UK Deepwater Drilling - Implications of the Gulf of Mexico Oil Spill - Energy and Climate Change Contents

Memorandum submitted by ClientEarth

INTERNATIONAL AND EU REGULATION OF OIL RIGS AND OTHER OFFSHORE ACTIVITIES ANALYSIS AND PROPOSALS FOR REFORM

INTRODUCTION

  The regulation of offshore installations, including oil rigs, is seriously lacking at EU level and internationally. In the wake of the Deepwater Horizon disaster, and criticism of regulatory failings in the US, attention in the EU has focussed in on the question of whether a similar catastrophe could take place in European waters, and how its consequences might be dealt with. This question will only become more forceful as the drive for "energy security" pushes exploration efforts further into environmentally hazardous and sensitive territory. ClientEarth has looked closely at the state of regulation in Europe and the following paper examines where the main failures lie, and suggests what action is needed by way of legal reform to guard as closely as possible against another devastating offshore incident.

  Many EU laws controlling the operation of other dangerous activities, such as chemicals facilities, mining and transportation of oil by sea expressly exclude coverage of offshore drilling. Some (though not all) of the international conventions related to oil pollution also apply to oil rig pollution, but even then their implementation is not always reliable, enforcement mechanisms may be weak, and different rules exist for different regions. Many important aspects of oil rig regulation, or of deep sea exploration more generally, are not covered by international conventions at all. For example, there are no international rules on liability and financial security in relation to these types of activities (as those which exist are limited to very restricted circumstances when oil pollution arises from ships or tankers).

  Earlier this year, in the aftermath of Deepwater Horizon, ClientEarth produced a legal background paper analysing the main rules governing the operation of offshore oil rigs in the EU, pointing out the significant weaknesses and gaps. Since then, momentum has grown in the EU and amongst certain Member States for a comprehensive regulatory reform. Energy Commissioner Oettinger gave his support to an EU wide moratorium on deepwater drilling on 14 July 2010, announcing at the same time that the Commission would be conducting an analysis of the situation during the summer, with a view to putting its proposals before the European Parliament and Council of Ministers in September.

  ClientEarth fully supports Commissioner Oettinger's call for an immediate moratorium until the causes of the Deepwater Horizon accident can be established and the regulatory regime internationally and in the EU strengthened as much as possible so as to avoid a repeat of that catastrophe.

  Since the publication of our original report, we have conducted further work on some of the legal issues raised by offshore drilling, whether for oil, gas or other mineral extraction, or other seabed projects such as carbon capture and storage. The following updated paper incorporates the previous analysis, plus additional material. We have organised the analysis into a number of thematic areas covering the different aspects of the regulatory landscape, examining what regulation already exists and what more is needed under each heading:

1. Rights to drill in territorial waters.

2. Pollution prevention—safety standards and inspections.

3. Emergency planning and accident response.

4. Research, monitoring and information sharing.

5. Impact and environmental assessments.

6. Liability, compensation and financial security.

7. Company transparency.

  The various legal instruments reviewed each deal with one or more of these areas in combination, so there is some overlap in the discussion between the above headings.

SUMMARY OF KEY POINTS

  A comprehensive new regulatory package is now needed that not only amends existing EU legislation where this is appropriate, but also introduces legislation to fill dangerous voids in the current regime.

  This new framework needs to extend to operational drilling projects, exploratory drilling, and the period after wells have been decommissioned. The opportunity should not be missed to ensure that all sea-bed drilling is carried out in a safe and properly managed fashion—be it drilling for oil, other minerals, or carbon capture and storage projects.

  ClientEarth's key recommendations for measures to be adopted in the new framework are summarised as follows.

1. The EU Hydrocarbons Directive should require that licences for offshore hydrocarbon exploration and exploitation may only be issued where appropriate environmental protections (and financial guarantees) are in place.

2. A package of measures equivalent to the Seveso II, Erika and Third Maritime Safety packages is required for offshore installations. This new legislation should require:

— Major accident prevention policies;

— Safety reports covering specified information;

— Emergency response plans at operator and Member State level;

— Systematic inspection of installations according to designated criteria; and

— Information exchange between Member States and with the Commission.

