Background
Greenland self-government
Mineral Resources Act: environmental regulation
Specific application of the rules
Comment
The pursuit of oil has begun in the Arctic area - particularly in Western Greenland. Greenland now faces significant environmental challenges arising from the extraction of oil in such a vulnerable and harsh environment. This update highlights a number of legal issues regarding the protection of the Arctic environment from the effects of oil exploration and extraction.
Background
In July 2008 consumers witnessed the price of oil reach a record high - $150 per barrel. Irrespective of the fact that the price subsequently dropped a little, analysts are certain that high oil prices are a phenomenon to which the world must adjust; the steady increases in oil prices experienced during recent months appear to support this thesis.
In response to an increased demand for fossil fuels and drastically falling reserves within oil-producing countries, market players have turned to feasible alternative locations for exploitation - most notably, Greenland.
In 2010 oil company Cairn Energy conducted three exploration drillings offshore Western Greenland, and even though insufficient oil amounts were discovered to form a basis for commercial exploitation, the drillings confirmed that there is potential for oil and gas deposits in the area. A total of 20 exploration licences have been issued in Greenland - of which seven are for exploration in Baffin Bay. In 2012 tenders will be invited for exploration licences in the Greenland Ocean off northeastern Greenland.
The activities in Greenland coincide with the adoption of the Greenland Self-Government Act in 2009, pursuant to which a number of responsibilities which were previously held by the state of Denmark are now held by the Greenland self-government. A central element of the considerations and negotiations associated with the inauguration of the Greenland self-government was that it would receive all revenue from mineral resource activities in Greenland. Thus, it would have new sources of revenue available to keep pace with the diminishing revenue from the fishing industry.
Environmental challenges
From a local perspective, the Arctic area is biologically rich: numerous animal communities exist on the seabed and there is a significantly large prevalence of birds and mammals, including red-listed species.(1)
In addition to minor and more temporary effects from seismic movements, the most significant environmental effects of exploration drillings (and subsequent commercial exploitation) occur in connection with blow-outs, where control of the drilling is lost, resulting in a large oil spill, and in connection with accidents in relation to the storage and transportation of oil. With respect to the latter, an additional risk factor exists in Greenlandic waters in the form of icebergs.
Greenland self-government
Greenland Self-Government Act
Pursuant to Section 2(1) of the Greenland Self-Government Act, the self-government has the power to take on the responsibilities that appear in the schedules of the act.(2)
Greenlandic Mineral Resources Act
In December 2009 the self-government adopted the Greenlandic Mineral Resources Act, taking on responsibility for Greenland's mineral resources.(3) Pursuant to Section 1(2) of the act, it aims to:
"ensure that activities under the Act are securely performed as regards safety, health, the environment, resource exploitation and social sustainability, as well as properly performed according to acknowledged best international practices under similar conditions."
To a large extent, the act is based on Danish legislation on mineral resources, but with necessary Greenlandic modifications. Interpretation and administration of the act are also expected to occur in accordance with Danish legal tradition.
Pursuant to Section 3 of the act, the Bureau of Minerals and Petroleum in Nuuk will handle the administration of mineral resources activities, including all matters pertaining to authoritative processing. The bureau's primary task is the ongoing administration of licences for the prospecting, exploration and exploitation of mineral resources.
In connection with the handling of the drilling licences, the bureau will work closely with the Danish authorities, including the Geological Survey of Denmark and Greenland, the National Environmental Research Institute, the Danish Energy Agency and the Danish Environmental Protection Agency.
The National Environmental Research Institute has been given the special assignment of examining and conducting assessments of environmental conditions in relation to the exploration and exploitation of oil and minerals in Greenland, and advising the bureau on such matters. Moreover, the institute has prepared guidelines for companies conducting exploration and exploitation activities.
Mineral Resources Act: environmental regulation
Licences
The act applies to Greenlandic territorial land and sea in the continental shelf area and in sea areas 200 sea miles from the reference line (the exclusive economic zone).(4)
Overall, the act provides that the bureau may specify the terms and conditions for granting both exploration and exploitation licences. In addition to terms and conditions ensuring regard for health and safety and the environment, the bureau may specify terms and conditions for the licensee to ensure that any exploration or exploitation of mineral resources occurs in a socially sustainable manner.
