The polluter must pay: An exploration of mandatory environmental pollution liability insurance in enforcing the polluters pays principle in the petrochemicals industry in Singapore

By Oi Lu Yi, mentored by Tracy Xie

I. Introduction

The Polluter Pays Principle (“PPP”) provides that those who cause environmental degradation should bear the proportionate costs of mitigating or preventing such harm.^[1] However, the enforcement of the PPP is hindered by the challenge of the insolvency of polluters that hinder their full compensation of all environmental damages they cause.

Mandatory environmental pollution liability insurance can be seen as a possible solution for the aforementioned challenges, as environmental pollution liability insurance policy  is a pre-emptive safeguard that provides for a wide variety of environmental pollution liability claims, and the level of coverage under environmental pollution liability goes as far as what the polluter is willing to pay for.

This article thus seeks to determine whether a mandatory environmental pollution liability insurance scheme can be extended to the petrochemical industry in Singapore. In making this assessment, this article will also embark on a comparative analysis with other Asian economies that have adopted similar mandatory environmental pollution liability insurance regimes, to provide recommendations on harmonising such a regime with the existing regulatory framework in Singapore.

II.  What is environmental pollution liability insurance and its role in proper liability attribution for the petrochemicals industry in Singapore?

This section seeks to lay out the definition of an environmental pollution liability insurance contract, and its role in ensuring that polluters pay for the environmental damage that they have caused via the PPP.

a.     Defining an environmental pollution liability insurance contract

Environmental pollution liability insurance is a form of insurance that shields companies from the financial costs of pollution-related claims. Ultimately, an environmental pollution liability insurance contract requires the insured to pay a premium in exchange for the insurer to cover any financial costs arising from an environmental pollution event (the risks of which would affect the premium and coverage).

The financial costs that can be covered under environmental pollution liability insurance include the cost of cleaning up a polluted ecosystem, settlements for bodily injury or property damage from third parties affected by the pollutive impacts of the policyholders’ activities.^[2] Environmental pollution liability insurance products range from specific pollution legal liability policies to broader contractor pollution liability and environmental professional liability coverages. ^[3]

b.     Legislative and policy perceptions of environmental pollution risk in Singapore

Environmental pollution risk is not a novel concept in Singapore’s legislation or policy.

Legislative concerns on the high risk of environmental pollution from industries such as the petrochemical industry are not new. Such concerns underpin the Environmental Protection and Management Act (“EPMA”), as its drafters have expressed the need to prevent exacerbated damages from such industries through strict liabilities for polluters.^[4]

Additionally, environmental pollution and climate risks are increasingly prominent concerns amongst financial institution policy today. The Monetary Association of Singapore (“MAS”) has released multiple policy guidelines that advocate for the inclusion of environmental risk planning in underwriting for financial services. The MAS Guidelines on Environmental Risk Management for Insurers encourages proactivity amongst insurers to fully examine the climate risks of potential customers and engage with them to manage risks if necessary.^[5]

Thus, given the increasingly prominent recognition of environmental management risks amongst financial and legislative institutions of Singapore, it is thus no surprise that environmental liability insurance has emerged as one of the economic instruments to manage environmental risks amongst polluters today.

III.  State of environmental pollution liability legislation in Singapore

1. Existing state of environmental liability governance in Singapore

In Singapore, the PPP is enforced through a combined strict liability regime and  compensation under written law. Per Jupiter Shipping Pte Ltd v Public Prosecutor, environmental liability in Singapore is enforced strictly to deter future pollution from the accused to protect Singapore’s environmental cleanliness.^[6] Additionally, Section 54 of the Environmental Protection and Management Act 1999 (“EPMA”) provides that upon a finding of strict liability for environmental pollution, offenders are obligated to offer compensation or pay specific penalties or damages.^[7]

However, the deterrent effects of strict liability rules are limited for judgment-proof polluters who are unable to fully pay the amount for which they are found legally liable because the value of their assets constrain their ability to afford the exorbitant environmental costs of its operations.^[8] 

Judgement-proof polluters may thus engage in risky activities to a socially excessive extent because of the perception that their liability is limited by its assets.^[9] Additionally, the aforementioned benefit of being judgment proof would cause polluters to be unwilling to purchase liability insurance. The purchase of  liability insurance would require the polluter to bear premiums to cover losses that they would not have to bear. Given the additional costs associated with such an expansion of liability, polluters would likely opt to constrain their liability through its own assets.^[10]

The PPP is thus impaired its enforcement where polluters underpay for the costs of its environmental damage.

