courts: unlimited fine and/or five years' imprisonment.

Company directors and officers can be prosecuted if the criminal offence was committed with their consent or connivance, or was attributable to their neglect.

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 was passed in May 2012. It provides that wherever a statute or common law offence could result in a fine of GB£5,000 or more (the current amount established as level five on the standard scale), magistrates can now apply a fine of any amount (that is, unlimited).

In July 2014, the Independent Sentencing Council issued guidelines for sentencing those found guilty of environmental crimes. The guidelines introduce a 12 step sentencing process for organisations intended to reduce inconsistencies in sentencing and ensure that sentences match the seriousness of the offence, the harm caused, the culpability and will seek to remove any gain realised through commission of the offence. In particular, "starting points" for sentences will distinguish between:

  • Micro companies (annual turnover up to GB£2 million).

  • Small companies (annual turnover of between GB£2 million and GB£10 million).

  • Medium companies (annual turnover of between GB£10million and GB£50 million).

  • Large companies (annual turnover of GB£50 million and over).

The first case to be considered under the guidelines was R v Thames Water Utilities Ltd [2015] EWCA Crim 960. The Court of Appeal suggested that fines in the millions of pounds would be appropriate for serious environmental offences stating that fines must be high enough to send a strong message to company directors and shareholders about their environmental obligations. The Court made a direct comparison with fines applied to financial services market regulation breaches finding that, where harm has been caused by deliberate action or inaction, fines equal to a substantial percentage (up to 100%) of the company's pre-tax net profit for the relevant year could be imposed, even if this results in fines in excess of GB£100 million. Analogous guidelines came into effect in February 2016 in relation to health and safety offences, and corporate manslaughter (among other areas).

Civil law

Private persons can bring civil law claims for harm caused by environmental matters, usually under the common law of nuisance or negligence (see Question 17). Claims are usually for damages, but the courts can also grant an injunction.

Public or administrative law

Regulators can serve enforcement notices on operators requiring them to rectify breaches of environmental law. Failure to comply with enforcement notices can constitute a criminal offence. In some cases, regulators can shut down an operator's activities until the breach has been rectified.

Third parties, including non-governmental organisations (NGOs), can challenge the validity of a public authority's decision through judicial review and have an express right to request that regulators take action if either:

  • Environmental damage is occurring.

  • There is an imminent threat of environmental damage.

Company law

Company law imposes a duty on directors to promote the company's success for the benefit of its members as a whole, taking into account the effect of the company's operations on the community and the environment. If a director breaches this duty, shareholders may be able to bring a derivative action on behalf of the company against the director, even if he has not benefitted from the breach.

 

Regulatory enforcement

2. To what extent are environmental requirements enforced by regulators?

The Environment Agency (EA) (as the principal regulator) takes its enforcement powers very seriously. However, it does not have the necessary resources to enforce in every case and has therefore adopted an enforcement and prosecution policy to assist it in deciding which cases to pursue. Enforcement is generally discretionary, but in some cases enforcement is compulsory. For example, the EA or the local authority (LA) must serve a remediation notice if it finds land to be contaminated, unless remediation can be carried out voluntarily (see Question 14). The EA therefore tends to prioritise the more serious breaches and recurring breaches.

The Regulatory Enforcement and Sanctions Act 2008 provides for a number of forms of civil sanction to be used by certain regulators, instead of immediate reliance on criminal prosecution. These penalties include:

  • Fixed or variable monetary penalties.

  • Compliance notices.

  • Restoration notices.

  • Stop notices.

  • Enforcement undertakings.

Civil sanctions can currently be imposed in relation to certain regulatory regimes (such as waste packaging) and the EA is able to agree enforcement undertakings as a civil sanction for environmental permitting offences (see Question 4).

Natural Resources Wales (NRW) took on regulatory responsibility for Wales from 1 April 2013 and has since adopted its own guidance on enforcement and sanctions in line with that adopted by the EA.

 

Environmental NGOs

3. To what extent are environmental non-governmental organisations (NGOs) and other pressure groups active?

NGOs (such as Greenpeace and Friends of the Earth) are very active, particularly in influencing environmental law and policy. NGOs and local pressure groups often attempt to challenge the decisions of public authorities (by judicial review) and to divert the proposals of large companies that they consider to be harmful to the environment. For example, in 2015 ClientEarth obtained a mandatory order from the Supreme Court requiring the government to produce new air quality plans for urban nitrogen dioxide limits in order to comply with the 2008 Air Quality Directive.

In November 2016, ClientEarth also won its subsequent legal challenge against the new air quality plans drawn up by the Government, and these plans will have to be reconsidered.

In July 2016, Friends of the Earth brought a legal challenge against the grant of planning permission by North Yorkshire County Council to carry out hydraulic fracturing for shale gas on a site at Ryedale.

NGOs also have powers to:

  • Bring a derivative action against a company's directors to ensure that the environment is fully considered.

  • Request action under the Environmental Damage (Prevention and Remediation) (England) Regulations 2015 (ED Regulations).

See Question 1, Public or administrative law.

 

Environmental permits

4. Is there an integrated permitting regime or are there separate environmental regimes for different types of emission? Can companies apply for a single environmental permit for all activities on a site or do they have to apply for separate permits?

Integrated/separate permitting regime

There is an integrated environmental permitting regime (EPR) which came into force on 6 April 2008. On that date it automatically converted the previous PPC regime permits and waste management licences into Environmental Permits (EP). On 6 April 2010, water discharge activities, groundwater discharge activities and radioactive substances registration and authorisation were also brought under the EPR and existing consents were automatically converted.

In 2013, the EPR was amended to implement Directive 2010/75/EU on industrial emissions (integrated pollution prevention and control) (Industrial Emissions Directive) (IED), which consolidated a number of earlier EU Directives and requirements. In 2015, the EP Amendment Regulations 2015 (SI 2015/918) amended the EPR, transposing requirements under the Energy Efficiency Directive 2012 (see Question 31).

The key activities regulated under the EPR are:

  • Activities or specified installations listed in Schedule 1 to the EPR (these cover a wide range of industrial and power generation activities and include installations covered by the Integrated Pollution Prevention and Control (IPPC) regime under the IED).

  • Waste operations.

  • Mobile plant (used to carry on either one of the Schedule 1 activities or a waste operation).

  • Mining waste operations.

  • Water discharge activities.

  • Radioactive substances activities.

  • Groundwater activity.

  • Small waste incineration plant.

  • Solvent emission activity.

  • Flood risk activity (included in the EPR from April 2016).

The activities are regulated to differing degrees. The more polluting industries (known as Part A (1) and Part A (2) installations), including some waste management operations such as landfills and large incinerators are regulated in terms of all their emissions and energy efficiency, while lesser-polluting activities (known as Part B installations) are regulated only in relation to their air emissions.

Single/separate permits

Important features of the EPR can be summarised as follows:

  • Regulated activities must operate pursuant to an environmental permit (EP).

  • A single EP can be issued for multiple installations on a single site, and some regulated activities may be "carried on as part of the operation of a regulated facility of another class", in some circumstances.

  • In addition to traditional bespoke permits, standard permits (with standard conditions) can be granted for a number of less-polluting waste activities and this may be extended to other sectors in the future.

  • Certain low level waste management operations are fully exempted from holding an EP, subject to complying with registration and notification obligations.

 
5. What is the framework for the integrated permitting regime?

The environmental permitting regime (EPR) establishes (see Question 4):

  • Facilities which need an environmental permit (EP), and those which can be registered as exempt.

  • The relevant processes including application, determination and appeals of EPs, public participation in the EP process, and amending or surrendering EPs, and how to register an exempt facility.

  • Requirements for EPs to contain conditions in accordance with EU Directives and national policy, to protect the environment.

  • Compliance obligations, backed up by enforcement powers and offences, and the powers and functions of regulators.

Schedules to the EPR identify a series of requirements to be delivered through the EP and are relevant for permitting each of the regulated activities listed above. Each EU Directive or policy area covered by the EPR has a specific schedule which establishes compliance requirements. Subject to these schedules, additional important requirements can be imposed, for example the Industrial Emissions Directive requires that some installations must be operated according to the best available techniques (BAT) balancing the costs to the operator and environmental benefits. The European Commission (Commission) has produced guidance notes on what constitutes the BAT for various industry sectors.

