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Environmental regulation crucial to shale gas in EU

Recognising and complying with existing EU environmental law will be crucial for shale-gas development in Europe, says William Wilson*

NUMEROUS published reports about shale gas development in Europe and its environmental impacts say surprisingly little about the environmental regulations that already apply to exploration and production (E&P).

Potential investors in shale-gas projects in Europe must take account of these regulations in their project assessments, because they will control, and could prevent, E&P, and will affect the value extracted from shale-gas investments.

The first of three articles assessing the viability of shale-gas development in Europe – Shale gas’s environmental obstacles – considered groundwater and surface water contamination; chemical usage and potential health effects; the volumes of water used by the hydraulic fracturing (fracking) process; and the disposal or recycling of contaminated water. This article examines existing EU legislation regarding water usage.

The Water Framework Directive (WFD – 2000/60/EC) states: “water is not a commercial product like any other but, rather, a heritage that must be protected, defended and treated as such”. This sets the tone for the main provisions of the directive and the way in which it would be interpreted by the European Court of Justice.

The WFD requires all EU waters, including groundwater, to achieve “good status” by 2015, which includes both ecological and chemical status. As part of the regulatory requirements to achieve that end, the directive requires “the least possible changes to good groundwater status, given impacts that could not reasonably have been avoided due to the nature of the human activity or pollution”. Crucially, the WFD requires “no deterioration” in groundwater status: a very strict standard and a difficult one to meet.

The Groundwater Directive (2006/118/EC) aims to prevent, or limit pollutants to groundwater by 2015, also requiring pollution trends be reversed. It may be that drilling with concrete casings and fracking can be carried out without damaging groundwater supplies, but the shale-gas industry would have to meet mandatory environmental tests. Shale-gas operators should take careful note of the requirements of this legislation, whether or not local regulators are yet alert to the issues, because it could be used, either by regulators or objectors, to restrict operations.

The Drinking Water Directive (98/83/EC) includes strict, wide-ranging parameters for levels of chemicals in drinking water. Many EU countries, such as the UK, rely heavily on groundwater for drinking-water supplies. For others, such as France, secure and unpolluted supplies for the agriculture sector are a significant factor influencing public opinion as well as law.

The Priority Substances Directive (2008/105/EC) focuses extra controls on some 33 initial priority hazardous substances in an attempt to ensure these do not enter EU-controlled water supplies.

The Reach Chemicals Regulation (1907/2006) controls most chemical substances placed on the EU market and applies particularly strict controls to Substance of Very High Concern – notably: carcinogens, mutagens, reprotoxins, persistent bioaccumulative and toxic substances; very persistent and very bioaccumulative substances; and substances of equivalent concern such as endocrine disrupters. This legislation will have important indirect effects on chemical usage in fracking fluids used for shale-gas production.

Questions will be asked regarding the extent chemicals have been authorised for wide dispersive use; what potential contamination could be expected; and what measures have been taken to ensure their safe use. This sits uncomfortably with high levels of secrecy in North America concerning recipes for fracking fluids, although new legislation, in Texas for example, is striving to overcome this barrier and force producers and services companies to reveal the components of their fracking fluids. 

The Environmental Liability Directive (2004/35/EC) could require operators to clean up and restore the environment following E&P operations, over and above any national programmes relevant to land contaminated by shale-gas activities. This could be relevant, for example, if seismic activity resulting from fracking caused damage.

The Waste Framework Directive (2006/12/EC), as well as the water laws referred to above, could be applied to the disposal of large volumes of contaminated water, especially given recent case law from the European Court of Justice. In recent cases, the Court has ruled that water contaminated with fuel oil following a tanker sinking and water contaminated with sewage constituted waste and were subject to controls when discarded.

Simply because there are stringent environmental regulations in the EU, that does not mean shale gas can never be successfully produced there. All energy production has some environmental effect and regulations must be adapted to address the consequences that matter most.

However, a European company would be unlikely to make a significant investment in an international energy project without carefully considering the jurisdiction’s environmental laws and regulations. It would make no more sense for investors in EU shale-gas projects to overlook the same issues.

Although shale-gas production in the US was launched with the benefit (if it really was a benefit), of an exemption from federal law under the Safe Drinking Water Act, the regulatory environments in the US and Europe are probably more similar than some commentators have recognised. Both jurisdictions have environmental laws and regulations that must be fully accounted for when projects are proposed and when their value is assessed.

EU environmental regulation, particularly for the protection of water quality, is very comprehensive and the best approach is to plan ahead and ensure compliance from the very beginning of shale gas development. If this is not done successfully, regulation and public opinion (which will be considered further next week) have the potential to place significant restrictions on shale-gas projects within the EU.

 *William Wilson is a barrister with Burges Salmon LLP.
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