As such, mandatory environmental pollution liability insurance can correct these challenges to the enforcement of the PPP. By imposing a requirement upon polluters to expand its liability, polluters no longer perceive their liability to only be constrained to the size of its assets and induces judicial emissions to prevent its liability from exceeding the coverage under the insurance contract. The mandatory environmental liability insurance requirement also externalises the costs of environmental damage by polluters and ensures the purchase of liability insurance to expand its liability for environmental damage through the insurance policy. In doing so, mandatory environmental liability insurance ensures that polluters are imposed with a proportional financial responsibility to its level of pollution.

2. Existing state of environmental pollution liability insurance in Singapore

Despite the significant recognition of environmental pollution risks amongst legislators and financial institutions, Singapore’s progress in implementing mandatory environmental pollution liability insurance requirements across industries with high pollution risks has  been limited.

Section 38 of the EPMA allows the National Environmental Agency (upon approval of the Minister) to make regulations mandating the taking out and maintenance of policies of insurance. This power applies to the following persons:

i)               owners or occupiers of industrial or trade premises, or

ii)             a person who handles, stores, transports, or uses hazardous substances.^[11]

The drafters of s 38 of the EPMA had intended for such legislation to apply to notable hazardous industries, including the refinery and petrochemical industries.^[12] However, no subsidiary legislation containing such regulations have been made up to date, which draws into question the willingness of legislators to target such highly pollutive industries.

However, Singapore has imposed mandatory sector-specific environmental pollution liability insurance requirements. The Merchant Shipping (Civil Liability and Compensation for Bunker Oil Pollution) Act 2008 (“MSA”) exceptionally imposes a mandatory requirement under section 12 for ships to purchase insurance against liability for bunker oil pollution.^[13] This mandatory requirement under the Act is the incorporation of Singapore’s international law obligations as a signatory to the International Convention on Civil Liability for Bunker Oil Pollution.^[14]

3. Why the difference in the status of codifying environmental pollution standards and compensatory frameworks ?

The differing status of codifying environmental pollution standards and compensatory frameworks between the shipping sector and fossil-fuel related sectors like the refinery and petrochemical industries boils down to two points – international consensus and economic incentive.

There is significant international consensus on the risks of marine bunker oil pollution. The 1969 International Convention on Civil Liability for Oil Pollution Damage sets out the strict liability for bunker oil pollution on the owner of the ship the pollution originated from (“CLC”).^[15] The subsequent 1992 Protocol to amend the CLC sets out the requirement for ships to maintain insurance or financial security to ensure its capacity to compensate for the pollution damage it causes.^[16]

The CLC has enjoyed near universal recognition and the mandatory liability insurance requirement for bunker oil pollution found in these treaties have been adopted at a similar level. Thus, an export-trade dependent nation like Singapore would undoubtedly incorporate such a mandatory insurance requirement in order to ensure consistency with its other trading partners. By harmonising its approach in seeking financial compensation from bunker oil ships for its pollution, this would prevent any barriers to enjoying the benefits of international maritime trade.

On the other hand, there has not been a similarly universal recognition of the type of pollution, or any universal framework to determine the financial responsibility of polluters from the petrochemical and refinery industries within the international community.

Petroleum refining and petrochemical industrial operations are known to be heavy contributors to air, transboundary water pollution and localised environmental degradation.

However, the existing state of international law has notable gaps in managing such forms of pollution.

The Geneva Convention on Long-Range Transboundary Air Pollution (“Geneva Convention”) is the main international treaty that tackles the issue of long-range transboundary air pollution. The Geneva Convention itself is silent on any framework to determine financial liabilities of polluters, nor any mandatory liability insurance requirements as a way to impose financial liability on polluters.^[17] Additionally, the signatories of the Geneva Convention are limited to mostly European and North American nations, which limits any consensus on management of this issue beyond this geographical range, which prevents input from nations like Singapore.

Interestingly, for the issue of transboundary water pollution, while the international community has a near-universal recognition of such pollution challenges, there is a lack of a unified framework to determine financial responsibility for such pollution. Although Singapore is a signatory to the United Nations Convention on the Law of the Sea (“UNCLOS”), the engagement with issues of financial liability is not as extensive as seen in the CLC. Although Article 194(3)(a) of the UNCLOS does deal with the release of hazardous substances from land-based sources, the UNCLOS fails to go any further in determining any frameworks to attribute financial liability for such pollution.^[18]

Thus, given the uneven geographical recognition of financial responsibility for potential forms of pollution arising from petrochemical and refinery industrial activity, there is limited incentive for Singapore to adopt any mandatory environmental pollution liability insurance for such sectors. Furthermore, the non-existence of any globally recognised financial liability and compensation framework for such forms of pollution does not pose any barriers to international trade that Singapore may deem economically beneficial to overcome through incorporation.