3. An EU level agency should exist to undertake functions in connection with these measures, to provide support to Member State authorities and to the Commission in ensuring full implementation and enforcement. The European Maritime Safety Agency is a clear candidate for this role, and its capacity should be extended, with appropriate resources, to cover offshore installations in addition to its current tasks in relation to shipping.

4. The current review of the Environmental Impact Assessment Directive should result in amendments improving the application of impact assessments to offshore projects. These amendments should ensure EIAs are mandatory for the full range of seabed exploitation projects (in exploratory, operational, and decommissioned phases), improve the quality of EIAs, introduce specific guidelines for the content and evaluation of EIAs in the offshore drilling industry, impose special requirements for EIAs for hyper-hazardous activities, and improve the implementation of rules on transboundary EIAs.

5. A new liability regime is essential, tailored to the particular risks presented by offshore activities including oil rigs, carbon capture and storage projects, and all other seabed development. The Environmental Liability Directive in its current state represents a general system of environmental liability in the EU but is badly under-equipped to respond to the kind of damage which could result from an offshore pollution incident. The gap should be filled by a framework employing a broad definition of environmental damage, and capable of imposing strict liability on all potentially responsible parties.

6. The definition of environmental damage in the new liability regime should be comprehensive enough to cover damage to the global climate—a clear risk where seabed drilling and hydrocarbon pollution incidents are concerned.

7. A mandatory collective compensation scheme or other system of financial security is required as a key element of the liability regime.

8. The Marine Strategy Framework Directive should be amended so that its ambit extends to activities on the continental shelves which could affect marine waters in the exclusive economic zones, and so that consequences from marine accidents involving offshore installations cannot be used by EU Member States as a justification for failure to meet the 2020 target of good environmental status in marine waters.

9. Rules on company transparency need to be much more rigorous, with clear requirements regarding the nature and extent of environmental disclosures which companies are required to make. Current activity on this issue within the European Commission must be prioritised.

10. A resolution should be passed at the September OSPAR ministerial meeting to extend the OSPAR Convention to cover emergency response measures, liability and financial guarantees. Implementation of the OSPAR and Barcelona Conventions must be improved, including via action by the EU institutions, as these conventions represent binding EU law.

DISCUSSION OF INTERNATIONAL AND EU REGULATORY FRAMEWORK

1.   Rights to drill in territorial waters: The UN Convention on the Law of the Sea and the EU Hydrocarbons Directive

  Basic rights and obligations governing oil rigs are set out in the UN Convention on the Law of the Sea 1982 (UNCLOS), which gives coastal states the exclusive right to authorise and regulate drilling and oil exploration in their exclusive economic zones and on the continental shelf (Articles 56, 60 and 81). In respect of "the Area", ie the seabed, ocean floor and subsoil beyond the limits of national jurisdiction, natural resources are the common heritage of mankind and no State or person may claim sovereignty over them (Articles 136 and 137 of UNCLOS).

  In the EU, the key legislation is the Hydrocarbons Directive (Directive 94/22/EC). This specifically acknowledges the sovereignty of Member States over the hydrocarbon resources on their territories, ie that Member States retain the right to determine the areas within their territories to be made available for exploration and production of hydrocarbons (see Article 2(1)). The primary aim of the Hydrocarbons Directive is to impose rules ensuring non-discrimination in the allocation by Member States of prospecting licences, encouraging competition, and safeguarding the internal market. It is also intended to improve security of energy supply.

  Member States are permitted, under Article 6(2), to impose conditions and requirements on hydrocarbon exploration/production activities which they have authorised, including for reasons of environmental protection, the protection of biological resources, or the safety of installations and of workers. While this Directive therefore maintains the option for Member States to impose safety and environmental conditions on the operation of oil rigs (whether offshore or onshore) it imposes no incentive or obligation to do so.

