Environmental laws have, since their inception, required tens of billions of dollars of private and public investment. Today, it seems inevitable that environmental law will continue to spawn even more statutes, lawsuits, and jobs and require the expenditure of more billions worldwide.
Environmental concerns place large forestry, mining/smelting (coal, nuclear, hydro), and transportation projects at risk, delay projects, increase project costs, cause projects to be abandoned and block or complicate project financing. In Ecuador, for example, after activists severely criticized Conoco's proposed rain forest oil exploration and development project, Conoco pulled out of the project. Peru delayed privatization of its mining and smelting operations because of ambiguity regarding allocation of cleanup and other liabilities arising from state-run operations.
When The U.S. Export-Import (Ex-Im) Bank, citing environmental impact, denied letters of interest to three U.S. exporters who sought Ex-Im financing on exports to China's Three Gorges Dam project, the largest hydro-electric dam in history, China canceled a $120.5 million foreign bond issue necessary to finance the project. The World Bank refused to provide risk guarantees for the Nam Theun 2 hydroelectric dam project in Laos until the project's investors complete additional environmental impact assessments. The Overseas Private Investment Corporation (OPIC) canceled political risk insurance for Freeport-McMoRan Copper and Gold Inc.'s mine in Indonesia, asserting environmental concerns. OPIC reversed its decision only after Freeport agreed to establish an environmental remediation fund.
In Argentina, a company that recently acquired oil production facilities has resisted assuming the costs of cleanup imposed under new national standards for cleanup of oil exploration and production (E&P) wastes that are part of a rising national environmental consciousness. Lawsuits have been filed in U.S., South African, Australian, and other courts seeking environmental damages for the harm that finished projects allegedly caused. These cases have been criticized as unlikely to result in damage awards against the defendant companies; however, all but one case have survived preliminary efforts at dismissal.
Ten areas will largely define the changing role of environmental law in major projects for the foreseeable future:
1. Expanded Use of Environmental Trusts, Side Agreements, and Other Environmental Contractual Provisions
Environmental law will become more sophisticated in allocating past and future environmental liabilities. More attention will be given to specifying the conditions under which future regulatory actions or judicial decisions that impose environmental liabilities entitle the project sponsors to special remedies. A technique that will play a greater role in the future is the environmental trust fund concept. The parties estimate the cleanup costs and place a portion of the purchase price to cover those costs in trust. (Cleanup costs also may be deducted from the purchase price and escrowed.) Project sponsors may address environmental issues in environmental side agreements that contain more detail than the basic transactional documents, in part so the environmental agreement can be shared with officials or the public. By detailing environment-related aspects of the transaction, the side agreement helps prevent misunderstandings and addresses all environmental issues of concern.
2. Continued trend toward written environmental impact analysis (EIA) - often including non-environmental concerns
Over 80 nations, as well as major multilateral lending institutions and some U.S. agencies, now require EIAs. Project proponents now recognize the EIA as a pivotal document for obtaining governmental approvals based on the analysis contained in the EIA. Thus the EIA - in addition to its technical value - is also advocacy. The skills of a briefwriter are very useful in EIA preparation.
In most countries, the impact assessment process supplements and does not replace existing governmental decision-making that applies economic and social criteria - as well as environmental criteria - in the final decision whether to permit a project. In Chile, the Basic Environmental Law directs the relevant regional environmental commissions (COREMAs) or the national environmental commission (CONAMA) to gather permits from relevant sectoral agencies (forestry, health, mining, energy, etc.), to preside over a public hearing process, and to issue a final decision.
Some believe that Chile's Basic Environmental Law creates a new general-purpose review in which all political, social, and economic issues are addressed. Yet, environmental impact analysis is difficult enough without burdening it with additional, albeit important, concerns. Moreover, bringing economic and social concerns into the environmental analysis may cause these concerns to be given less emphasis than they would receive if they were not subordinated to environmental concerns. Over-emphasis on environmental issues may cause a political backlash against the Chilean Basic Law, unless environmental authorities proceed cautiously. Addressing all social, economic, and political concerns through the environmental analysis process may now be the only means available for the public to be heard on non-environmental issues. Still, the environmental study cannot carry the entire weight of decisions whether to allow new projects.
3. Application of stricter environmental criteria by multilateral development banks, nationally sponsored trade banks and agencies, and private lenders
Lenders' requirements are becoming regulatory in nature. For example, the Inter-American Development Bank classifies projects based on potential environmental impact. Similarly, the U.S. Ex-Im Bank establishes specific standards for environmental and socio-economic impacts and may condition financing on mitigation measures. U.S. law requires the Agency for International Development (AID) and the Treasury and State Departments to analyze the environmental impacts of multilateral development loans. Where this analysis reveals that the proposed loan will likely have substantial environmental impacts, the Executive Director representing the United States at a multilateral development bank must seek to mitigate adverse effects which may result from the proposal. This threat is not an empty one. Recently, AID recommended that the U.S. vote against the Pak Mun Dam project in Thailand on environmental grounds.