As such, the existing state of international environmental law has resulted in such a divergence in the incorporation of mandatory environmental pollution liability insurance requirements in sectors like the petrochemical and refinery industries.

IV. The case for general mandatory environmental pollution liability insurance for the refinery and petrochemical industry in Singapore

Thus, given that mandatory pollution liability insurance requirements can amplify the deterrent effects of the strict environmental liability regime in Singapore and consequently improve the enforcement of the PPP, the mandatory pollution liability insurance regime should be expanded to the refinery and petrochemical industry in Singapore.

The justifications for expanding the mandatory liability insurance requirement are as follows:

i.              Consistency with Singapore’s existing pollution management approach;

ii.             synergies with upcoming mandatory sustainability reporting framework; and

iii.       the increasingly facilitative trade environment towards environmental liability insurance.

1. Consistency with Singapore’s existing pollution management approach

The imposition of a mandatory environmental pollution liability insurance requirement for the petrochemical and refinery industries would be consistent with Singapore’s existing pollution management approach. Consistency in such an approach would allow for a more cohesive approach to dealing with exacerbated air pollution in Singapore today.

Nitrogen dioxide is a significant air polluter tracked in Singapore.^[19] As identified by the State of Global Air Report 2025, Singapore is the nation with the highest exposure to nitrogen dioxide in the world. This high concentration of nitrogen dioxide is linked to industrial activities in the petrochemicals and refinery industries.^[20] 

A high nitrogen dioxide concentration in the atmosphere may exacerbate Singapore’s existing struggles with transboundary haze, and has significant ill effects on population health.^[21] The challenges of air pollution and harms to population health arising from air pollution are notable factors identified by the drafters of the EPMA. In a similar vein, the mandatory environmental liability insurance requirement under s 38 of the EPMA was also determined to be a method to mitigate such challenges.^[22]

Given the alignment between the significant pollution risks arising from petrochemical and refinery activities and the legislative intentions underpinning s 38 of the EPMA, imposing the mandatory environmental liability insurance requirement would thus allow for consistency with Singapore’s existing approach towards managing air pollution in Singapore.

2. Synergies with upcoming mandatory sustainability reporting framework

The imposition of a mandatory environmental pollution liability insurance requirement is highly synergised with Singapore’s upcoming mandatory sustainability financial disclosure framework. Specifically, the adoption of a mandatory environmental pollution liability insurance may shape a more favourable financial reputation for potential investors.

Singapore’s upcoming ESG financial disclosure framework is based on the ISSB Standards. The ISSB Standards contain two important facets, which are the IFRS S1 and S2 requirements. The IFRS S1 deals with general requirements for the disclosure of sustainability-related financial information while IFRS S2 deals with climate-related disclosures.^[23] 

The adoption of a mandatory environmental pollution liability insurance requirement is best aligned with the metric of materiality under IFRS S1, which requires the company to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the company’s cash flows.^[24] The adoption of a mandatory environmental pollution liability insurance requirement could be seen as a climate-related opportunity, such that it manages risks related to liability compensation for pollution incidents. Additionally, the disclosure of such liability insurance would also demonstrate greater alignment with Singapore environmental management legislation, which is also a metric under the IFSR S1 standard.

In sum, the imposition of a mandatory environmental pollution liability insurance policy requirement would promote greater transparency and alignment with Singapore’s ESG reporting framework.

3. The increasingly facilitative trade environment

The increasingly facilitative trade environment for environmental pollution liability insurance in Singapore also supports the imposition of a mandatory requirement to codify the increasing consensus amongst industrial actors of its compensation responsibilities for environmental pollution.

As noted by He et al, the existence of consensus amongst relevant industry trade associations on environmental liability compensation schemes is vital in supporting the introduction of a mandatory environmental liability insurance requirement. The China Shipowners Mutual Assurance Association had a long history of covering pollution damage to vessels, including preventive measures and restoration costs.^[25] Such industry practices predated and influenced the later incorporation of the Regulation on Vessel-Induced Pollution of 2009, which underpins the mandatory liability insurance requirements for shipping vessels.^[26]

Similarly, Singapore is also progressing towards a facilitative industry environment that encourages compensation for environmental damages for all industries, including the refinery and petrochemical industry. The March 2026 iteration of the MAS Guidelines on Environmental Risk Management (Insurers) Transition Planning include specific guidelines on engaging and encouraging customers across all industry backgrounds, to proactively manage their environmental risks.^[27] This could potentially include inducing business owners in the refinery and petrochemicals industry to purchase liability insurance to reduce its financial liabilities arising from environmental damage compensation.