Generally under EPR, operators should be technically competent to operate their facility. However, for some waste operations (for example, large landfills and waste incinerators), as well as requiring technical competence, EPs will only be granted to fit and proper persons, and are unlikely to be granted to persons who have been convicted of an offence relating to the environment or to a person’s conduct as the operator of a waste facility.

Permits and regulator

Operators of installations, mobile plant and other activities subject to the EPR must hold an EP, issued by the relevant regulator.

EPs are generally regulated by the Environment Agency (EA) or Natural Resources Wales (NRW), although some less-polluting activities (such as Part A (2) and B installations) are regulated by the local authority (LA).

Length of permit

Permits are not time-limited but remain subject to review. The regulator must periodically review conditions of permits and ensure that they are being complied with.

The regulator can suspend a permit if operations involve a risk of serious pollution. In addition, a permit can be revoked in "appropriate circumstances". Each of these procedures are subject to appeal rights.

Restrictions on transfer

EPs can be transferred completely or partially. Transfer by joint notification to the regulator by the operator and proposed transferee can be effected for standalone water discharge or groundwater activity. In all other cases a joint application with the proposed new operator must be made.

The regulator must refuse the transfer if either:

  • It considers that the transferee will not be the operator of the activity or will not comply with the permit conditions. The primary consideration in transferring a permit is the proposed new operator's competence to operate the regulated facility.

  • In relation to waste activities, the fit and proper person test is not satisfied.

EPs can also be surrendered. EPs granted in relation to Part B installations (except to the extent it relates to a waste operation), mobile plant and standalone water discharge and groundwater discharge activities can be surrendered through notification to the relevant authority.

All other EPs (including Part A installation permits) can only be surrendered on application to the relevant authority. The EP can be surrendered if both:

  • The relevant authority is satisfied that the operator has taken appropriate steps to avoid any pollution risk from the activity.

  • The site has been returned to a satisfactory state (which can involve remediation of contamination caused by the activity while the permit was in place).

Penalties

The regulator can:

  • Serve enforcement or suspension notices on an operator for contravention of an EP.

  • Accept an enforcement undertaking where the EA has reasonable grounds to suspect an offence has been committed.

  • If there is a serious risk of pollution, specify steps that the operator must take.

  • Take enforcement action in the event of an accident or incident that significantly affects the environment at a Part A installation, waste incineration plant or plant carrying out a solvent emissions activity.

Operating without a permit, or failure to comply with the conditions of a permit or with the requirements of an enforcement notice or suspension notice, is a criminal offence punishable with:

  • On summary conviction: an unlimited fine and/or up to six months imprisonment. Offences committed prior to 12 March 2015 will only receive a fine not exceeding GB£50,000 and/or six months imprisonment.

  • On indictment: an unlimited fine and/or an imprisonment term not exceeding five years (two years for activities impacting upon flood risk).

If an offence results in pollution, the regulator can take steps to remedy the pollution and recover the costs from the operator. (See also Question 2.)

 

Water pollution

6. What is the regulatory regime for water pollution (whether part of an integrated regime or separate)?

Permits and regulator

Water discharge activities and groundwater discharge activities are permitted through the environmental permitting regime (EPR) (see Questions 4 and 5).

Prohibited activities

A water discharge activity covers a number of activities including discharge or entry into inland waters, freshwaters, coastal waters or territorial waters of any poisonous, noxious or polluting matter, waste matter, trade effluent or sewage effluent.

A groundwater discharge activity includes the discharge of a pollutant that results in the direct input, or can lead to the indirect input, of that pollutant into groundwater. Undertaking these activities without an environmental permit (EP) is prohibited.

Clean-up/compensation

The regulator can exercise the relevant powers and apply the available penalties, under the EPR (see Question 5, Penalties) or request action under the Environmental Damage (Prevention and Remediation) (England) Regulations 2015 (see Question 14, Investigation and clean up).

Penalties

It is an offence to cause or knowingly permit a water discharge activity or groundwater activity except under, and to the extent authorised by, an EP.

 

Air pollution

7. What is the regulatory regime for air pollution (whether part of an integrated regime or separate)?

Permits and regulator

The environmental permitting regime (EPR) regulates emissions into air for the most polluting installations (see Question 4, Integrated/separated planning regime).

Emissions of sulphur dioxide, nitrogen oxides and particulate matter from large combustion plants (over 50 megawatts) are subject to controls imposed by the EPR and EU Directives on the limitation of emissions of certain pollutants into the air from large combustion plants.

Certain energy and other industrial activities fall within the EU emissions trading scheme and require a greenhouse gas permit (see Question 10).

Prohibited activities

For non-EPR activities, it is an offence to emit "dark smoke" from industrial or trade premises (section 2, Clean Air Act 1993).

Penalties

An offence under section 2 is punishable on summary conviction with an unlimited fine. Offences committed prior to 12 March 2015 will only receive a fine not exceeding GB£20,000.

 

Climate change, renewable energy and energy efficiency

8. Are there any national targets or legal requirements for reducing greenhouse gas emissions, increasing the use of renewable energy (such as wind power) and/or increasing energy efficiency (for example in buildings and appliances)? Is there a national strategy on climate change, renewable energy and/or energy efficiency?

Emissions targets

The UK is subject to greenhouse gas (GHG) emissions reduction targets from several sources. It is subject to Kyoto Protocol targets (see Question 9).

Domestically, the Climate Change Act 2008 commits the UK to a 34% reduction in GHG emissions by 2020 and an 80% reduction in GHG emissions by 2050 (in each case as against 1990 levels) (sections 1 and 5, Climate Change Act 2008).

The government's Carbon Plan published in December 2011 sets out its strategy on reducing GHG emissions (and other climate change related actions).

In December 2008, the EU unilaterally committed to cut EU GHG emissions by at least 20% of 1990 levels by 2020. As part of the 2030 Climate and Energy Policy Framework, the European Commission and European Council have agreed a commitment to reduce GHG emissions by 40% of 1990 levels by 2030. Following the UK's vote in June 2016 to leave the EU, government statements have confirmed the UK's current commitment to its emission reduction targets.

Increasing renewable energy

Directive 2009/28/EC on the promotion of the use of energy from renewable sources (Renewable Energy Directive) requires renewable energy to form 20% of total EU energy consumption by 2020. The UK's contribution to the EU-wide target is 15% by 2020. In addition, the Renewable Energy Directive imposes an obligation on member states (including the UK) to ensure that at least 10% of overall transport fuel consumption comes from renewable sources (largely to be met by increasing the use of sustainable biofuels). Various UK regulations implement these requirements into domestic law. In the 2030 Climate and Energy Policy Framework, the European Commission and European Council have agreed to increase the 20% renewable energy requirement to 27% by 2030 (on a binding basis at EU level, but not binding against individual member states). This requirement will be reviewed in 2020 and may be increased to 30%.

There are no prescriptive requirements for the deployment of certain renewable technologies, instead there is a general policy aim to encourage development of renewable generation capacity. The Renewable Energy Roadmap (published in July 2011 and subsequent updates) sets out the pathway by which the renewable energy targets will be met and it describes the role that various technologies will play in meeting the 2020 targets.

There are various financial incentives to encourage the deployment of renewable energy generation. In particular, the government is pursuing a programme of electricity reform aimed at ensuring security of electricity supply and increasing renewable generation capacity. As part of this programme, a "carbon price floor" was implemented from 1 April 2013. Feed-in tariffs based on contracts for difference started operating in 2015 to incentivise electricity generation from low-emission sources through financial subsidies. An Emissions Performance Standard has also been introduced, limiting carbon emissions from new or altered fossil fuel generating plant of 50 MW or over to 450g/kWh.

Additional strategies on bioenergy and low carbon heat were published in April 2012. There are financial incentives to encourage the uptake of renewable heat both domestically and non-domestically.

