The European Commission is expected to adopt a communication and recommendation on the exploration and production of unconventional hydrocarbons (especially shale gas).  The draft communication and recommendation, which are still subject to change, are being discussed among the cabinets of the 28 Commissioners of the European Commission as part of the 2030 climate change package, which the Commission intends to present on January 22, 2014.

The draft communication and recommendation are likely to be seen as a political compromise within the Commission and among Member States.  The two documents also allow the Commission to provide non-binding rules on the exploration and exploitation of shale gas in Europe for the next 18 months, a transitional period during which a new European Parliament must be elected and a new Commission must enter into office.  In effect, the draft communication and recommendation leave it to the next Commission to decide whether to propose binding legislation if the recommendation is not sufficiently effective.

The Draft Communication:  The Commission’s draft communication presents shale gas as an interim step to facilitate the EU’s transition towards its long-term objective of becoming a resource efficient and carbon free society.  The draft communication also suggests the political need to try to strike a balance between the potential economic and climate change benefits of shale gas and its alleged environmental risk and public concerns.  On the one hand, the draft communication argues that shale gas extraction may be beneficial for Member States with high import dependency and for most energy intensive industries.  On the other hand, it also asserts that shale gas extraction may lead to higher cumulative environmental risks that conventional gas extraction, may have significant cross border implications, and asserts that specific issues of shale gas (e.g., strategic planning, underground risk assessment, well integrity, disclosure of chemicals) are not sufficiently addressed by the EU’s current legal framework.

The Draft Recommendation: The draft recommendation establishes minimum principles to be applied as a common basis for the performance of exploration or production of hydrocarbons by means of high volume hydraulic fracturing.  High volume hydraulic fracturing is defined as the injection of 1000 m³ or more of water per fracturing stage or 10,000 m³ or water used for the entire fracturing process into a well.

The draft recommendation’s principles relate to the planning, assessment and permitting of installations, the operational and environmental performance of such installations as well as their closure, and to the dissemination of information and public participation.  Importantly, the draft recommendation makes clear that shale gas exploration and exploitation is already subject to different pieces of EU environmental legislation, and that its principles only complement such legislation.

Among other things, the draft recommendation invites Member States to ensure that:

1.  Strategic environmental assessments of exploration and production operations are prepared before the operations are approved.  These strategic assessments should analyze cumulative effects and potential and existing uses of the surrounding surface and ground area with the objective of preventing, managing and reducing impacts and risks for human health and the environment.  The public should be given effective opportunities to participate in the development of such strategies.
2.  An environmental impact assessment, including a public consultation, is also carried out prior to the start of high volume hydraulic fracturing.
3.  A risk assessment is carried out on potential sites and surrounding surface and underground area in order to assess the risk of leakage or migration of drilling fluids, hydraulic fracturing fluids, naturally occurring material, hydrocarbons, and gases from the well or target formation.
4. Operators perform and report to authorities a baseline study assessing surface and ground water, air quality, soil condition, presence of methane, seismicity, land use, biodiversity, infrastructure and buildings, and existing wells and abandoned structures.  Operators should also regularly report to authorities their monitoring of the variables of this baseline study.
5. Operators develop entire operation areas in an integrated approach and establish adequate infrastructure to service the installations.
6. Operators apply best available technics taking into account the information exchange between Member States, industry, and NGOs.
7. The use of chemicals, in particular hazardous chemicals, is minimized, and chemical manufacturers and importers identify the use of the substance in hydraulic fracturing when registering their substances under the EU REACH Regulation.
8. All the activities taking place at the sites are subject to environmental liability even if currently they do not fall within the scope of the EU Environmental Liability Directive.  Operators should also provide a financial guarantee or equivalent covering potential liabilities for environmental damages before the start of the operations.
9. Operators disseminate information on the chemicals and volumes of water used in each well.

Legal Implications:  Importantly, the draft recommendation on its own is not legally binding on EU Member States, their local authorities and private parties, and therefore, does not create rights upon which individuals and NGOs may rely before national courts.   Nevertheless, national courts must take the recommendation’s principles into account when interpreting national legislation implementing EU law.  For example, if adopted, the recommendation could influence the interpretation of the applicability of the national rules implementing the EU Environmental Liability Directive to the exploration and production of shale gas.  Moreover, Member States could adopt the provisions of the draft recommendation as binding law, and there are also examples of EU legal acts that rendered binding recommendations that had previously been adopted by the Commission.

The draft recommendation also enhances significantly the role of the Commission’s Technical Working Group on environmental aspects of unconventional fossil fuels.  This group will be sharing much of the information and best practices and available technics that the recommendation invites Member States to ensure that operators follow.

Both the draft communication and recommendation warn that the Commission may propose binding legislation if the recommendation is not sufficiently effective.  The draft recommendation invites Member States to annually inform the Commission on the measures they take to follow the recommendation and commits the Commission to monitor the implementation of the recommendation through a scoreboard and to consider proposing binding legislation by the end of 2015.

Political Comment:  If the Commission adopts the draft communication and recommendation on January 22, 2014, this is likely to be good news for most of industry.  (See here).  In effect, with these documents, the Commission would endorse shale gas exploration and exploitation in Europe and also try to (re)create a level playing field by limiting the risk of having EU Member States interpreting EU environmental legislation in different ways.

With the recommendation, the Commission would also strike a compromise among Member States at least for the next few years.  On the one hand, the recommendation would allow Member States wishing to encourage the exploration and exploitation of shale gas in their territories (e.g., Poland, United Kingdom) to proceed without having to face a proposal for a binding directive, which would take two years of intense negotiations and NGO opposition in Brussels.  On the other hand, however, the recommendation does not force Member States to allow hydraulic fracturing in their territories and it also provides interpretative guidance to those Member States wishing to go ahead.