Explanatory Memorandum to COM(2011)688 - Safety of offshore oil and gas prospection, exploration and production activities - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2011)688 - Safety of offshore oil and gas prospection, exploration and production activities. |
|---|---|
| source | COM(2011)688  |
| date | 27-10-2011 |
Contents
- Grounds for and objectives of the Proposal
- General context for a regulatory initiative
- Existing Union law provisions in the area of the proposal
- Consistency with other policies and objectives of the Union
- 2. RESULTS OF CONSULTATION WITH INTERESTED PARTIES IN THE REGULATION, AND THE IMPACT ASSESSMENTS OF POLICY OPTIONS
- The Commission received a total of 64 contributions, encompassing well over 350 disaggregated replies from stakeholders
- Authorisations
- Prevention of accidents
- Verification of compliance and liability for damages
- Transparency, sharing of information and state-of-the-art practices
- Emergency response
- International activities
- Policy options and assessment of their impacts
- The options are compared for the extent to which they address the measures in Table 1
- Table 1
- 3. LEGAL ELEMENTS OF THE REGULATION
- Operator
- Member States
- Commission
- Legal basis
- Subsidiarity principle
- Proportionality principle
- ii. Incidents of the magnitude of Deepwater Horizon occur in the offshore industry at a frequency of decades which is high for extreme major accident hazards
- Choice of instrument
- 4. BUDGETARY IMPLICATION
- 5. ADDITIONAL INFORMATION
- European Economic Area and Energy Community
Oil and gas exploration and production is taking place increasingly offshore, also in complex geographical and geological environments such as deep waters. The scale and characteristics of recent offshore oil and gas accidents i and near misses[2] reported worldwide, including the Union, demand action. They expose the disparity between the increasing complexity of operations and the inadequacies in the current risk-management practices. Amongst individual companies there are reported wide disparities in safety performance and attitudes. Moreover, the incidents have highlighted the challenges that regulators face in ensuring adequate oversight of offshore activities, and a lack of transparency and data sharing regarding the safety performance of the offshore industry.
In Europe, most oil and gas is produced offshore. A major accident at any one of Europe's offshore installations is likely to entail material losses, damage to the environment, the economy, local communities and society, while the lives and health of workers may be put at risk. The likelihood of a major accident in Union waters needs to be reduced.
Studies, stakeholder consultations and risk analyses conducted since 2010 have identified the main problems for the Union as:
1. The risk of a major offshore oil or gas accident occurring in Union waters is significant and the existing fragmented legislation and diverse regulatory and industry practices do not provide for all achievable reductions in the risks throughout the Union.
2. The existing regulatory framework and operating arrangements do not provide for the most effective emergency response to accidents wherever they occur in Union waters, and the liabilities for clean-up and conventional damages are not fully clear.
Therefore, the general objectives of this proposal are to (i) reduce the risks of a major accident in Union waters, and (ii) to limit the consequences should such an accident nonetheless occur.
The Commission responded to the disaster in the Gulf of Mexico already last year by a gap analysis on offshore practices and the legislative framework in the Union and the subsequent Communication 'Facing the challenge of the safety of offshore oil and gas activities' i (adopted in October 2010). It gave a first indication of areas for action in the Union.
There are considerable disparities and fragmentation amongst Member States' laws and practices applying to offshore activities (e.g. licensing, liability provisions, equipment safety standards, public transparency and information sharing). This reflects the virtual absence of international law instruments and gaps in relevant Union law.
Whereas some Member States have offshore regulatory systems considered world class, all have room for improvement. Importantly, the control of major hazard risks in the offshore industry needs to be raised to consistently high standards throughout the Union.
Based on frequency analysis of industry performance in Europe to date and on documented costs of past accidents, the estimated average annual economic losses and damage from offshore oil and gas accidents in the Union range from €205M to €915m. This range is used as the empirical basis of baseline risk in the impact assessment.
It is estimated that the benefits accruing to the Union and Member States significantly outweigh the costs of introducing higher standards. The greater part of any additional costs will be met by the industry, which will benefit from risk reduction. However, experience shows that robust regulation and clear liability are needed to bring about the culture change in industry that will deliver the reduction in risk this regulation intends to achieve.
The general objectives mentioned earlier are developed into four specific objectives:
1. Ensure a consistent use of best practices for major hazards control by oil and gas industry offshore operations potentially affecting Union waters or shores;
2. Implement best regulatory practices in all European jurisdictions with offshore oil and gas activities;
3. Strengthen Union's preparedness and response capacity to deal with emergencies potentially affecting Union citizens, economy or environment;
4. Improve and clarify existing Union liability and compensation provisions.
Based on Commission research and consultations with stakeholders, practical delivery measures are derived. In addition, policy options have been identified grouping the measures in different combinations and means of implementation. These policy options are described in Chapter 2.