Increasing energy efficiency

On 25 October 2012, the EU adopted the Directive 2012/27/EU on energy efficiency. This Directive establishes a common framework of measures for the promotion of energy efficiency within the EU. This is to ensure the EU achieves a 20% headline target on energy efficiency by 2020 and to lead the way for further energy efficiency improvements beyond that date. It lays down rules designed to remove barriers in the energy market and to overcome market failures that hinder efficiency in the supply and use of energy. In particular, the Directive provides for the establishment of indicative national energy efficiency targets for 2020 and a compulsory requirement for large companies to have energy audits every four years. Member states are required to bring into force the laws necessary to comply with the Directive by 25 June 2014 (Article 28(1)). Various measures have been introduced in the UK to implement this Directive.

In July 2014, the European Commission adopted an Energy Efficiency Communication proposing a 30% energy savings target by 2030.

There are no specific legally binding national targets for increasing energy efficiency of buildings. However, there are a number of policy measures designed to achieve this objective.

The government hopes that the following types of new building will be zero-carbon:

  • Non-domestic buildings from 2019.

  • Public sector buildings from 2018.

  • Schools from 2016.

These targets will be achieved partly through changes to legally binding building regulations, which are one of the principal methods of establishing energy efficiency standards for buildings. However the government recently scrapped its policy to make new homes zero carbon by 2016.

One of the major policy measures to increase the energy efficiency of existing buildings is the CRC Energy Efficiency Scheme (see Question 10, CRC energy efficiency scheme and Question 31, Reform). The government has set up the Energy Efficiency Deployment Office to develop its energy efficiency strategy, which was published in November 2012. Another mechanism put in place was the Green Deal which sought to enable homeowners and businesses to undertake energy efficiency works to their properties and spread the cost over a number of years. However, the future of the Green Deal has been in doubt since the Government's July 2015 announcement that it would no longer provide financial support for the Green Deal as it no longer believed the scheme offered good value for taxpayer money. The Government is now considering other options (see Question 31).

See Question 26 in relation to new energy auditing requirements.

 
9. Is your jurisdiction party to the United Nations Framework Convention on Climate Change (UNFCCC) and/or the Kyoto Protocol? How have the requirements under those international agreements been implemented?

Parties to UNFCCC/Kyoto Protocol

The EU and the UK are parties to the UNFCCC and the Kyoto Protocol.

The EU's reduction target under the Kyoto Protocol was to reduce its greenhouse gas (GHG) emissions by 8% from 1990 levels in the period 2008 to 2012 (the first commitment period). The EU's target was redistributed among member states, and the UK agreed to a 12.5% reduction for the first commitment period.

A second commitment period has now been agreed until 2020, with parties setting their own reduction objectives. The overall objective is to reduce GHG emissions by 18% below 1990 levels in the period 2013 to 2020 (the original objective was a 5% reduction below 1990 levels in the first commitment period). The EU member states and Iceland have committed to this target on a joint basis (and to a 20% reduction in the second commitment period, and the EU has pledged to strengthen its commitment to a 30% reduction if a strong international agreement is reached).

By signing the Paris Climate Change Agreement in December 2015, parties such as the UK and EU committed to limiting the increase in global temperature to 2 degrees Celsius and to pursue efforts to limit temperature increases to 1.5 degrees Celsius. The EU expects its 2030 Climate and Energy Policy Framework to form the key mechanisms to implement its post-2020 commitments under the Paris Agreement. If the UK leaves the EU, it will need to decide what additional legal measures are necessary to implement its own commitments under the Paris Agreement.

Implementation

The EU Emissions Trading System (EU ETS) has been implemented at the EU level to reduce emissions, and there have also been domestic measures implemented in the UK. See Question 10.

 
10. What, if any, emissions/carbon trading schemes operate in your jurisdiction?

EU Emissions Trading System (EU ETS) overview

As an EU member state, the UK is covered by the EU Emissions Trading System (EU ETS):

  • Phase I ran from 2005 to 31 December 2007.

  • Phase II ran from 1 January 2008 to 31 December 2012.

  • Phase III started on 1 January 2013 and will run to 31 December 2020 (see below, Phase III).

  • Phase IV will begin in 2021.

The EU ETS applies to specified heavy industrial activities and establishes a mandatory cap and trade system. The operators of installations covered by the EU ETS must surrender EU allowances (or other credits) at the end of each compliance period to match their greenhouse gas (GHG) emissions. Failure to comply will result in a penalty. Each EU allowance represents the emission of one tonne of carbon dioxide equivalent.

Following allocation and auctioning, EU allowances are subsequently traded in an online registry enabling participants to purchase additional EU allowances to meet their obligations. To obtain and surrender EU allowances, a participant must have an account in an online registry.

Participants can also obtain credits (that can be traded in the EU ETS) by investing in:

  • Projects to reduce emissions in industrialised countries and certain countries in economic transition (known as joint implementation (JI) under the Kyoto Protocol).

  • Projects to reduce emissions in developing countries (known as the clean development mechanism (CDM) under the Kyoto Protocol).

Operators can surrender these credits as well as EU allowances to comply with their obligations under the EU ETS.

In the UK, in addition to surrendering EU allowances (or other credits) to match their emissions, operators of installations covered by the EU ETS must also obtain a GHG permit from the Environment Agency.

Aviation

From 1 January 2012, the EU ETS covers any aircraft operator, whether EU- or foreign-based, operating international flights on routes to, from or between EU airports. There are certain exemptions, including for light aircraft, military flights, flights for government business and test flights. Various complaints were made by non-EU countries at the inclusion of flights to or from destinations outside the EU into the EU ETS. The EU ETS has excluded such flights since 2012, pending discussions at international level over the future position of international aviation in the EU ETS.

Large combustion plants (LCPs)

To comply with Directive 2001/80/EC on the limitation of emissions of certain pollutants into the air from large combustion plants (LCP Directive), pre-1987 LCPs (including many power stations) can choose to either:

  • Adopt the emission limit values route (regulating newer LCPs).

  • Be governed by a National Emissions Reduction Plan (NERP), which is backed up by an emissions trading scheme (allowing trading of emission allowances for substances with other NERP operators).

  • Annex V of the Industrial Emissions Directive (IED) came into force on 1 January 2016 repealing the previous emissions limit values (ELVs) for LCPs under the LCP Directive. The IED ELVs are considered to be much more stringent. However, the IED does allow member states to draw up transitional national plans (TNPs) to allow operators enough time to comply with the IED's reduced ELVs. The TNP's ELVs will initially be capped at or above LCP Directive levels and will become gradually stricter to build up to compliance.

CRC energy efficiency scheme

This is a regulatory trading scheme, which aims to reduce:

  • Participating companies' energy consumption.

  • Associated carbon dioxide (CO2) emissions.

The scheme is estimated to cover between 4,000 and 5,000 businesses including, for example, property investment companies, professional service firms, banks, retailers and office-based corporations. The participants must buy allowances from the government representing the carbon dioxide emitted in producing the energy they consume in each compliance year (running from April to March).

An introductory phase of the scheme ran from April 2010 to April 2014 with fixed prices for allowances and an unlimited number of allowances. Recent revisions to the operation of the scheme from April 2014 provide for successive five-year phases with a final four-year phase ending in 2043. From April 2014, there are sales of allowances at differential prices which are intended to encourage energy forecasting, reduction of consumption and trading of allowances. The Government has announced that the scheme will close in April 2019 (see Question 32).

 

Environmental impact assessments

11. Are there any requirements to carry out environmental impact assessments (EIAs) for certain types of projects?

Scope

An environmental statement (ES) must be submitted with an application for planning permission or development consent for certain developments that require an EIA under the Environmental Impact Assessment Regulations (2011 in England or 2016 in Wales) as set out in:

  • Schedule 1: developments most likely to have a major environmental impact (for example, crude oil refineries, power stations and motorways) must be subject to EIA.

  • Schedule 2: other projects (including, for example, infrastructure) are only subject to EIA if they are likely to have a significant effect on the environment due to factors such as their nature, size or location.

There is an EIA regime specifically for offshore activities. Other permits may be required depending on the type of project, for example, an EP (see Question 5) and Building Regulation approval.

If a development project is likely to have a significant effect on a European protected site (under Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora (Habitats Directive) or Directive 2009/147/EC on the conservation of wild birds (Birds Directive)), an assessment of the conservation implications must also be carried out by the Secretary of State.