  As noted, Member States have retained sovereignty over their hydrocarbon resources and how to exploit them. This is enshrined in the Treaty (Article 194 TFEU). However, the Treaties also enshrine the principle of ensuring a high level of protection and improvement of the quality of the environment. According to the principle of subsidiarity, EU legislation in areas of shared competence (which include environment, energy and public health, Article 4(2) TFEU) is justified (and required) if the relevant objectives cannot be sufficiently achieved by the Member States acting alone or at regional level, and are better achieved at Union level by reason of their scale and effects (Article 5(3) TEU). Avoiding and dealing with an offshore oil spill is a prime example of such an action. The Treaty even envisages that measures may be taken in the area of the environment, by special legislative procedure, which may significantly affect a Member State's choice between different energy sources and the structure of its energy supply (Article 192(2)(c) TFEU). Member States' right to determine the conditions for exploiting their energy resources as stated in Article 194 TFEU is without prejudice to Article 192(2)(c).

The Hydrocarbons Directive should be amended to the effect that Member States must impose adequate environmental conditions, or at least that Member State licensing authorities must be satisfied that the operator has taken appropriate measures in this regard, including through having in place emergency plans, and adequate financing to cover potential liabilities.

If, as ClientEarth recommends, a comprehensive legislative package is introduced containing detailed specifications for oil rig safety standards, accident prevention measures, emergency planning, liability and compensation mechanisms, this should be cross referenced in the Hydrocarbons Directive so that Member States may not issue licences unless the competent authorities are satisfied that the measures contained in that instrument are/will be complied with.

2.   Safety standards and inspections—pollution prevention obligations

  There are various international conventions and EU laws which contain obligations to take steps to prevent pollution and manage the risk of accidents concerning oil rigs or other activities in the marine environment.

The UN Convention on the Law of the Sea 1982

  This contains environmental protection obligations regarding the marine environment (see Part XII, Article 192), including in relation to pollution from "installations and devices used in exploration or exploitation of the natural resources of the seabed and subsoil" and "other installations … operating in the marine environment" (see Articles 194 and 208). There is an obligation to take pollution prevention measures in respect of activities in the Area, with particular attention to be paid to activities such as drilling, and the operation of offshore installations (Article 145).

  UNCLOS therefore imposes international law duties on its parties to prevent pollution, including from oil platforms. It is binding international law, but relies on national and regional rules and cooperation to be put in place to achieve its goals. As a legal instrument in itself, it contains little in the way of sanctions against any country which fails to fulfil the duties it sets out. Therefore, it is necessary to examine EU and other regional rules (and national laws) intended to give effect to the aims of UNCLOS, to determine the status of the UNCLOS provisions targeted at preventing oil rig accidents.

The OSPAR Convention

  A crucial international convention from a European point of view is the OSPAR Convention 1992. This applies in the North East Atlantic and obliges its Contracting Parties to "take all possible steps" to prevent and eliminate marine pollution and to "take necessary measures" to protect the maritime area against adverse effects caused by human activities, in order to safeguard human health and conserve marine ecosystems.

  The OSPAR Convention has 16 Contracting Parties including Iceland, Norway, Portugal and Spain, as well as the EU. It is implemented in the EU in the form of Decision 98/249/EC, but as the EU is a Party to the Convention, it forms an integral part of EU law in any event and is thus binding on all EU Member States (in relation to their activities in the North East Atlantic) and not just those which have individually signed it (see Article 216(2) TFEU).

  Pollution from offshore sources is specifically dealt with by the OSPAR Convention in Article 5 and Annex III (though it should be noted that "offshore sources" is defined by reference to hydrocarbon related activities only, not other seabed drilling such as carbon capture and storage or other mineral mining). Annex III contains the detail of the obligations. Article 3 of Annex III prohibits the dumping of waste from offshore installations, Article 4 requires the strict regulation by national authorities of the offshore use of substances "which may affect the maritime area", and Article 9 requires Contracting Parties to issue instructions regarding the inspection of installations and reporting of incidents. The conditions under which oil rigs themselves can be decommissioned and abandoned by the operators is addressed, and dumping without permission is prohibited.