The Union has no sector specific offshore oil and gas legislation; however there is broader Union acquis that, often only partially, applies to the offshore sector. This proposal complements primarily the following pieces of Union legislation:
i. Environmental liability. Environmental Liability Directive (ELD) 2004/35/EC addresses liability for damages to the environment also in connection with offshore oil and gas. The operator of activities causing significant environmental damage to protected species, natural habitats or water is strictly liable to prevent and remedy the damage and to bear the full costs of it. This proposal aims to expand the current territorial applicability of ELD, currently limited to the coastal strip and territorial sea in relation to water damage to cover also all marine waters under the jurisdiction of the Member States.
ii. Environmental Impact Assessment: Directive 85/337/EEC i, as amended by Directives 97/11/EC i, 2003/35/EC[6] and 2009/31/EC i, on the assessment of the effects of certain public and private projects on the environment, has harmonised the principles of the environmental impact assessments of projects by introducing general minimum requirements. In addition, the UN/ECE Espoo Convention on EIA in a transboundary context, which is part of the environmental acquis, is relevant as regards the assessment of projects likely to have transboundary effects. Its application is, however, discretionary for some drilling operations.
iii. Waste law: Directive 2008/98/EC on waste (Waste Framework Directive). This Directive applies fully to oil spills, as upheld by the Court of Justice of the EU. Thus, oil escaping from an offshore installation is covered by the EU definition of waste, thus imposing the obligation to the polluter of cleaning up.
iv. Health and safety of workers at work: - Directive 92/91/EEC (complementing the Framework Directive 89/391/EEC) is the principal piece of Union legislation relevant for protection of offshore workers and working environment. This proposal reinforces the regime of the Directive 92/91/EEC to include, inter alia, environmental assessment, to require the risk assessment to be submitted to the regulator for consent, to establish notification scheme for well operations and to require independent verification of critical risk control elements.
v. Major hazards: The Seveso Directive 96/82/EC does not apply to the offshore sector but some of its elements served as a good practice example for this proposal. However this proposal goes beyond Seveso, notably in requiring regulator's consent for risk assessment, stronger verification of technical and financial capability at licensing stages or provisions for evacuation escape and rescue of workforce.
v. Granting hydrocarbon prospection, exploration and production authorisations: Directive 94/22/EC is a principal legal framework for granting licences for exploration and production. This proposal does not change the Directive itself but strengthens obligations of relevant authorities during the licensing process in order to improve assessment of technical and financial capacity of the applicants.
vi. Emergency response: The proposal introduces new requirements on emergency response for the Member States and the industry to be complemented by existing Union capacities both inside and outside the Union. The EU Civil Protection Mechanism (Council Decision 2007/779/EC), the Monitoring and Information Centre (MIC)[8] and the European Maritime Safety Agency i (EMSA) are principal Union tools for emergency response. Steps were already taken to expand EMSA's competence to cover also accidents of offshore installation (beyond its primary focus on maritime shipping).
This regulation is consistent with the Energy Strategy for 2020 i, viz Priority 3, the element for sustainable, secure and competitive energy in Europe.
In addition, this regulation is consistent with the Union's environmental legislation and policy and its main tenets such as pollution prevention, control and the polluter pays and precautionary principles. It is fully coherent also with marine policy, notably the goal of achieving by 2020 the Good Environmental Status of the marine environment (Marine Strategy Framework Directive 2008/56/EC).
2. RESULTS OF CONSULTATION WITH INTERESTED PARTIES IN THE REGULATION, AND THE IMPACT ASSESSMENTS OF POLICY OPTIONS
Consultation of interested parties
An on-line public consultation was carried out between 16 March and 20 May 2011 to ascertain the views of interested parties on the need for Union action in various policy fields.
The Commission received a total of 64 contributions, encompassing well over 350 disaggregated replies from stakeholders
Summary of responses and how they have been taken into account
The consultation produced broad support for tightening measures for prevention of, and responding to, offshore major incidents, however, the means to this end varied. National authorities in the North Sea Region felt that changes at Union level should not put in question their current goal setting regulatory approaches, which the proposal indeed intends to promote. While acknowledging improvement needs in general terms, the industry was the most conservative towards regulatory changes while preferring goal setting approaches and industry initiatives. On the other hand NGOs and the specialised companies (e.g. classification societies) were the most active in calling for changes at Union level).