Permits and regulator

The authority determining the application is generally the local authority or the Secretary of State depending on the significance of the development. The authority must consider the ES in determining whether planning permission should be granted. However, it is not obliged to refuse to approve it, even if the effects are adverse (subject to certain limitations in relation to European protected sites).

The relevant authority can require an updated ES when considering an application related to a project that it has previously permitted and where, for example, the original ES is out of date.

Penalties

If a relevant authority grants planning permission or development consent and the ES was not properly considered, the permission or consent risks being legally challenged.

 

Waste

12. What is the regulatory regime for waste?

Waste management activities are regulated under the environmental permitting regime (EPR) (see Questions 4 and 5). The regulator is always the Environment Agency (EA) or Natural Resources Wales (NRW), even when the waste operation is a Part A(2) or Part B installation.

Permits and regulator

The EA or NRW can impose conditions on environmental permits (EPs) involving waste activities relating to the operation and management of the relevant site and its restoration at the end of operations. Large landfills, waste incinerators and waste recovery installations are regulated by the IPPC part of the EPR (see Question 5). However, a duty of care and fit and proper person test still applies (see below, Prohibited activities and Operator criteria).

Prohibited activities

All persons involved in activities involving waste are under a duty of care in relation to the waste. It is an offence to:

  • Treat, keep or dispose of waste either:

    • without an EP;

    • in a manner likely to cause pollution of the environment or harm to human health.

  • Fail to comply with conditions of an EP.

  • Otherwise breach the duty of care.

Operator criteria

The permit holder must both:

  • Be the operator.

  • Show that it is a fit and proper person. This involves consideration of the applicant's:

    • criminal record;

    • technical competence;

    • financial resources to comply with the conditions of an EP.

The EA can require financial provision, such as a guarantee or insurance, to ensure that responsibilities under an EP can be met.

Special rules for certain waste

A separate regime for control of wastes classified as hazardous is set out under the Hazardous Waste (England and Wales) Regulations 2005 and Hazardous Waste (Wales) Regulations 2005 (HWR).

In Wales, hazardous waste cannot generally be removed from premises unless the location of the premises is notified to the NRW except where the premises are exempt (requirement no longer applies in England since 1 April 2016). There are requirements on all parties involved in the production, transportation and receipt of hazardous waste to complete consignment notes. Recipients of hazardous waste must:

  • Provide the EA/NRW with quarterly returns and list consignments received.

  • Record the location of the deposited waste.

Unless specifically permitted, hazardous waste cannot be mixed with:

  • Other hazardous waste.

  • Non-hazardous waste.

  • Any other materials.

Hazardous waste must also be properly packaged and labelled.

Failure to comply with the HWR is an offence, subject to fines and/or imprisonment.

Producer responsibility regimes

Various European Directives have provided for specific regimes to deal with waste packaging, end-of-life vehicles, waste electrical and electronic equipment and waste batteries and accumulators. The directives have been implemented into UK law and provide various obligations including take-back, recovery and recycling of the relevant products when they are disposed of.

Penalties

Most offences under the waste regime are punishable by fine and/or imprisonment. The levels depend on the actual offence and its seriousness. The regulator can also recover the costs of clearing the waste from the offender. (See also Question 2).

 

Asbestos

13. What is the regulatory regime for asbestos?

The main instrument regulating asbestos is the Control of Asbestos Regulations 2012 (CAR).

Prohibited activities

With some minor exceptions for asbestos already in premises, the use of asbestos or asbestos-containing materials in building structures is prohibited.

Main obligations

The dutyholder must manage any asbestos present in "non-domestic" buildings. The dutyholder is the owner, occupier and parties with control or with contractual responsibility for maintaining non-domestic premises and the common parts of certain other buildings. If there is more than one dutyholder, their requirements to manage are determined by the nature and extent of their maintenance and repair obligations.

The duty to manage asbestos in premises includes:

  • Taking reasonable steps to determine and record the location and conditions of asbestos-containing materials (ACMs), and updating the records.

  • Presuming that all materials contain asbestos unless there is strong evidence that they do not.

  • Assessing the risk of exposure to ACMs.

  • Taking necessary steps to manage risks. Licensed contractors must be used for these purposes.

  • Providing information on the location and condition of ACMs to anyone potentially at risk of exposure from asbestos.

Other obligations where employees work with ACMs, or might otherwise be exposed to asbestos include:

  • Risk assessment.

  • Providing adequate training.

  • Notifying works to the Health and Safety Executive (HSE).

  • Compliance with exposure limits.

  • Monitoring exposure of employees to asbestos.

Waste containing asbestos should be disposed of according to the Hazardous Waste Regulations (HWR) (see Question 11).

An industry guide to dealing with contamination through asbestos in soil and made ground was published in March 2014.

Permits and regulator

Those who assess premises for issue of a site clearance certificate for re-occupation must be accredited by an appropriate body.

Penalties

Failure to comply with the duty to manage is punishable by:

  • On summary conviction, an unlimited fine and/or imprisonment for a term not exceeding six months. Offences committed before 12 March 2015 will only receive a fine not exceeding GB£20,000 and/or up to six months imprisonment.

  • On indictment, an unlimited fine and/or imprisonment for a term not exceeding two years.

 

Contaminated land

14. What is the regulatory regime for contaminated land?

Regulator and legislation

There is an overlap of legislation related to the clean-up of contaminated land between the Environmental Protection Act 1990 and the Environmental Damage (Prevention and Remediation) (England) Regulations 2015 (ED Regulations).

Part IIA of the Environmental Protection Act 1990 aims to ensure that contaminated land identified and remediate where it poses unacceptable levels of risk. It is not an offence under the Part IIA regime to pollute or contaminate land.

The ED Regulations relate to the prevention and remediation of environmental damage, being damage to species, habitats, sites of special scientific interest, surface water or groundwater, and land. The ED Regulations only apply to the most serious cases of environmental damage. The ED Regulations were extended to cover marine waters from 19 July 2015, through the implementation of the Offshore Safety Directive 2013 (2013/30/EU).

The principal enforcement authority is the relevant local authority (LA). However, certain types of sites or offences are regulated by the Environment Agency (EA)/Natural Resources Wales (NRW). In addition, Natural England (which is an executive non-departmental public body responsible to the Secretary of State for Environment, Food and Rural Affairs) also has enforcement powers. In English marine waters, the enforcement authority is allocated to the EA, Marine Management Organisation and the Secretary of State. The enforcing authority responsible for dealing with environmental damage to Welsh marine waters is the Welsh Government.

Investigation and clean-up

Under the Part IIA regime, contaminated land is land that is in such a condition that significant harm is being caused, or there is a significant possibility of such harm being caused to the environment (including human health). Harm is assessed by reference to the land's current use. The mere presence of contaminants on a site does not necessarily mean that it is contaminated land.

Land also qualifies as contaminated if contaminants present on the land are causing or are likely to cause significant water pollution or the significant possibility of such pollution.

LAs must inspect their areas to identify any contaminated land. LAs and the EA/NRW must keep public registers of contaminated land. If an LA or the EA/NRW identifies any contaminated land, it must serve a remediation notice on the appropriate persons requiring them to remediate the contamination, unless those persons are willing to carry out the remediation voluntarily.

Under the ED Regulations, an operator must take all practicable steps to prevent environmental damage if that operator causes an imminent threat of damage. If environmental damage has already occurred, the operator must take all practicable steps to prevent further damage. If the regulator considers that environmental damage has occurred, it can serve a remediation notice on the responsible operator setting out the measures that must be taken.

For damage to sites of special scientific interest (SSSIs), EU species and habitats, and water, steps required to be taken can include:

  • Remediation of the resource.

  • Other measures which recognise that actual remediation of the resource is not possible or that compensation should be made to account for temporary loss of a resource, complementary remediation and/or compensatory remediation.

For land contamination, remediation requires the removal or control of contaminants so that risks are reduced to below an unacceptable level, and/or to take reasonable measures to remedy harm or pollution that has been caused by a significant contaminant linkage.

If a planning application is made to develop a site with contaminated land, planning authorities can impose conditions in the planning permission requiring remediation to be carried out before the development starts. This is how most contaminated sites are dealt with.

