In January 2014, the European Commission issued a Recommendation setting out non-binding minimum environmental and safety principles to be applied by Member States to the exploration and production of hydrocarbons through hydraulic fracturing. This is the conclusion of an 18 month consultation by the Commission which had initially proposed a new regulatory regime for shale and other unconventional hydrocarbons. That proposal was met with significant opposition, led by the UK and Poland, on the grounds that existing EU legislation is sufficient even if there is a need for clarification as to its exact application to shale.
Whilst no additional legislaton is currently proposed - an outcome broadly welcomed by industry - the Commission will carry out a review in mid-2015 which will consider whether new legislation is required.
The Recommendation sets out minimum principles for Member States to apply when permitting the exploration and production of hydrocarbons involving hydraulic fracturing from conventional or unconventional (including shale) sources. The most significant are those requiring Member States to ensure that:
- a strategic environmental assessment and environmental impact assessment are carried out at the pre-permitting stage;
- the geological formation of a site is suitable for hydraulic fracturing and that operators carry out a characterisation and risk assessment to demonstrate that hydraulic fracturing will not result in direct discharge of pollutants to groundwater, respecting a minimum separation between fracture zones and groundwater;
- operators prepare a pre-operational baseline study (including as to current water quality, soil conditions, seismicity, biodiversity, and infrastructure and building status) of the site and the surrounding area;
- operators use best available techniques (BAT) taking account specific BAT reference documents to be developed by the Commission and stakeholders, and good industry practice;
- operators develop project–specific water management and transport management plans;
- operators ensure well integrity through design, construction and integrity tests, reviewed by an independent qualified third party;
- operators capture gases for use to minimise flaring and avoid venting (with venting permitted only in exceptional circumstances for safety);
- operators regularly monitor the installation and surrounding area against the baseline study and report results to national authorities;
- operators publish information on the chemical substances and volumes of water used; and
- operators carry out a survey after closure of the installation to compare against the baseline study.
For operators in the UK, these principles are unlikely to add significantly to the requirements of national legislation but this will not necessarily be the case in other Member States. The UK, for example, is unusual in that it has already imposed a requirement on operators to carry out on-going seismic monitoring.
The Recommendation states that the provisions of the EU Environmental Liability Directive (ELD) should be applied to all activities at an installation site. The ELD provides a regime which for certain activities inherent to exploration and development entails strict liability for preventing and remediating environmental damage, but not specifically for fracturing itself. There is also a fault based liability regime under the ELD applying to all activities in relation to damage to protected species and habitats.
It is further recommended that Member States ensure that operators provide some form of financial guarantee to cover potential environmental liabilities. At present, the ELD requires Member States to encourage the development of appropriate financial security instruments and markets to enable operators to cover potential ELD liabilities. [A more detailed analysis of the ELD and its application to shale operations will appear in a later edition of this Oil, Gas, and LNG newsletter.]
Guidance on existing EU legislation
No guidance is provided in the Recommendation as to how existing EU environmental and safety legislation should be applied to shale. Uncertainty remains around the precise application of the EU Mining Waste, Groundwater and Industrial Emissions Directives. The Commission's website notes that it will consider the need to "propose further legal clarification where necessary".
The Recommendation is not legally binding but invites Member States to apply the principles and report back to the Commission on the measures taken by December 2014 and annually thereafter. The Commission will then publish a 'scorecard' comparing the measures of different Member States.
The likelihood of additional regulation has receded, but only for the time being. The Commission has claimed that the choice of a Recommendation, as opposed to legislation, was dictated by the urgency of the situation given that it can be published and applied faster. There are reports that tensions remain high within the Commission on the subject with some still in favour of stronger legislative proposals and sympathetic to complaints from environmental NGOs that the non-binding Recommendation represents a carte blanche for hydraulic fracturing.