Thus, an increasingly favourable industry environment towards environmental liability insurance could facilitate codification of such industry consensus in the form of mandatory environmental liability insurance requirements in written law.

V. Challenges in the implementation of the mandatory environmental pollution  liability insurance requirement

Despite the significant promise that the mandatory environmental pollution liability insurance requirement possesses, two significant challenges remain.

Firstly, the issue of moral hazard remains present with mandatory environmental pollution liability coverage. While the cost of the premiums may encourage polluters to reduce their environmental footprint to avoid increased premiums in the long run, the existence of insurance coverage may instead induce the insured polluter to act in the contrary. Polluters may instead act more riskily and engage in more pollutive activities as any potential financial liability for the pollution would be payable by the insurer rather than them.

Additionally, the issue of profitability may hinder insurers’ willingness to offer such environmental pollution liability insurance policies. Given the significant level of coverage that an insurer has to offer to large scale petrochemical and refinery plants in view of the large scale of their industrial activities, insurers may find such costs to exceed any financial gain from the insured’s premium payments. Due to the limited profitability that may arise in such a situation, insurers may choose to leave the market to reduce their losses from offering such environmental pollution liability policies.

However, the challenges of moral hazard and profitability can be mitigated with government intervention. Government intervention in terms of coverage, scope of coverage and the standard terms of the contract is helpful in striking a key balance between the interests of insurers, the insured and the environment. Such government intervention has been adopted in jurisdictions that have imposed a mandatory environmental liability insurance requirement on pollutive industries. Art 17(6) of South Korea’s Act on Liability for Environmental Damage and Relief Thereof provides that the aforementioned matters to be decided by Presidential Decree.^[28] Such intervention was lobbied for by industry associations of insurers and industries with high pollution risks in order to equitably meet the needs of all stakeholders in this situation.

In sum, the challenges of moral hazard and profitability may be mitigated through long-term government intervention to shape industry practice and balance the different business interests of insurers, polluters and the environment.

VI.  Conclusion

In sum, the challenges in enforcing the PPP for refinement and petrochemical companies can be significantly reduced with the introduction of mandatory environmental pollution liability insurance. As noted by the drafters of the EPMA, regulation of the refinery and petrochemical industries is a key step needed to protect the health of Singapore’s environment.^[29] 

In introducing the mandatory environmental pollution liability insurance requirements into Singapore legislation, the legislature ought to be mindful that the refinery and petrochemical industries’ willingness to adopt environmental liability insurance may not be at a level where such reforms are universally accepted. As such, legislation should be tempered with elements of the freedom of negotiation, harmonisation with sector-specific rules and practices while balancing the overall aim of environmental protection. Only by striking a careful balance between such elements, can business owners be induced to accept its financial obligations under the PPP to compensate affected stakeholders when it pollutes.

References

[1] OECD, “The Polluter Pays Principle: Definition, Analysis, Implementation, (2008) < https://doi.org/10.1787/9789264044845-en>, accessed June 30 2026

[2] Directory S, “What Is Environmental Liability Insurance? “ (March 4, 2026) <https://esg.sustainability-directory.com/learn/what-is-environmental-liability-insurance/> accessed July 2, 2026.

[3] Ibid.

[4] Singapore Parliamentary Debates, Official Report (16 September 2008) [, vol 85] at col 230 [, < https://sprs.parl.gov.sg/search/#/topic?reportid=021_20080916_S0003_T0004> ] (accessed 27 June 2026) [Lim Hwee Hua, Senior Minister of State for Transport].

[5] Monetary Authority of Singapore, Guidelines on Environmental Risk Management (Insurers) – Transition Planning (March 2026) https://www.mas.gov.sg/-/media/mas/regulations-and-financial-stability/regulations-guidance-and-licensing/insurance/regulations-guidance-and-licensing/guidelines/guidelines-on-environmental-risk-management-insurers--transition-planning-mar-2026.pdf (accessed 26 June 2026).

[6] Jupiter Shipping Pte Ltd v Public Prosecutor [1993] 2 SLR 69 at [12].

[7] Environmental Protection and Management Act 1999 (2020 Rev. Ed.) at s 54.

[8] Steven Shavell, ‘The Judgement Proof Problem’ (1986) 6 International Review of Law and Economics, at pp 45–58, 45–46.

[9] Ibid.

[10] Ibid.