Statutory Guidance for England on dealing with contaminated land and radioactive contaminated land was published by the Department for Environment, Food and Rural Affairs (DEFRA) in 2012. Statutory Guidance was published by the Welsh Government in the same year in relation to contaminated land in Wales.

Penalties

Failure to comply with a remediation notice without a reasonable excuse is a criminal offence punishable by a fine. The regulator can carry out the remediation itself and recover the costs from the relevant parties. (See also Question 2.)

 
15. Who is liable for the clean-up of contaminated land? Can this be excluded?

Part IIA regime

Liable party. Under the Part IIA regime, liability for the remediation of contaminated land rests, initially, with those who caused or knowingly permitted the contamination (known as the Class A liability group). To qualify as a knowing permitter, a person must both:

  • Be aware of the presence of the contamination.

  • Have the ability to prevent or remove it.

Remediation can be required for contamination that existed before the regime came into force.

Owner/occupier liability. If neither of the above persons can be found, liability passes to the Class B liability group (that is, owners and/or occupiers of the land regardless of whether they were responsible for the contamination or aware of its existence).

Previous owner/occupier liability. Unless one of the various exclusions applies, previous owners or occupiers who caused contamination remain liable after the sale of the land. However, an owner/occupier who is not a polluter will no longer be liable when they cease ownership or occupation of the site.

Limitation of liability. There are complex rules on the exclusion and allocation of liability. Exclusion of liability cannot be applied if the rules result in no members of the liability group being liable. However, if the relevant parties agreed on allocation of liability between themselves (for example, if, as part of a property sale, the seller agrees to indemnify the buyer in relation to contamination), the local authority (LA) or Environment Agency (EA)/Natural Resources Wales (NRW) should generally give effect to that agreement.

ED Regulations

Under the Environmental Damage (Prevention and Remediation) (England) Regulations 2015 (ED Regulations), only the responsible operator (that is, the person whose activity caused the environmental damage) can be liable. Remediation can only be required in relation to damage occurring after 1 March 2009 (or 19 July 2015 in relation to marine waters). The ED Regulations only apply to operators of economic activities.

 
16. Can a lender incur liability for contaminated land and is it common for a lender to incur liability? What steps do lenders commonly take to minimise liability?

Lender liability

It is unusual for lenders to incur liability because they usually have little ability to prevent contamination. However, a lender may have primary liability under the contaminated land regime if it:

  • Can exercise commercial or contractual pressure over a company.

  • Has control of the land in question.

  • Is involved in activities causing contamination.

If a lender enforces its security and takes possession of property, it may also have liability to remediate under the contaminated land regime as an owner or a knowing permitter (see Question 14, Part IIA regime).

Minimising liability

Lenders can minimise liability by not seeking control over borrowers for environmental issues. However, there are several indirect risks to which lenders may be exposed. For example, borrowers may be unable to meet their loan repayments because they have incurred significant liabilities or losses as a result of environmental problems at the property. Any contamination may also adversely affect the value of the land over which the lender has taken security.

If a lender appoints a receiver when a borrower defaults, the receiver may incur environmental liabilities. A lender is often required to give the receiver an indemnity against these liabilities.

 
17. Can an individual bring legal action against a polluter, owner or occupier?

An individual landowner may have a civil claim for nuisance against neighbouring landowners who have caused contamination where the contamination has migrated onto the individual's land. In order for liability to arise, the neighbouring landowner must have made some non-natural use of its land (for example, industrial use), and the harm caused must have been foreseeable.

 

Hydraulic fracturing

18. Is fracking being pursued or considered in your jurisdiction? If so, please describe the regulatory framework that applies to manage environmental risks.

Considerable reserves of shale gas have been identified in various parts of the UK. A number of companies are currently carrying out or planning exploratory operations to identify the extent of recoverable reserves, but shale gas is not yet being extracted on a commercial basis.

Consenting and environmental impact assessment

The environmental regulatory framework for shale gas exploration and exploitation is largely the same as that applying to other onshore oil and gas extraction. A number of different consents are required from different authorities, each of which deals with specific (but sometimes overlapping) issues and risks.

UK consents and controls. Consents are required for each stage of the shale exploration and exploitation process, from initial explorations, through appraisal and later production phases which may include hydraulic fracturing. The key consents/notifications for the initial exploration phase are as follows:

  • Petroleum exploration and development licence (PEDL). This must be obtained from the Department of Energy and Climate Change (DECC) under the Petroleum Act 1998. PEDLs are made for a fixed term and grant exclusive rights for exploration and production of petroleum within a particular area. Applicants must show technical competence, awareness of environmental issues and financial capacity. PEDLs are granted through competitive licensing rounds which take place every few years. The 14th onshore licensing round took place in 2014/15. DECC requires operators to carry out an environmental risk assessment which considers issues such as:

    • disposal of waste;

    • well abandonment; and

    • risks of induced seismicity.

    Drilling/fracking consent is also required from DECC in relation to specific wells. This will require submission of a hydraulic fracturing plan which addresses, in particular, the risk of seismic activity assessment and the satisfaction of a number of other pre-conditions. Consent can only be given for fracking at a depth of 1000 metres or more where certain environmental conditions are satisfied, and in certain sensitive areas, no fracking is allowed at a depth of less than 1200 metres.

  • Planning permission. This must be obtained from the relevant minerals planning authority (under the Town and Country Planning Act 1990). In deciding whether to grant or refuse permission, the authority will consider a multitude of issues relating to the use of the land including, for example:

    • noise and disturbance;

    • impacts on air quality; and

    • landscape, habitats and flood risk.

    The authority will also take into account local and national planning policy. Environmental impact assessments (EIAs) are likely to be required as part of the planning process (see below), and the results of these will also be considered in taking the decision.

    Limited drilling for certain preliminary purposes, including seismic and groundwater monitoring does not require specific planning permission to be obtained in England.

  • Environmental permit. This must be obtained from the Environment Agency (EA) (see Question 5). This will be required to regulate a number of activities associated with drilling and hydraulic fracturing including, for example:

    • the introduction of fracking fluids;

    • dealing with waste arisings;

    • flaring of gases; and

    • discharges of water.

  • Well notification. This must be made to the Health and Safety Executive (HSE) under the Borehole Sites and Operations Regulations 1995. This notification relates to well design and operations and gives the Health and Safety Executive (HSE) an opportunity to review the safety of proposed drilling and abandonment activities.

  • Abstraction licence. This must be obtained from the EA where water is to be abstracted from surface waters or groundwater in amounts of over 20 m3 per day (under the Water Resources Act 1991).

  • Coal authority consent. This must be obtained in relation to any interference with coal seams.

Additional consents are required for the exploitation phase. In addition to the above licences, operators must obtain Field Development Consent, and consent for any flaring or venting, in each case from DECC.

EIAs. The operator must carry out an EIA if more than 500 tonnes of oil or 500,000 m3 of gas will be extracted per day. For cases below these levels (likely to include exploratory wells), EIAs are only necessary if the activities are likely to have significant environmental effects. In practice, operators are likely to carry out EIA even for exploratory operations in order to avoid legal challenge from objectors. In appropriate cases a conservation assessment under the EU Habitats or Birds Directives will be required. For further information on EIA and conservation assessment, see Question 11.

Other issues

There has been significant opposition to hydraulic fracturing in the UK following experiences in the US. Concern was heightened by seismic tremors recorded during hydraulic fracturing activities in England in 2011, following which the UK government placed a moratorium on fracking. In addition, press stories have depicted rural life disrupted by 24-hour operations and lorry movements, with injected chemicals affecting water supplies. Public resistance has turned to protest in some cases. For example, in Balcombe in Sussex, a high profile campaign to stop initial exploratory works (not even involving hydraulic fracturing) resulted in arrests (including of a Green Party MP). The onshore oil and gas industry has sought to reduce opposition to shale gas development by committing to a Community Engagement Charter which:

  • Provides for open consultation with the community and ensuring transparency of operations which would, for example, entail disclosure of the chemical content of fracturing fluids to be injected into wells.