4. Increased voluntary adoption of environmental standards of developed nations
Multinational project sponsors in developing countries are increasingly adopting, on a voluntary basis, the environmental standards of developed nations. The major benefit of high operating standards comes from the uniformity of plants and operations, no matter where located. Developed-nation firms already know how to build, operate, maintain quality control, and economize with facilities that meet strict standards. By applying high-performing technology, firms can avoid suspicion that they moved abroad to escape environmental controls. Better environmental practices improve labor relations, market share, and local relations. Companies may actually find their compliance costs lower than in the U.S., as Canadian and U.S. mining companies learned. They experienced lower plant, labor, and regulatory costs that had made domestic investments less profitable. Companies reach high performance standards by the quickest and cheapest route possible and are liberated from costly domestic regulatory reviews. Projects operating under the best technology rarely are fined or incur downtime and retrofit costs when host country legislatures enact stricter standards. Finally, pollution is waste, and minimization of waste results in a higher-quality product and greater margins.
5. Reliance on international standards developed by non-governmental organizations
Consumers expect it, and regulatory compliance is more likely to be achieved, if non-governmental international standards are satisfied. In 1996, the International Organization for Standardization (ISO) promulgated ISO 14000, a generic standard for creation and maintenance of environmental management systems. Proponents of ISO 14000 have predicted that the standard, while voluntary, will become a necessary prerequisite for doing business internationally. Several large companies, such as Siemens of Germany, already require their suppliers to obtain ISO 14000 certification. Similar voluntary performance approaches sponsored by the Global Environmental Management Initiative and the Business Council for Sustainable Development also may hasten the trend toward "privatized" environmental management standards.
6. Greater worldwide focus on enforcement
It was perhaps inevitable that nations that enforce their environmental standards would insist upon enforcement of standards worldwide to "level the playing field" for international markets. Most countries now have environmental laws that appear impressive; however, enforcement worldwide is uneven. Former U.S. Secretary of State Warren Christopher announced over a year ago that the U.S. intended to take a major role in ensuring that environmental standards were enforced worldwide. Regional trade agreements such as the North American Free Trade Agreement (NAFTA) and the Chilean-Canadian Trade Agreement, may require comparable environmental standards and enforcement. Chile is now revising its ambient air quality standards to ensure that it meets the requirements of the recent Chilean-Canadian trade agreement. The Mexican Center for Environmental Law has filed a number of actions under the NAFTA environmental side agreement to enforce standards in signatory countries, and other non-profits plan to file additional actions. As mentioned, actions have been filed in several U.S. courts by persons seeking compensation or cleanup of environmentally disrupted sites in their home countries.
7. More environmental disclosure laws worldwide
Building upon U.S. experience with community right-to-know and toxics disclosure laws, other countries are now considering whether to require companies to disclose toxic releases to the environment. Community right-to-know laws are based on the premise that once companies are required to inform the public, they will seek economically viable means to reduce toxic releases. The experience in the United States suggests that this theory works; however, the success of "TRI" in the United States depends on a strong grassroots environmental movement and techniques such as citizens suits by which citizens may act upon new knowledge. Such an infrastructure may not exist in other nations considering right-to-know laws.
8. Increased privatization worldwide of drinking water, sewage, and other environmental services
A decade ago, many nations discovered that they could achieve more efficient, prompt delivery of environmental management services via "outsourcing" to the private sector. Even countries with reasonably successful experience with municipal sewage, drinking water, and solid waste management services have found that privatization is attractive, e.g., municipalities such as Atlanta in the United States, and Buenos Aires in Argentina. Thus we may see both the policing of environmental standards through voluntary standard setting (see above) and the private management of some environmental services that heretofore were managed by municipalities and states.
9. Greater attention to global warming
If greenhouse gas emissions double over the next century, an increase in global temperature of 3-8 degrees C is likely. Agreement has not been reached on the caps on emissions each nation will accept, whether developing nations will accept caps, and the best mix of regulations and economic incentives to achieve domestic rollbacks. An issue exists about which gases will be covered in addition to carbon dioxide, such as methane and nitrous oxide. An issue also exists whether and what type of global emissions allowance trading program may be implemented. The steady trend is toward action on the international, national, and corporate levels toward greenhouse gas emissions reduction strategies.
10. Emphasis on raw material and product substitution, pollution prevention strategies, and toxics use reduction (TUR) strategies
Substitution of less environmentally-damaging products and product components continues. For example, Chile is on the verge of requiring that lead be removed from gasoline. To preserve octane levels in gasoline, gasoline constituent substitution, e.g., by oxygenates or even by fuel type, will take place. Proponents will continue to advocate reduction of elements and compounds that cause harm, e.g., chlorine or chlorine compounds, although unfortunately, toxics use reduction or "TUR" has become a battleground as much ideological as scientific in nature. Risk-based decision making may make more sense for more equitable resource allocation, but the environment is a popular political issue and may on occasion override balanced decision making.
This article summarizes a major plenary presentation on "The Global Future on Environmental Law" to the International Congress on Environmental Law, Santiago, Chile, July 1997. Mr. Anderson is currently assisting Chile's National Environmental Commission (CONAMA) in revising Chile's five basic ambient air quality standards.