  Article 7 of Annex III imposes an obligation on the Contracting Parties to:

"take appropriate measures, both individually and within the relevant international organisations, to prevent and eliminate pollution resulting from the abandonment of offshore installations in the maritime area caused by accidents. In the absence of relevant guidance from such international organisations, the measures taken by individual Contracting Parties should be based on Guidelines as the Commission may adopt. " (Emphasis added).

  The OSPAR Commission's Offshore Oil and Gas work stream has developed a number of further detailed Recommendations for this sector, tackling topics such as the disposal of disused offshore installations, the disposal of materials resulting from offshore hydrocarbon exploration, environmental management systems in the offshore industry, and screening of chemicals proposed for use offshore.

  The OSPAR Convention expressly applies the precautionary and polluter pays principles and the use of best available techniques and best environmental practice (Article 2(2), Annex I, Article 2(1)). Similarly to Article 193 of the Treaty on the Functioning of the European Union, the OSPAR Convention allows Contracting Parties to take more stringent measures in relation to pollution prevention and elimination, or with respect to the protection of the maritime area against the adverse effects of human activities (Article 2(5)).

  The OSPAR Offshore Oil and Gas Industry Strategy from 2003 applies all of these principles, as well as the principle of sustainable development and an integrated ecosystem approach. It aims to develop programmes and measures to reduce marine pollution from the oil and gas industry, and to:

"promote the development and implementation by the offshore industry of environmental management mechanisms, including elements for auditing and reporting, which are designed to achieve both continuous improvement in environmental performance and the environmental goals" and "promote the joint development of environmental best practice guidelines for offshore activities for the purpose of giving effect to the principle of sustainable development. "

  The OSPAR Convention does not contain any provision for certain other important areas including emergency response planning, nor does it set down any rules in relation to clean-up and liability once an accident has occurred (see below).

  While it is binding law, and contains strong objectives, OSPAR relies on national governments and the EU institutions to put into effect its key requirements. The extent to which this is done in practice can be variable. As an international convention OSPAR lacks enforcement mechanisms generally. However, as binding EU law its provisions are directly applicable in all Member States and can and should be enforced by the EU institutions.[47] In addition, every OSPAR measure (such as Recommendations of the OSPAR Commission on all OSPAR's major work streams, including Offshore Oil and Gas) has an implementation reporting and assessment procedure. This should assist the OSPAR Commission and working groups in identifying where measures are still lacking, and more action by Contracting Parties is needed.

  The 20 to 24 September 2010 will see a key meeting of the parties to the OSPAR Convention in Bergen, Norway, where Ministers from the Contracting Parties will discuss topics including a status report on the health of the North East Atlantic environment, and actions for improving the protection of marine biodiversity such as the creation of protected areas. The status report will cover an examination of the impacts of activities in the region including offshore drilling. The Belgian Presidency of the EU has pushed for deep sea drilling to be highlighted in the ministerial declaration that will follow the September meeting. It remains to be seen whether this will gain the backing of other OSPAR parties. New provisions on offshore installations and activities adopted under the auspices of OSPAR would bind the EU plus Iceland and Norway, so could be of great benefit.

The Barcelona Convention

  The 1976 Convention for the protection of the Mediterranean Sea Against Pollution (the Barcelona Convention) (as amended) mirrors several of the provisions of the OSPAR Convention but applies instead to the Mediterranean Sea area.

  The Barcelona Convention, like the OSPAR Convention, applies the precautionary and polluter pays principles (Article 4(3)), and requires the use of best available techniques and best environmental practices (Article 4(4)). One of the types of pollution specifically addressed in the Barcelona Convention is pollution resulting from exploration and exploitation of the continental shelf and the seabed and its subsoil. Article 7 requires parties to the Convention to

"take all appropriate measures to prevent, abate, combat and to the fullest possible extent eliminate pollution of the Mediterranean Sea Area resulting from exploration and exploitation of the continental shelf and the seabed and its subsoil. "

  The Barcelona Convention has a number of protocols which contain detailed measures for protecting the Mediterranean from specific types of pollution.