The main aspects were as follows.
Licensees should be held liable for any damages they cause. Most national regulators and industry consider the licensing and permitting currently applied in certain Member States sound but that the Union should work with others to improve their standards. They feel that decisions on awards must remain exclusively with the Member State concerned, however, information could be shared with neighbouring states where there is potential for transboundary pollution. Various recommendations were made by individual companies (e.g. harmonising and simplifying authorisation procedures and separating regulators for licensing and safety. Some NGOs and citizens are in favour of obligatory consultation or consent of a neighbouring state in case of cross-border pollution potential.
The legislative instrument foresees stronger and risk based assessment of technical and financial capacity. It introduces also environmental element in the control and prevention of major hazards in addition to the safety element.
The industry needs to be challenged to do even better in major incident prevention, whilst not risking a reduction in accident prevention standards where Member States already have a strong offshore regulatory regime. Industry maintains generally that it can improve the situation by self regulation and industry initiatives. NGOs and, to varying degrees, some regulators feel that existing regulations should be strengthened and extended to cover all offshore operations in Union waters.
High levels of compliance with robust and sensible requirements are essential. Whereas industry argues that compliance is always a high corporate priority, many stakeholders see an overarching need to adopt a stronger safety culture across the industry. Compliance and the achievement of a reliable and strong safety culture are addressed in the regulation.
Stronger physical inspections were called for by NGOs and some classification societies. National regulators and industry were generally opposed to this citing potential resource shortages or risks of destabilising current systems. Requirements for independent third party verifications received some support also among the two latter groups.
Extension of the scope of environmental liability was most favoured by NGOs while the regulators and the industry did not take clear positions... Industry and insurers tended to be against changes such as obligatory insurance without capping liability internationally while the NGOs would strongly require it.
NGOs first but also industry and regulators felt that a higher level of transparency would enable the industry and public authorities to demonstrate that offshore oil and gas activities are appropriately managed and controlled. All National Authorities should work closely together, building on the example set by the North Sea Offshore Authorities Forum (NSOAF) and the informal meetings of the EU-NSOAF group.
Emergency response is the primary responsibility of the operator and the Member State concerned, but the effectiveness and efficiency of oil spill response capacities existing in Europe can be further enhanced by cooperation and sharing of expertise and other assets. EMSA have a role in clean-up if requested via the EU Civil Protection Mechanism by the Member States concerned.
Union based companies should endeavour, and are expected, to follow the policies outlined in this regualtion and not lower standards when operating outside the Union
Collection and use of expertise
Engagement with international and Union stakeholders (offshore industry, NGOs) and Member States representing, regulating or administering the offshore sector began in April 2010, culminating in the October 2010 Communication.
Both written and meeting-based stakeholder consultations have been expanded further since then. Apart from the public consultation, national regulatory/supervisory authorities have met on eight occasions hosted jointly by the Commission and the NSOAF. Offshore safety has been raised also in the meetings of the Berlin Forum Indigenous Fossil Fuels Working Group i. In addition, numerous meetings have taken place with international and national industry associations, individual enterprises, NGOs and independent verification companies and insurers. Furthermore, the Commission has regularly attended national (e.g. the Oil Spill Prevention and Response Advisory Group in the UK) and international initiatives (e.g. GMEP working group in G-20). These meetings have been maintained until the present time. Similarly, other Commission services (e.g. JRC) with relevant transferrable experience and expertise have been consulted on a continuous basis. Two national experts were hired by the Commission from national offshore safety authorities. The expert inputs have been fully considered in the formulation of this Regulation.
Distinct policy options are derived from the general and specific objectives described in Chapter 1. There are four policy options in addition to the do-nothing baseline option (option 0) as follows.
Option 0 would preserve the status quo.
It has no additional cost nor impact on the baseline cost range €205-915m.
Option 1 ("North Sea basic") is the basic level for meaningful Union intervention. It introduces in Union law the Major Hazards Report (MHR) based upon the safety and health document required by Directive 92/91/EC but goes further in requiring the regulator to be satisfied with it prior to starting operations. An inspections and penalties regime would be required to underpin the measures described in the MHR. Option 1 would be implemented through new law.
Option 1 introduces additional running costs on industry of ca €36m/year and a reduction in risk expressed against the baseline cost at ca €7 – 30m/yr, an average 3% decrease in baseline risk.