  • Agrees to provide community benefit payments on the following basis:

    • GB£100,000 per well site where hydraulic fracturing occurs; and

    • At production stage: providing a share of proceeds amounting to 1% of revenues (two thirds of the proceeds going to the local community and one third going to the county).

In September 2014, Ineos took a share in an onshore oil and gas block in Scotland and confirmed that it will go significantly further, providing 6% of production revenues to landowners and communities (divided 4% and 2% respectively).

In August 2016, the government announced the proposed creation of a shale gas wealth fund aimed at distributing 10% of tax revenues from shale gas exploitation to communities hosting shale gas sites. Part of this money can be paid directly to individual households.

Operators will also need to acquire rights from landowners for both:

  • Above-ground access to facilities and drill sites.

  • The rights to drill vertical and horizontal wells under their land.

Given the potential difficulty of securing appropriate rights and the fact that a multitude of landowners could be involved, sections 43 to 48 of the Infrastructure Act 2015 were enacted to grant underground rights of access to gas , oil and geothermal developers below 300 metres. The government has proposed that operators using these rights make a voluntary payment of GB£20,000 per lateral well to local community body in addition to the payment under the Community Engagement Charter. The government expects to make this payment mandatory if developers do not abide by it. Operators can also seek to acquire land rights compulsorily under the Petroleum Act 1998 or Mines (Working Facilities and Support) Act 1966, but the process involved is challenging.

Various bodies have investigated the risks associated with hydraulic fracturing and a consensus view appears to be emerging that shale gas risks can be successfully managed provided best practice is employed by industry. However, where the risks are not adequately mitigated, developers are exposed to a range of potential liabilities towards different parties. In addition to liability under the relevant permitting regimes, developers may face both:

  • Clean-up costs under Part IIA of the Environmental Protection Act 1990 or the Environmental Damage Regulations (for contaminated land and waters).

  • Potential tort claims if neighbours or members of the public are affected. For example, damages claims may come from:

    • neighbouring landowners in relation to migration of contaminants;

    • water companies or others relying on water abstractions relating to contamination of water supplies;

    • owners or operators of infrastructure affected by fracturing operations.

 

Environmental liability and asset/share transfers

19. In what circumstances can a buyer inherit pre-acquisition environmental liability in an asset sale/the sale of a company (share sale)?

Asset sale

When acquiring assets, any pre-acquisition liabilities associated with the assets generally remain with the seller.

A buyer risks:

  • Incurring liability under the contaminated land regime as either:

  • A civil claim if the contamination migrates onto nearby land (see Question 17).

When the buyer is proposing to buy a business it also needs to consider whether:

  • The business has all the necessary environmental permits to operate.

  • The permits currently held by the seller are transferable to the buyer.

  • The seller has complied with all applicable environmental laws.

While the buyer is not liable for pre-acquisition breaches of law or permits, it needs to know if there are any issues it must address to continue the business lawfully after the sale (for example, any necessary upgrades to plant or equipment).

Liabilities in asset acquisitions are often structured in the same way as in a share acquisition, so a buyer may agree contractually to assume the seller's pre-acquisition liabilities.

Share sale

In principle, when acquiring a company's shares, the buyer also acquires any liabilities incurred by the target, as liabilities remain with the target after the sale.

This is the case whether the liabilities:

  • Exist before the acquisition.

  • Arise after the acquisition but relate to acts, omissions or circumstances before the acquisition.

A buyer is concerned primarily about the risk of the target bringing with it liability for:

  • The target's compliance with environmental laws and permits.

  • Contamination on the target's current properties and on any properties it formerly owned, used or occupied.

 
20. In what circumstances can a seller retain environmental liability after an asset sale/a share sale?

Asset sale

A seller generally remains liable for any pre-disposal liabilities relating to a breach of environmental law or an environmental permit. This includes any contamination caused, or knowingly permitted, by the seller before the asset disposal. However, a buyer can agree to assume these liabilities contractually.

In addition, if certain criteria are met in the context of a sale of contaminated land, the seller can claim that the land was "sold with information" and seek to qualify for a liability exclusion test, found in statutory guidance to the Part IIA regime (see Questions 14 and 15).

Share sale

Liabilities incurred by the target before the sale (or after the sale but relating to acts or omissions occurring before the sale) remain with the target (see Question 18, Share sale). Therefore, the seller should not be at risk of retaining any environmental liabilities after the sale. There is a small risk that the seller could incur liabilities after acquisition if the seller, during its ownership of the target's shares, had sufficiently direct involvement in the target's activities that the corporate veil can be lifted, exposing the seller to potential liability as a shareholder.

 
21. Does a seller have to disclose environmental information to the buyer in an asset sale/a share sale?

Asset sale

A seller of assets or shares is generally not required by law to disclose environmental issues to a buyer, and the principle of "buyer beware" applies. However, a seller can be liable to the buyer if it makes a misrepresentation or misleads the buyer through its conduct.

A buyer generally requires a seller to give environmental warranties concerning the environmental condition of the business and its assets, to encourage the seller to disclose environmental information. Unless the seller makes a full disclosure of all relevant environmental information to the buyer, the seller is potentially liable to pay damages to the buyer if the warranties prove to be incorrect and the buyer suffers loss.

Share sale

See above, Asset sale.

More information is generally disclosed in a share sale, as the environmental warranties may be more extensive and the liabilities move with the target.

 
22. Is environmental due diligence common in an asset sale/a share sale?

It is common for environmental due diligence to be undertaken in commercial transactions. However, its extent or scope depends on the:

  • Nature of the target's activities or the business or asset to be acquired.

  • The parties' attitudes to and understanding of environmental risk and any time constraints for the transaction meaning that extensive investigations are not possible.

  • Nature of the sale (for example, whether the seller has produced a seller's due diligence pack and/or if the sale is being run as a competitive auction).

Scope

The areas usually covered by environmental due diligence include any:

  • Fines, penalties, lawsuits, claims, notifications or complaints made or threatened (either on behalf of, or against, the target).

  • Circumstances existing that may give rise to a breach of environmental law in future.

  • Historic environmental reports, surveys or audits (including those relating to the presence of asbestos).

  • Spills, leakages or emissions of any hazardous substances.

  • Environmental permits or consents required to operate the business or occupy a site.

  • Environmental obligations contained in environmental agreements, such as remediation obligations or indemnities.

Due diligence on carbon emissions and other climate change-related issues (such as energy use and sustainability), and compliance with regulations such as the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, REACH (registration, evaluation, authorisation and restriction of chemicals) and the Waste Electrical and Electronic Equipment Directive (WEEE Directive), is increasingly being undertaken.

Types of assessment

Environmental due diligence can take the following form:

  • Pre-contract enquiries of the seller and reviewing information contained in a data room.

  • A desktop environmental assessment (see Question 23).

  • Appointing environmental consultants to carry out interviews with management and in particular with those responsible for environmental management (occasionally this may also be undertaken by means of a questionnaire set by the consultant).

  • Detailed environmental assessments, including compliance reviews and potential soil and groundwater investigations.

Environmental consultants

Sometimes sellers commission their own environmental reports in advance of the transaction and provide the buyer with copies of these, often to discourage buyers from insisting on warranties or indemnities. In these circumstances buyers generally seek a letter of reliance or a collateral warranty from the seller's environmental consultants so that the buyer can rely on the reports. However, buyers often engage their own environmental consultants to assist in identifying material environmental risks, among other reasons, because the scope of the seller's consultant is unlikely to meet all of the buyer's requirements.

When engaging environmental consultants, negotiating their terms of appointment usually focuses on the:

  • Scope of the review.

  • Financial and time limits of the consultant's liability.

  • Extent of their professional indemnity insurance cover.

  • Ability to pass on contractual rights to financiers or future purchasers.

 
23. Are environmental warranties and indemnities usually given and what issues do they usually cover in an asset sale/a share sale?

Whether or not sellers provide environmental warranties and/or indemnities to buyers in commercial transactions depends on a number of factors, such as:

  • The nature of the target's business and the likelihood of significant environmental impacts.

  • Whether significant environmental issues have been identified during due diligence.

  • The parties' attitudes to the allocation of environmental risk.

  • Whether it is a competitive auction or a private sale.

  • The bargaining strength of each party.