Pursuant to the act, importance is attached to the applicant's previous experience with oil exploration or exploitation - particularly in areas with similar conditions. Furthermore, importance is attached to the applicant's financial capabilities, to ensure not only that the applicant is financially up to the job, but also that it is prepared to take necessary preventive measures in the event of accidents.
A licence can be granted only when an environmental impact assessment (EIA) of the activity's performance has been carried out and an EIA report has been approved.
Generally speaking, the act aims to select applicants that possess the necessary technical knowledge and the necessary systems and procedures to ensure that health and safety and environmental matters are considered.
Environmental protection
The objective of the act and its environmental protection rules is to prevent, limit and fight pollution and other effects on the natural world and the environment, including damage to animal or plant life, or natural or cultural values on or in the soil, the sea or the subsoil.(5)
Environmental liability
The act lays down rules on liability for both personal injury and financial loss, including reasonable costs for measures to:
- prevent and abate injury;
- restore the environment and natural world; and
- mitigate and neutralise pollution and other negative effects on the environment, climate and natural world.
Under the act, the responsible party is the party that performs, manages or supervises the performance of an activity. If this party is not the licensee, both parties will have joint and several liability.
The responsible party is subject to strict liability, as the party responsible for pollution in connection with an activity under the act must compensate for the damage caused by the pollution, even if the cause of damage is accidental.
The act's rules on compensation do not limit access to compensation pursuant to general legislation on contractual damages and non-contractual damages.
Specific application of the rules
Fortunately, the rules on liability for environmental damage have not been enforced, as so far the exploration drillings have caused no environmental damage.
In connection with the granting of exploration licences, Greenland has committed to a high level of security that is on a similar level to such requirements in the Norwegian part of the North Sea and on a higher level than those, for example, in North America. Among other things, requirements are made for safety systems to prevent blow-outs and for the installation of ice management systems in order to tow icebergs away from the risk zone.
For example, with respect to Cairn Energy's exploration activities in 2010, a requirement was made to establish full preparedness so that - in addition to the two drilling rigs - four ice management vessels and two emergency response and rescue vessels were installed. Moreover, the requirements for preparedness included the installation of equipment to control oil spillage in the harbour of Aasiaat, as well as further preparedness to install equipment in the southern English town of Southampton of a size that could combat an international oil spill. This equipment had to be able to arrive at an oil spill within 72 hours. The company also had to provide financial and insurance guarantees that amounted to several billion Danish kroner.
Comment
It is yet to be determined whether Greenland's regulation of mineral resources activities is adequate to protect the vulnerable Arctic environment. Furthermore, it remains to be clarified whether the requirements for market players' financial preparedness are sufficiently comprehensive to ensure that the harmful effects of an accident can be adequately remedied. Nonetheless, Greenland has placed itself on level compliance with best international standards.
However, notwithstanding this fact, at present the navigation of oil tankers within international Arctic waters is not regulated and is not expected to be directly regulated until the implementation of the International Maritime Organisation's rules on navigation in the polar regions (the Polar Code), which is expected in 2012.(6)
In light of the unfortunate oil spill in the Mexican Gulf, it can also be expected that there will be a sharp environmental focus on activities in the Arctic area in the years ahead.
For further information on this topic please contact Søren Stenderup Jensen or Peter Holm at Plesner by telephone (+45 33 12 11 33), fax (+45 33 12 00 14) or email ([email protected] or [email protected]).
Endnotes
(1) See the International Union for Conservation of Nature's Red List of Threatened Species.
(2) See Act 473 of June 12 2009 on the Greenland Self-Government.
(3) Greenland Parliament Act 7 of December 7 2009 on Mineral Resources and Mineral Resources Activities.
(4) See Executive Order 1020 of October 20 2004 on the Exclusive Economic Zone of Greenland and Royal Decree 1004 of October 15 2004 on the Amendment of Royal Decree on Delimitation of the Territorial Waters of Greenland.
(5) See Section 51 of the Mineral Resources Act.
(6) The International Maritime Organisation is a UN organisation that safeguards international matters pertaining to maritime activity. The original objective was security at sea, but later environmental protection also became part of the objective.