Option 1+ ("North Sea +") goes further by introducing soft law guidelines for: tightening consideration of the technical capacity of applicants for offshore oil and gas licenses; converging national emergency response plans; developing compatible national and industry owned response assets and making them available to other countries at need; and clarifying the scope of the environmental provisions relevant to the liability of operators (e.g. applicability of waste legislation) as regards the offshore oil and gas accident . The Union would propose to Union based companies voluntary agreements on using EU standards beyond EU waters.
Option 1+ introduces additional running costs on Member States of ca. €3m and compliance costs on industry (cumulative with option 1) of ca €52m. The cumulative effect of Options 1 and 1+ is €25 - €109m/yr, an average 12% reduction in baseline risk.
Option 2 ("Union Best practice") develops further the reforms of option 1+ in a comprehensive package. Recognised global best practice in major hazard risk control would be mandated, and environmental risk assessment would be incorporated into the MHR. Also, best regulatory practice and required organisational standards would be introduced in arrangements for national competent authorities. This holistic risk assessment for safety and environment, would integrate emergency preparedness and response inventory management into law. A Union-wide Offshore Authorities Group would be created and the Licensing and ELD directives reinforced by regulation.
Option 2 introduces cumulative operating costs on industry of ca €122m (from €52m) and ca €12-18m (from €3m) on Member States, plus one-off administration costs of ca €18-€44m. The costs for the Commission to establish and run the EUOAG would be ca €1m. The additional measures cuts the baseline risk costs by between €103 – 455m/year - a 50% reduction in baseline risk.
Option 3 ("EU Agency") further reinforces the impact of Option 2 by introducing an Union agency to institutionalise and thereby consolidate the reforms achieved by option 2. It would undertake inspections and investigations, monitor and enforce consistency in performance, develop intervention capacity and assist capacity building in adjacent non Union countries.
Option 3 introduces cumulative annual running costs on the Commission of ca. €35m/yr (from €1m) and €18-44m one-off start-up costs plus €10's million for purchase of essential response assets. There would be no further costs to industry.
No.| Measure| Option Option Option 1+| Option Option 3
Detailed verification of the technical capacity of potential operator| G| L| Union
Establishing regular inspections and a penalties regime| L| L| L| Union
Submission of formal safety assessments for acceptance by the regulator| L| L| L| Union
Extension of MHR into a comprehensive risk management model| L| L
Extending Union practices to overseas operations| G| G| Union
Establishing a Competent Authority| L| Union
Establishing a platform for regulatory dialogue| L| Union
Comprehensive information sharing and transparency| L| L
Preparedness for effective emergency response to major offshore accidents| G| L| Union
Ensuring cross-border availability and compatibility of intervention assets| G| L| Union
Clarifying the scope of environmental liability| G| L| L
0 = not implemented in this option; G = guidelines/soft law; L = law; Union = Union agency responsible
A measure can be implemented by different means, often offering a trade-off between effectiveness and practicality. As result, each of the policy options is characterized on one hand by the set of measures retained in the option and by the preferred implementation means for each measure under that option.
The preferred policy option is Option 2, i.e. a comprehensive offshore reform raising throughout Union, through new law, the level of risk management and emergency preparedness in the offshore industry. Apart from consistency, this option provides for greater transparency of industry and regulator performance.
This option can reduce the baseline risk by 50% through enhanced prevention and mitigation should an incident nonetheless occur. The risk reduction in average monetary terms (ca. €103m - 455m/year) compares favourably with the estimated cumulative costs of its implementation (€134 – 140m/year). It is more affordable administratively and economically as the additional running costs of Option 3 (ca €34M p.a.) fail to bring corresponding decrease in risks. Option 1+ is a choice with modest positive impact (12%) and enforcement possibilities while the benefits of Option 1 are insufficient to justify the (albeit small) costs.
The proposed regulation creates duties for operators, Member States and the Commission as follows.
The Operator is to organise his activities around a best practice model; prepare a major hazards report (MHR) and to submit this to the competent authority for assessment. In addition the Operator is to submit a notification for each well operation to the regulator. For both MHR's and well notifications, independent verification of the safety critical elements is required. Operators will prepare internal emergency response plans; promote interoperability and compatibility of response assets and report incidents and other specified information to the relevant Member State in a standard format. Union-based major companies would commit to demonstrating Union offshore safety standards wherever they work overseas.
