Environmental liability risk: a pressing issue for energy
companies
The Conference took place in London on 24 April, 2012, at
the historical and prestigious Institute of Directors, 116
Pall Mall, London. The meeting provided a forum for researchers
and practitioners to exchange ideas and present new research
results on this pressing issue for energy companies.
Considering the increased complexity of energy projects as
companies are entering a new technological era marking the end of
"easy oil", there is a growing concern about the real preparedness
of companies to deal with the new risks they are facing. The
potential severity of those risks due to the important damages
caused to the environment and their possible impact on populations
explain this apprehension. Furthermore, the mis-handling of recent
catastrophes by large energy companies - as well as the largely
unpublicised leaks - have cast serious doubts as to their ability
to prevent severe accidents from occurring and if they do to limit
their development.
Though most energy companies have now put in place a risk
management organisation and a rigorous risk control system to
comply with new laws and regulations, the lessons drawn from the
recent past indicate that it did not result in much improved safety
performance. In fact compliance is not enough; it does not
guarantee that risks are effectively under control. Hence
environmental risk and liability remains today a pressing issue for
energy companies as well as policy makers, this seminar aims at
providing an insight into some of its important dimensions. Among
other question we have identified the following:
1) Accounting for "contingent environmental
liability"
Energy companies are exposed to the risk of severe potential
losses due to cleanup costs and compensations to be paid to the
many victims - all the more if liability caps are removed
- These "high impact low probability events" may indeed
affect seriously the financial structure of companies. Yet it
is not clearly reflected in their balance sheet. Should it be? And,
if yes, how?
2) Environmental liability: an issue for insurers
In the past, insurers have contributed to the emergence of new
technologies and economic development by providing economic agents
not only with indispensable financial guaranties in case of adverse
events but also by promoting prevention and safe behaviours. With
no doubt, they will have a say in this debate: what are the limits
of insurability? How to deal with "moral hazard"? how to price
environmental risks?
3) Public-Private joint Energy developments: governments should
also be prepared to handle the risk
Most of energy projects are developed in order to enhance
economic growth and provide nations with a reasonable level of
energy security and/or take advantage of local energy resources.
This explains the high degree of involvement of public authorities
in energy projects developed and operated by private entities. Are
public authorities taking the full measure of the environmental
risks involved? Are they prepared to take charge of their own share
of the responsibility and to deploy appropriate means to limit the
severity of the catastrophe if needed? Recent examples seem to
indicate that this is not the case.
4) Environmental risk: an urgent need for new safety
regulations and standards in the energy industry
Considering the serious threat to the environment due to the
introduction of "frontier technologies" in difficult conditions,
there is an urgent need for well designed safety regulations,
setting standards on a "case by case" basis, with a coordinated
approach.Due to the large geographical scope of major risks, there
is also an obvious need for international, or at least regional,
cooperation. What is the situation today? Who should be in
charge?