  The Hazardous Wastes Protocol covers "waste oils/water, hydrocarbons/water mixtures" and emulsions within the definition of hazardous waste in addition to "mineral oils unfit for their originally intended use", and requires parties to "take all appropriate measures to reduce to a minimum, and where possible eliminate, the generation of hazardous wastes" (Article 5(2)).

  A protocol setting out provisions for protecting the Mediterranean from pollution resulting from exploration and exploitation of the continental shelf and the seabed and subsoil was drawn up in 1994 but has not entered into force as it still needs to be ratified by one further party. The only EU Member State to have ratified this Protocol is Cyprus, and the EU has as yet neither signed nor ratified it.

  The EU is a party to the Barcelona Convention (along with 21 countries which border the Mediterranean Sea). This means the Barcelona Convention is a binding part of EU law (see again Article 216(2) TFEU), though the various Member State parties differ in their levels of activity in response to it.

  Although the Hazardous Wastes Protocol is in force, it has not been ratified by the EU. Among the EU Member States therefore, only Malta is bound by this Protocol as the only Member State to have ratified it individually.

Some strong objectives on pollution prevention and safety standards exist at international level. In particular, Annex III of the OSPAR Convention requires Contracting Parties to take appropriate measures to prevent pollution from oil rigs. These requirements are binding requirements of EU law and must be implemented. However, the Convention lacks enforcement mechanisms, and more EU enforcement action is needed.

The September OSPAR conference should resolve to build on the Convention in the wake of the Deepwater Horizon disaster. It should review current implementation practices and put pressure on any Parties not fulfilling any of their existing obligations to do so.

Similarly, the Barcelona Convention requires Contracting Parties to minimise pollution resulting from seabed exploration and exploitation, and to cooperate in dealing with any pollution incidents in the Mediterranean Sea. These are binding provisions of EU law, but again there may be issues over full implementation.

Although detailed Protocols regulating seabed activities and hazardous wastes have been drawn up they have not been ratified by the EU and are not binding on all EU Member States.

In addition, the international conventions which currently exist are limited in their territorial extent. Stronger and more consistent regulation is therefore needed.

The Marine Strategy Framework Directive

  The Marine Strategy Framework Directive (MSFD) (Directive 2008/56/EC) is worth noting in this section for its provisions dealing with environmental protection requirements in marine waters, for example by setting the requirement for Member States to achieve "good environmental status" in their marine waters by 2020.

  The MSFD is intended to pursue good environmental status in EU marine waters including by phasing out pollution so that it presents no significant impacts on or risks to marine biodiversity and ecosystems. It incorporates a number of steps towards achieving good environmental status (assessed according to prescribed criteria), by 2020. There are certain grounds on which Member States can ask to be exempted from this deadline.

  One major weakness of MSFD is that there is no compliance mechanism. Member States cannot be challenged for a failure to achieve good environmental status by 2020. In addition the MSFD only applies within exclusive economic zones and does not extend onto the continental shelf. Any drilling outside the relevant exclusive economic zone could not be regulated by a programme of measures under the MSFD as it currently stands.

Article 13 of the MSFD should be amended to state that the programmes of measures adopted under the MSFD should include measures applying to all sea-bed activities licensed by the Member States that take place on the continental shelf, outside their marine waters, and which could affect the environmental status of the marine waters within the exclusive economic zone.

It should not be acceptable under the MSFD for an oil or other deep sea/seabed related accident to be accepted as a derogation from the obligation to achieve good environmental status.

3.  EMERGENCY PLANNING AND ACCIDENT RESPONSE

 (i)   The International Convention on Oil Pollution Preparedness, Response and Cooperation 1990, the Barcelona Convention and other international conventions

  Under international law, the key convention dealing with this area of regulation is the International Convention on Oil Pollution Preparedness, Response and Cooperation 1990, (the OPRC Convention). This agreement seeks to introduce measures to prepare for and respond to oil pollution incidents, including from oil rigs, by requiring coordinated and approved oil pollution emergency plans (to be prepared by the operator), as well as national contingency plans (to be prepared by government authorities), and by introducing reporting and information sharing and international cooperation requirements in relation to spills.

