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Closure Costs to Increase Substantially

The EPA has just released a draft update to their 2006 ‘Guidance on Environmental Liability Risk Assessment, Residuals Management Plans and Financial Provision’. The Financial Provision’ element has not been addressed to any great extent in the current document and will be the subject of a separate guidance document. Our initial comments on the document are given below:


  • The EPA is requesting that closure costs should be calculated assuming that a third party is required to carry out all of the work involved. In other words immediate closure should be assumed with all staff at the facility ceasing to work. Currently many facilities have estimated closure costs based on the closure event being known well in advance. This allows the site to use its resources to manage much of the work involved under the day-to-day running costs of the site. The new approach will add substantially to the estimated costs of closure and is likely to result in unrealistically high cost estimates.


  • The error in the current guidance document whereby environmental costs are multiplied by the probability of occurrence has finally been addressed. For example, we don’t insure our houses for their value and multiply it by the probability of being destroyed by a fire. We insure for the full value of the house. The EPA is now applying the same logic to site risks. The maximum likely cost associated with all risks should be estimated and a financial provision put in place to cover the worst case risk.
  • The ELRA example given in the document refers to a bond being put in place to cover the cost of liabilities under the ELRA. However most sites would expect site insurance to cover these risks. The EPA will need to address the distinction between insurance and bonds in the Financial Provisions document in order to bring clarity to the whole area of how various environmental liabilities can be underwritten.

The draft guidance document can be downloaded here and is open for comment until 30th August 2013