Member States licensing authorities would assess in an appropriate manner the potential safety and environmental performance (and financial capacity to deal with safety failures) of applicants when considering awards for exploration or production licenses. Member States would establish competent authorities for supervision of safety, environmental protection and emergency preparedness and introduce robust standards for inspection and investigation, underpinned with appropriate penalties for breaches of duty by operators. Member States will make information routinely available concerning their offshore sectors, and report all major incidents and lessons learned to the Commission. External emergency response plans would be prepared by Member States, collaborative with adjacent MS. Measures will be taken to ensure interoperability of expertise and physical assets to support cross Union intervention including by EMSA. Member States and the industry will prepare and periodically test emergency response plans...
The Commission is to establish an EU Offshore Authorities Group with representatives from the competent authorities responsible for offshore oil and gas activities in Union Member States. The Commission is to amend Environmental Liability Directive (2004/35/EC) within the regulation.
The draft Regulation is based on TFEU Article(s) 192 (Environment) for its environmental protection purposes and 194 (Energy) for minimising adverse effects on Union security of energy supply and the functioning of the internal energy market.
Union action has been considered only where it can achieve the objective more effectively than the Member States or where actions by Member States alone may not deliver optimal improvements.
Companies operate and drilling rigs like Deepwater Horizon are being moved across borders but face very different regulatory regimes along the lines of national jurisdictions. Recent reactions of the Member States suggest, that without Union action these differences are going to exacerbate as countries mainly only in the most advanced regions individually plan improvements while international initiatives make very slow progress. Moreover, without Union action, existing difficulties for comparing industry performance and sharing of intelligence and incident data will remain.
Action by Member States alone would be inadequate to achieve consistent protection (including liability for pollution) of the environment, a common good, a commitment of the Union and its Member States as per the Marine Strategy Framework Directive.
The likelihood and consequences of major offshore incidents remain significant everywhere in the Union based on national reports, and risk analysis conducted by the Commission in 2011. Offshore production occurs increasingly also in the Mediterranean, the Black and even the Baltic Seas where some countries in some of these marine regions have less experience in regulating offshore operations. Still, even in the advanced regions (mainly North Sea) national action has failed to achieve common standards and comparability of data.
Overall, despite the measures already foreseen by Union legislation, such as in the field of health and safety at work, a failure to take action at Union level is likely to deprive Member States of the most suitable means to reduce risks of major offshore major incidents in a consistent and timely manner.
Article 5 of the Treaty requires 'Any action by the Community shall not go beyond what is necessary to achieve the objectives of this Treaty'. In achieving the requisite balance between the objectives and the means proposed to achieve them this Regulation takes into account:
i. The costs from the Deepwater Horizon incident were estimated by BP to be in excess of $40bn; costs of a similar event in Union waters could be of this magnitude
ii. Incidents of the magnitude of Deepwater Horizon occur in the offshore industry at a frequency of decades which is high for extreme major accident hazards
iii. The value of the Union offshore sector is very high in terms of national economies (revenues and employment) and its contribution to security of supply
iv. The offshore sector generates relatively high revenues for the companies involved
v. The public has developed an aversion to further major incidents risks
The cost of the measures proposed in this regulation (ca €134-140m/year) is modest in comparison to the risk reduction they will secure (ca €103 – 455m/year). Therefore they are proposed as enabling measures.
A Regulation is proposed to implement Option 2. It has advantages over a Directive due to its clarity, consistency and speed of implementation through direct application i. By acting directly on the industry, the Regulation would also provide for a more level playing field. It would also cater well for emergency planning to combat transboundary pollution.
With regard to the interinstitutional agreements concerning the Commission advisory and expert groups, the EU Offshore Authorities Group should be established by a standalone Commission Decision.
The budgetary implication of the proposal is approx 2.5 m€ in the period 2013-2016, including compensations for committee participation. EMSA's assistance is primarily related to a) use of its satellite surveillance system which is active regardless of offshore accidents b) use of emergency vessels organised by EMSA. The emergency vessels are only contracted for the purpose and the operational costs are covered by the affected coastal State that requests the intervention. Regulation (EC) 2038/2006 puts in place a multi-annual financial framework for pollution response for the years 2007-2013. The Commission does not foresee any changes to this framework. In conclusion: no increase of costs for EMSA is foreseen for the period 2007-2013. Should any additional costs arise for EMSA during the period 2014-2020 they should primarily be covered by redeployment of the already agreed resources.
Amendment of existing legislation
Adoption of the regulation includes an amendment to Directive 2004/35/EC (Environmental liability)
Delegation
The Regulation foresees the development of technical details of a common reporting format through a delegated act and potential updates to technical annexes via an implementing act.
The proposal has potential relevance for the EEA and the Energy Community.