Asset sale

A seller usually gives the following types of environmental warranties in an asset sale:

  • The business has obtained all environmental permits necessary to operate on the date on which the business is sold.

  • The business has complied with applicable environmental laws and permits.

  • The business is not the subject of any environmental proceedings, claims, investigations or complaints.

  • There is no contamination or pollution present on any of the business' assets or properties.

  • All environmental reports relating to the business or the properties have been disclosed.

Sellers usually seek to limit as many warranties as possible by reference to seller awareness and materiality.

If the seller agrees to give an environmental indemnity, it is usually limited to liabilities associated with any contamination present on the target's properties before the sale and generally to specific issues identified during the due diligence process. The indemnity usually covers costs incurred as a result of regulatory action and third party civil claims and may also cover the costs of voluntary clean-up.

Share sale

Similar warranties and indemnities are usually agreed in a share sale. As the target being transferred retains all liabilities and potential liabilities relating to historic operations of the business, additional warranties and indemnities may be obtained.

 
24. Are there usually limits on environmental warranties and indemnities?

Environmental warranties are nearly always limited by time and subject to a financial cap. These are subject to negotiation but are often similar to the position on other warranties. The cap often includes all warranty claims and is linked to a percentage of the purchase price. Time limits and caps for environmental indemnities vary according to the scope of the indemnity and the environmental losses it is intended to cover.

An environmental indemnity is usually also subject to trigger events that must occur before a buyer can make a claim. Limitations on liability due to events after completion are usually included.

 

Reporting and auditing

25. Do regulators keep public registers of environmental information? What is the procedure for a third party to search those registers?

Public registers

The Environment Agency (EA)/Natural Resources Wales (NRW) and local authorities (LAs) must keep public registers of environmental information (that is, details of permits issued under the environmental permitting regime (EPR) and of contaminated land). These registers are available for inspection by any member of the public.

Some companies specialise in investigating these registers, as well as other publicly available information, such as historical maps. These investigations are called desktop assessments and are relatively inexpensive. If potential concerns are revealed, more detailed environmental assessments can be undertaken, which contain a more thorough analysis of the potential for liabilities to arise.

Third party procedures

The public can request environmental information from public authorities and bodies carrying out a public function (such as utility companies), subject to various exceptions, including commercial confidentiality (Environmental Information Regulations 2004). As a result, LAs are under increasing pressure to make environmental information available whether or not contained on formal registers.

 
26. Do companies have to carry out environmental auditing? Do companies have to report information to the regulators about environmental performance?

Environmental auditing

In general, environmental auditing is not compulsory. However, many companies carry out an environmental audit (either internally or through external consultants), to satisfy demands of shareholders, customers and other stakeholders.

The Energy Savings Opportunity Scheme Regulations 2014 require large companies (with over 250 employees or with annual turnover and balance sheet over EUR50 million and EUR43 million respectively) to arrange an assessment and audit of their group energy use, broadly once every four years.

Reporting requirements

Environmental permits frequently contain a reporting condition in relation to air emissions, discharges to water and other operational matters. A number of regulatory regimes include reporting requirements on companies. For example, details of energy use must be reported by those companies that are obligated under the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme.

 
27. Do companies have to report information to the regulators and the public about environmental incidents (such as water pollution and soil contamination)?

Operators must (sections 13, 14 and 32, ED Regulations):

  • Notify the relevant regulator of imminent threats of environmental damage.

  • Notify the relevant regulator of an activity that has caused environmental damage.

  • Provide information to regulators on request, to enable them to perform their duties.

In addition, there is an obligation to notify dangerous incidents. The Health Executive (HSE) must be notified of an incident if it caused, or could have caused, death, major injury or disease (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (2013)) (RIDDOR).

Early reporting and full co-operation with the relevant authorities may result in a lower enforcement response.

Reporting on environmental matters can also be required under contractual relationships or be necessary in the light of increasing trends for corporate social responsibility.

 
28. What powers do environmental regulators have to access a company?

The Environment Agency (EA) has wide powers to carry out investigations, including the power to:

  • Require information to be provided.

  • Gain access to premises.

  • Obtain samples.

  • Interview site employees.

  • Carry out works in an emergency.

However, these powers are subject to certain restrictions. For example, the EA/Natural Resources Wales (NRW) must notify the operator in advance before it can exercise its powers of entry to an operator's site.

Information provided to the EA/NRW under compulsion cannot generally be used to prosecute any offence.

 
29. What obligations are there on companies to report on environmental issues in their annual corporate reports?

Companies (except some small companies) must prepare a strategic report, which is separate from their directors' report (under section 414C of the Companies Act 2006). The strategic report must contain information on environmental matters that are relevant factors in the development, performance or position of the company's business. Quoted companies are specifically directed to include relevant information about the impact of the company's business on the environment, about the company's employees, and social, community and human rights issues.

Quoted companies have obligations to include in their directors' report (or explain why it is not reasonable to do so) details of greenhouse gas emissions from combustion of fuels, or operation of facilities and from energy purchased for use by the company.

The UK government has consulted on options to reform this framework to implement the EU Non-Financial Reporting Directive 2014/95/EU into UK law but no firm decision on the way forward has yet been published.

 

Environmental insurance

30. What types of insurance cover are available for environmental damage or liability and what risks are usually covered? How easy is it to obtain environmental insurance and is it common in practice?

Types of insurance and risk

General public liability policies usually provide minimal cover for liabilities arising from environmental harm, except for sudden, unintended and accidental damage. Therefore, companies are increasingly applying for specialist environmental insurance to cover both known and unknown contamination and other operational environmental liabilities.

The main types of cover currently available include:

  • Pollution liability insurance (PLI). PLI can protect against losses associated with known and unknown pollution including historic contamination. It usually covers claims by third parties for property damage (on-site and off-site) and clean-up costs where clean-up is required by environmental authorities. Cover for operational pollution risks (such as discharges) and investigation costs is also possible. Policies can be extended to cover risks under warranties and indemnities in transactions (see Question 22). There has been increased interest in this type of insurance, partly due to the Bartoline Ltd v Royal & Sun Alliance Insurance plc and another [2007] All ER (D) 59 case (Bartoline), where the courts ruled that the remediation costs incurred by the regulator and claimed from a policyholder were not damages for the purposes of the policyholder's general public liability insurance and were therefore not recoverable from the insurer. Cover can also be provided for liability under the Environmental Damage Regulations (see Question 14).

  • Remediation cost cap insurance (RCCI). RCCI can be obtained to cover cost overruns in carrying out remediation of contamination.

  • Contractors' pollution liability insurance (CPLI). CPLI can be taken out to cover the risk of pollution being caused during construction or remediation projects.

  • Professional indemnity insurance (PII). PII is often taken out by environmental professionals when providing advice on environmental matters (see Question 22).

Insurance is sometimes used, not only for specific sites, but to reduce risks in:

  • Corporate merger and acquisition transactions (general warranty and indemnity insurance policies are increasingly seen in corporate acquisitions, particularly in portfolio infrastructure deals).

  • LA housing land transfers.

  • Public private partnership projects.

  • Outsourcing contracts.

Obtaining insurance

Whether it is possible to obtain environmental insurance for contamination risks depends on a number of factors, including:

  • Former and current land use and operations.

  • The likelihood of remediation being required.

  • Other risks, such as the probability of pollution or further contamination occurring.

If cover is available, these factors also influence the:

  • Level of available cover.

  • Excesses.

  • Limits on claims.

  • Types and extent of environmental damage covered.

There is a stable and increasingly well-known community of specialist brokers and underwriters dealing with specialised environmental insurance, although it is not often used to support large commercial transactions. Environmental warranties and indemnities are likely to remain the principal risk allocation tools for the foreseeable future.

 

Environmental tax

31. What are the main environmental taxes in your jurisdiction?

The principal environmental taxes and tax breaks in the UK are:

  • Climate change levy. This is a tax on the use, by industry, commerce, agriculture and the public sector, of energy including:

    • electricity;

    • coal;

    • coke and gas.

