New Guidance: Financial Provision for Environmental Liabilities

Financial Provision is a mechanism which the EPA employ to ensure that the State is not exposed to clean-up costs associated with environmental incidents be they historical or more recent.

  • Financial provision is defined as putting in place a financial instrument or other approved financial provision to cover the full cost of remedial measures if an incident occurs at a licensed facility, or if a facility is closed, the cost of closure, decommissioning, restoration, aftercare and management.

The EPA’s Guidance on Financial Provision for Environmental Liabilities (2015) identifies the prevention and remediation of environmental damage and pollution from incidents and the closure of Agency-licensed facilities as one of its key strategic priorities.

  • The guidance has been published after public consultation of draft guidelines (2014)
  • The tone of the 2015 Guidance suggests that the Agency is more open to accepting other forms of financial provision to cover the cost of remediation.
  • The EPA requires that financial provision must be secure, sufficient and available when required.

The EPA lists five forms of acceptable financial instruments:

  • Secured funds: money deposited in a bank account, with the fund accessible to the EPA. Secured funds are suitable for all liabilities.
  • On-demand performance bonds: these are a financial instrument issued by a financial institution acceptable to the EPA. Usually such bonds are for a fixed period and if prior to the expiry of a bond, the licensee of a site fails to renew or agree alternative provision with the EPA, the Agency is entitled to immediately call in the bond.
  • Parent company guarantee: this involves a parent company entering a legally binding commitment to fulfil the license’s obligations. Such guarantees are not considered to be acceptable for inevitable closure.
  • Charge on property: a first mortgage or charge over specific real estate in favour of the EPA is acceptable for all liabilities.  The EPA gives an example: to cover an anticipated liability of €300,000, a property would have to be worth €1,000,000.
  • Insurance: environmental impairment liability insurance is acceptable, if the policy wording is acceptable to the EPA.  However the guidance states that insurance is not suitable for known liabilities but may be acceptable for unknown liabilities.

The EPA advises that the guidance is read in conjunction with Guidance on assessing and costing environmental liabilities.

Source: EPA