Following its consultation held between November 2017 and February 2018, the Environment Agency (EA) has updated its Enforcement and Sanctions Statement and Enforcement and Sanctions Guidance so that the two documents are now combined into a single Enforcement and Sanctions Policy (ESP).
The new ESP does not introduce any radical changes, but as well as some specific changes discussed below, it will make it easier for a business at risk of enforcement to understand the Environment Agency's approach to enforcement and the potential sanctions that may be imposed.
Notable changes introduced by the ESP include: (i) new guidance on Enforcement Undertakings; (ii) the ability to publish enforcement responses; and (iii) a new method of calculating Variable Monetary Penalties.
An Enforcement Undertaking is a legally binding agreement between an alleged offender and the EA whereby the alleged offender promises to take certain action within a particular time frame in order to address its likely breach of environmental law (and thereby avoid prosecution). EUs remain an important civil sanction and can, as UKELA stated in its response to the consultation, ‘be a more effective and efficient sanction than the criminal law’ in appropriate cases.
In what appears to be the EA’s continued shift towards enforcement methods other than prosecution, the EA has included bullet point criteria in the ESP which set out when an EU is and is not likely to be accepted. This approach echoes the EA’s emphasis on clarity and transparency, which is evident throughout its consultation response document and which is intended to increase the use of EUs.
Importantly, the ESP requires that an offender now specify in an EU the action it proposes in order to secure 'equivalent benefit or improvement to the environment' where restoration of the harm caused is not possible.
Where the harm is to the water environment alone, the ESP suggests that ‘equivalent benefit’ is calculated (and therefore quantified) by undertaking a ‘natural capital assessment with the EA’s natural capital assessment calculator’. The natural capital methodology is designed to assess the long-term harm to the water environment caused by pollution, in order to identify and place a value on the services provided by an ecosystem which in turn support the economy.
The EA has been criticised for missing the opportunity to consider a natural capital approach for EUs other than those relating to the water environment, particularly following the UK government’s pledge to ‘set gold standards in protecting and growing natural capital’ in its 25 Year Environment Plan.
Publication of enforcement responses
In addition to the decisions that it already publishes, the EA may now publish rejected EUs where any appeal has already been determined or the time for appealing has passed, and after 12 months the EA may publish information about penalties, including VMAs. The ESP also expands the EA's scope for publishing enforcement responses as a means of deterring wrongdoing.
Whilst the EA is still prevented from publishing certain information as a result of legislative restrictions (such as data protection laws), where possible it is moving towards a far more open and transparent system. This is the case despite concerns that publishing certain enforcement information may in fact act as a deterrent to certain offenders who would otherwise consider offering EUs but who are not comfortable with the prospect of certain information under the EU being published.
The ESP also introduces a scheme that allows identified victims to request the review of an EA decision not to prosecute (Victim’s Right to Review). It will be a concern for businesses that where the EA decides not to prosecute, this decision could be overturned following victim's review.
These changes will therefore increase the risk profile for businesses that may be at risk of environmental enforcement, and businesses should carefully consider whether or not it might be appropriate to seek an EU.
Calculating Variable Monetary Penalties
Short of prosecution, the EA has two options for imposing monetary penalties on organisations for breaches of environmental law: Fixed Monetary Penalties or (for more serious offences) Variable Monetary Penalties. As with EUs, the EA is seeking to clarify and simplify the use of VMPs in an effort to increase their use – it notes in its consultation response that ‘a different model will allow us to make better use of civil sanctions and divert matters away from prosecution.’
The ESP therefore adopts a new system of calculating VMPs by reference to the Definitive Sentencing Guidelines for Environmental Offences (Definitive Guideline). The Definitive Guideline has been praised for its effectiveness as a deterrent to environmental offences since its introduction in July 2014, particularly because of its ‘stepped approach’ to calculating fines, which is based on a company’s turnover (or an individual’s financial circumstances) whilst also assessing harm, culpability, aggravating and mitigating factors (amongst others). The Definitive Guideline has also had a good deal of ‘prosecution success’, resulting in the largest environmental fines ever seen in the UK (such as Thames Water’s record fine of £20.3 million in 2017).
The adoption of the Definitive Guideline for calculating VMPs should achieve the EA's objective of allowing it to make better use of VMPs.
Osborne Clarke comment
The new ESP provides much sought-after clarity in relation to the EA's approach to enforcement and, in particular, in relation to EUs. This should make the EA's enforcement process, including the range of sanctions which may be imposed, easier for businesses to understand. The ESP also makes the EA's continuing shift towards enforcement methods other than prosecution very clear which, for businesses, means prosecution is increasingly a last resort.
The EA's move to a more open and transparent enforcement system (in making more enforcement information publicly available) also means that businesses should be able to assess their 'enforcement risk' more easily. However, where the published information is considered too sensitive by businesses this transparency may act to deter businesses from offering EUs whether they may otherwise have done so.