[11] Environmental Protection and Management Act 1999 (2020 Rev. Ed.) at s 38

[12] Singapore Parliamentary Debates, Official Report (11 February 1999) [vol 70] at col 2040 [, < https://sprs.parl.gov.sg/search/#/topic?reportid=016_19990211_S0003_T0005> ] (accessed 27 June 2026) [Yeo Cheow Tong, Minister for the Environment].

[13] Merchant Shipping (Civil Liability and Compensation for Bunker Oil Pollution) Act 2008 at s 12.

[14] Singapore Parliamentary Debates, Official Report (16 September 2008) [, vol 85] at col 230 [, < https://sprs.parl.gov.sg/search/#/topic?reportid=021_20080916_S0003_T0004> ] (accessed 27 June 2026) [Lim Hwee Hua, Senior Minister of State for Transport].

[15] International Convention on Civil Liability for Oil Pollution Damage (CLC), adopted 29 November 1969, entered into force 19 June 1975, UNTS Vol. 973, p. 3, art 3.

[16] Protocol of 1992 to amend the International Convention on Civil Liability for Oil Pollution Damage 1969 (adopted 27 November 1992, entered into force 30 May 1996) 1956 UNTS 255 at art 7.

[17]Convention on Long-Range Transboundary Air Pollution, adopted 13 November 1979, entered into force 16 March 1983, UNTS Vol. 1302 at p. 217.

[18] United Nations Convention on the Law of the sea, adopted 10 December 1982, entered into force 16 November 1994, UNTS Vol. 1833, p.3. at art 194(3)(a).

[19] National Environmental Agency, “Air Quality”, (nil), < https://www.nea.gov.sg/our-services/pollution-control/air-pollution/air-quality>,  accessed 2 August 2026.

[20] Health Effects Institute & Institute for Health Metrics, “ State of Global Air Report 2025, A Report on Air Pollution and Its Role in the World’s Leading Causes of Death”, (2025), < https://www.stateofglobalair.org/resources/report/state-global-air-report-2025> , accessed 2 August 2026.

[21] Coluson, G., Somervell, E., Cavanagh, J., Wilton, E. , “Nitrogen dioxide in air”, (June 2024), < https://environment.govt.nz/assets/publications/Environmental-Reporting/5.2-Nitrogen-dioxide-in-air.pdf> , accessed 2 August 2026.

[22] Singapore Parliamentary Debates, Official Report (11 February 1999) [vol 70] at col 2040 [, < https://sprs.parl.gov.sg/search/#/topic?reportid=016_19990211_S0003_T0005> ] (accessed 27 June 2026) [Yeo Cheow Tong, Minister for the Environment].

[23] Accounting and Corporate Regulatory Authority, “Sustainability reporting and assurance requirements”, (27 July 2026), < https://www.acra.gov.sg/regulations/sustainability-reporting/requirements-timeline/>, accessed 3 August 2026.

[24] IFRS, “Applying IFRS S1 when reporting only climate-related disclosures in accordance with IFRS S2”, (January 2025”, < https://www.ifrs.org/content/dam/ifrs/supporting-implementation/issb-standards/applying-ifrs-s1-reporting-only-climate-related-disclosures-accordance-ifrs-s2.pdf>, accessed 3 August 2026.

[25] He, Q. et al. (2025) ‘Making the polluter pay: Mandatory environmental liability insurance as a powerful tool for advancing sustainability impacts in China’, Asia Pacific Journal of Environmental Law, 28(1), at p 135, doi:10.4337/apjel.2025.01.05. 

[26] Ibid.

[27] Monetary Authority of Singapore, Guidelines on Environmental Risk Management (Insurers) – Transition Planning(March 2026) https://www.mas.gov.sg/-/media/mas/regulations-and-financial-stability/regulations-guidance-and-licensing/insurance/regulations-guidance-and-licensing/guidelines/guidelines-on-environmental-risk-management-insurers--transition-planning-mar-2026.pdf (accessed 26 June 2026).

[28] South Korea Minister of Environment, Korea Environment Institute, “Liability, compensation and relief system for damages from environmental pollution, Report No. 38”, (2014), < https://me.go.kr/home/file/readDownloadFile.do?fileId=94237&fileSeq=3> , accessed 1July 2026.

[29] Singapore Parliamentary Debates, Official Report (11 February 1999) [vol 70] at col 2040 [, < https://sprs.parl.gov.sg/search/#/topic?reportid=016_19990211_S0003_T0005> ] (accessed 27 June 2026) [Yeo Cheow Tong, Minister for the Environment]