His team of lawyers, economists and financial analysts finds that:
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Examples of recent environmental regulations that hold polluters liable for the costs of their pollution include: the 1980 Comprehensive Environmental Response Compensation and Liability Act (CERCLA) in the US, the Council of Europe's 1993 Lugano Convention, and the UK's 1995 Environment Act, all of which relate principally to hazard waste sites.
The rationale for these pieces of legislation is that by internalising the environmental costs of their actions, polluters will have incentives to take steps to reduce environmental damages to an appropriate level. But if environmental damages are high and polluters are protected by limited financial liability, then they may escape much of the environmental liability. This will reduce their incentives to take appropriate care.
The thinking behind extending liability to lenders is to mitigate this 'judgement proofness' problem, giving banks the incentives to ensure that firms take appropriate steps to reduce the risk of environmental damage as a condition of getting access to credit. But the central problem of extending liability is that if lenders find it difficult to monitor the environmentally riskiness of certain projects, they may respond by simply refusing credit to certain classes of risks, with potentially damaging effects on investment financing decisions.
For further information, please contact Professor Alistair Ulph, telephone 01703-592544 (office), email: amu@soton.ac.uk ; or ESRC Media Consultant Romesh Vaitilingam, telephone 0117-983-9770 or 0468-661095, email: romesh@compuserve.com .
NOTES FOR EDITORS
1. The research project 'The Financial Implications of Environmental Legislation', by Professor Alistair Ulph and colleagues in the Departments of Economics and Management and the Faculty of Law at the University of Southampton, was funded by the Economic and Social Research Council (ESRC).
2. The ESRC is the UKs leading independent funder of research and postgraduate training in social and economic issues. It currently has an annual budget of around £65 million from the Government.