April 2, 2013

Pollution: Regulatory and Liability Regimes Around The World


1.1 The principal purpose of this paper is to discuss how various legal and regulatory regimes around the world seek to reduce the risk of a major pollution incident from an offshore facility happening in the first place and how they respond when one does happen. The question of whether existing regimes can be improved and the role that insurance may have in any improved regime is considered at the end.

1.2 This paper focuses on the pollution risk presented by deepwater activities because this is generally perceived, in the light of the Deepwater Horizon incident of 2010, to present the greatest pollution risk (aside from operations in the Arctic which are discussed separately). Although the number of shallow water installations is far greater and so, on the face of it, present a greater risk of generating a pollution incident it is broadly correct to say that given the current state of technology and control techniques a shallow water blowout should be capable of being halted before it becomes ‘catastrophic’. However, as explained in due course, the environmental damage that a spill causes depends upon a variety of factors. A small spill close to land can have far more devastating consequences than a massive spill far offshore and deep beneath the sea.

1.3 When any major pollution event happens that receives publicity there tends to follow a loud demand for more and tougher laws. This may be justified. However, in order to understand what type of additional laws are most likely to provide better protection for the future it is necessary to understand what is actually going wrong to cause pollution incidents in the first place. Tougher laws and bigger fines may be wholly ineffective because they fail to address and correct the specific defective operational behaviour or technical problems that are the proximate causes of serious pollution incidents. In any event, upon closer examination it may transpire that existing liability laws are already as tough as they can properly be.

1.4 Accordingly, this paper is going to consider the following topics:
 (a) Key physical and economic features of the deepwater offshore energy industry.
 (b) The causes of and characteristics of particular deepwater offshore pollution incidents.
 (c) The current status of deepwater operational safety, regulation and licensing in key jurisdictions.
 (d) Legal responses in key jurisdictions to injury and damage caused by a pollution incident.
 (e) The particular challenges posed by exploration and production in the Arctic.
 (f) Regardless of legal liability, the question of who actually pays for the loss and damage caused by a major pollution incident: the allocation of financial responsibility between operators, contractors and insurers.
 (g) The need, if any, to improve existing regulatory and liability regimes, including whether the insurance industry should assume more pollution liability risk.

Pollution – Regulatory and Liability Regimes Around the World by Clyde & Co Offshore

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