    It is aimed at reducing greenhouse gas emissions. Energy suppliers collect the levy through their customers' electricity bills. Different rates of levy apply depending on the energy source. As certain high energy users (such as the steel, cement, car, glass and chemicals industries) could incur significant costs, operators can enter into agreements (climate change agreements) setting out targets for cutting carbon emissions from their operations. If these are met, the operator is entitled to up to 90% discount on its climate change levy (see Question 31).

    An additional form of climate change levy (carbon price support) was introduced in April 2013. Electricity generators using gas, solid fuels and liquid petroleum gas pay this levy. This effectively tops up carbon prices payable under the EU Emissions Trading System (EU ETS) to create a Carbon Price Floor.

  • Aggregates levy. This tax is currently payable on the commercial exploitation of primary sand, gravel and rock (with some exceptions). Operators currently pay a tax of GB£2 per tonne of sand, gravel or rock extracted. The legitimacy of certain levy exemptions was the subject of a recent European General Court judgment (British Aggregates Association v European Commission Case T-210/02 RENV) that annulled an earlier European Commission finding that certain levy exemptions did not fall foul of state aid rules (although this judgment is currently subject to appeal). The European Commission has subsequently determined that a single exemption for shale and spoil for shale extraction does indeed constitute state aid. The government has now re-instated the remaining exemptions, which it had temporarily suspended. It is also discussing with the Commission the recovery of levy funds that were unlawfully exempted in the past. The levy is also currently under challenge in the UK Court of Appeal, following a High Court decision in 2002 confirming the levy as lawful.

  • Landfill tax. This tax aims to encourage businesses to use alternative forms of waste management and produce less waste. It is payable by businesses and local authorities when they dispose of waste at a landfill in addition to landfill fees. It is charged at two different rates per tonne:

    • a standard rate of GB£84.40;

    • GB£2.65 for inert waste.

The standard rate is increased by RPI.

Activities such as dredging from waterways are exempt from the tax subject to certain conditions.

In addition, there are the following concessions:

  • Tax relief for remediation of contaminated land. In certain circumstances businesses subject to corporation tax can claim tax relief from the tax of 150% of the qualifying clean-up cost of contaminated land and can surrender losses as a land remediation tax credit (to a value of up to 16% of those losses).

  • Enhanced first year allowances can be claimed in relation to energy saving products and water efficient technologies. This means that the full cost of certain energy-saving and water efficient plant, machinery, vehicles and infrastructure can be claimed as a tax allowance by businesses against taxable profits in the year that the cost is incurred .

 

Reform

32. What proposals are there for significant reform (changes) of environmental law in your jurisdiction?

Reform if the UK leaves the EU

A significant amount of current UK environmental law derives from EU legislation that was enacted over several decades. On 23 June 2016, the UK voted to leave the EU. While the UK remains a member of the EU, it is still subject to all EU laws. Upon Brexit, it is likely that these laws would initially remain in place, but they may diverge in the longer term. Based on recent statements from members of the government, it is considered unlikely that significant relaxations in environmental protection, or climate change and renewable energy, policies will occur following Brexit. Whether standards will be lowered or not, it is possible that environmental and climate change policy driven purely by domestic politics would be more changeable than the longstanding and gradually evolving policy framework that currently applies across the EU.

Letting restriction

From 1 April 2018, under the Energy Act 2011, restrictions on lettings of commercial property which are assessed as below "E" rating in an Energy Performance Certificate will apply on a phased basis. Various exemptions will apply including inability to obtain consent from a tenant, or where the improvement works will not pay for themselves within certain specified period (that is, through a "Green Deal" (see Question 8), or upon a simple 7 year payback basis). However, the Government has announced the end of funding for the Green Deal and it is not yet known what arrangements might be established in place of this mechanism.

Water/environmental permitting

In January 2016, the government proposed various changes to the water abstraction regime to make it more sustainable and proposes to introduce these changes in the early 2020s. In particular, in areas of water scarcity, the amended regime will facilitate water trading. Under powers provided by the Water Act 2014, the government intends, at the same time as introducing these reforms, to incorporate water abstraction and impoundment licensing into the environmental permitting framework (see Question 4).

Cutting environmental regulation red tape

The Department for Environment, Food and Rural Affairs (DEFRA) continues its reforms of environmental regulation to cut out duplication or unnecessary cost to business. In 2016, the government published the conclusions on reviews of the energy and waste sectors, proposing further changes to simplify the regulatory landscape. Conclusions on a review of house-building are being prepared.

Energy efficiency

The government is proposing to simplify regulation relating to business energy efficiency. In particular, the government has decided that it will close the CRC Energy Efficiency Scheme as from April 2019, and increase climate change levy rates to replace lost revenue. It will also consult on simplifying the energy reporting framework with a view to putting in place a new framework from April 2019. Qualification for reporting requirements will be based on thresholds established under the Energy Savings Opportunity Scheme (see Question 26).

Air pollution

DEFRA is carrying out a comprehensive review of the Clean Air Act which seeks to reduce air pollution from smoke from trade and industrial premises. The Act also assists in the implementation of the Directive 2015/2193 on the limitation of emissions of certain pollutants into the air from medium combustion plants (MCP Directive), which aims to limit emissions from mid-size combustion plants.

Hydraulic fracturing

See Question 18, in relation to the continuing evolution of a framework of controls over shale gas development.

 

The regulatory authorities

Department for Environment, Food and Rural Affairs (DEFRA)

Main activities. DEFRA has responsibility for the environment as well as food and farming and rural matters.

W www.defra.gov.uk

Department for Business, Energy and Industrial Strategy (BEIS)

Main activities. In addition to its responsibilities for business and industry more generally, BEIS has been given responsibility for energy policy and tackling climate change following the disbanding of the Department of Energy and Climate Change (DECC) in July 2016.

W www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy

Environment Agency (EA)

Main activities. The EA is an executive non-departmental body accountable to DEFRA and the National Assembly for Wales. The EA's main aims are protecting and improving the environment, and promoting sustainable development.

W https://www.gov.uk/government/organisations/environment-agency

National Resources Wales (NRW)

Main activities. NRW is a statutory body accountable to the Welsh government and the National Assembly for Wales which became operational on 1 April 2013. It has a broader remit than the EA, its main objective being to ensure that the environment and natural resources of Wales are sustainably maintained, sustainably enhanced and sustainably used.

W www.naturalresourceswales.gov.uk

Local authorities

Main activities. Local authorities are responsible for the enforcement of more localised environmental offences, waste collection, and monitoring of noise, air, water and contaminated land.

W www.direct.gov.uk/en/Dl1/Directories/Localcouncils/AToZOfLocalCouncils/DG_A-Z_LG



Online resources

W www.legislation.gov.uk/

Description. This website is managed by The National Archives on behalf of HM Government and contains the original (as enacted) and, in some cases, revised versions of UK legislation.



Contributor profiles

Michael Coxall

Clifford Chance LLP

T +44 207 006 4315
F +44 207 006 5555
E michael.coxall@cliffordchance.com
W www.cliffordchance.com/environment

Professional qualifications. England and Wales, Solicitor, 1997

Areas of practice. Environment; health and safety; planning; energy regulation.

Recent transactions

  • Advising a private equity house on implementing the Energy Savings Opportunity Scheme in its business (ESOS).
  • Advising a global pharmaceutical company on various aspects of REACH regulation and compliance.
  • Advising a quoted company on practical implementation of its corporate reporting for greenhouse gas emissions.

Languages. English (native speaker), French (advanced)

Professional associations/memberships. Member of the Law Society of England & Wales, Member of the UK Environmental Law Association.

Elizabeth Hardacre

Clifford Chance LLP

T +44 207 006 1356
F +44 207 006 5555
E elizabeth.hardacre@cliffordchance.com
W www.cliffordchance.com/environment

Professional qualifications. Admitted as a barrister and solicitor in the High Court of New Zealand, 2008

Areas of practice. Environment; planning; energy; health and safety.

Recent transactions

  • Advising on the environmental aspects of the joint venture investment in the mining business of a leading international commodities company.
  • Advising on consenting for development of a new nuclear power station.
  • Advising on environmental impact assessment documentation for office and residential tower developments in London.
  • Advising on packaging waste compliance for an international company.

Languages. English (native speaker)

Professional associations/memberships. Member of the UK Environmental Law Association.


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