  The EU is not a signatory to this Convention, but the majority of its Member States are. Compliance with the Convention is mainly through regional seas agreements, such as the Helsinki Convention, the Barcelona Convention and the Bonn and Lisbon Agreements. However, there is great disparity between EU Member States (and regions) in the level of activity and effectiveness of the relevant regional seas conventions and the implementation of the OPRC Convention.

  In addition, the OPRC Convention is concerned only with accident planning and response—it does not extend to issues of liability and compensation.

  The Barcelona Convention also has a specific protocol on this issue. The Prevention and Emergency Protocol sets out how parties to the Convention should respond in the event of a pollution incident including an oil spill from either a ship or an offshore installation, and it stipulates which state party should be responsible for bearing the costs associated with cleaning up pollution incidents within their jurisdiction (Article 13(2)).[48] It also requires parties to the Convention to ensure that operators of offshore installations in their jurisdiction have contingency plans for combating any pollution incidents (Article 11(5)).

  The EU is one of only seven Convention Parties to have ratified the Prevention and Emergency Protocol. This means that although only three Member States have ratified the Protocol individually, it is nonetheless a binding part of EU law and all EU Member States must implement its provisions when operating in the Mediterranean Sea area.

  Note: The International Convention Relating to Intervention on the High Seas in Cases of Oil Pollution Casualties 1969 also gives coastal states the right to take necessary measures on the high seas to prevent, mitigate or eliminate danger to its coastline or related interest from oil pollution or threat of oil pollution. There are also a number of other international conventions connected to safety, training etc. (For example, The Convention on Safety of Life at Sea 1974, the COLREG Convention 1972 on preventing collisions at sea and the STCW Convention 1978 on standards of training, certification etc). However, these conventions are not of such direct relevance in relation to the matter at the heart of this paper, incidents involving offshore installations.

The OPRC Convention imposes emergency planning rules on operators of oil rigs, but it is not general EU law and its implementation is disparate. It does not cover other deep sea/seabed activities not connected to oil pollution. OSPAR does not provide for emergency planning processes or for clean up responsibilities and the allocation of liability. Neither does it provide for insurance or financial guarantees in relation to accidents. The Barcelona Convention contains emergency planning requirements, but is limited in its coverage to the Mediterranean.

To ensure that accident response plans are comprehensive across the EU—crucial given the transboundary nature of offshore pollution—improved implementation/compliance and EU wide requirements are needed.

 (ii)   EU safety, emergency planning and accident response: the Seveso II Directive, the Erika packages and EMSA

  As a consequence of the Piper Alpha disaster in 1988, there are now a number of EU Directives that aim to protect workers on oil rigs and that consequently impose safety procedures and safety measures in relation to oil rigs (see for example Directive 89/391/EC and Directive 92/91/EC). However, they prescribe only very basic safety measures, and do not provide for environmental protection standards.

Seveso II

  The Seveso II Directive (Directive 96/82/EC on the control of major-accident hazards involving dangerous substances) imposes rules requiring operators of facilities handling dangerous substances to put in place major accident prevention policies, management systems and procedures. It includes notification and information requirements and rules on safety reports, emergency plans and even land-use planning with respect to the location of facilities handling dangerous substances (Articles 6-14). These measures are all aimed at safeguarding a high level of protection for "man and the environment" (see Article 7). However, the Seveso II Directive specifically does not apply to off-shore exploration or exploitation of minerals, including hydrocarbons (see Article 4(f)). It is therefore of no application at all in the context of oil rigs. Similarly, the Mining Waste Directive (Directive 2006/21/EC), which also contains provision for major accident planning (see Article 6) does not apply to oil rigs.

  Seveso II contains a number of crucial elements which should clearly apply to off-shore installations including oil rigs just as they are applied to other installations handling high risk substances. The recitals to Seveso II list several important features concerning the context of the legislation, which apply with equal force in the context of offshore oil drilling: for example, reference to the transboundary nature of accident impacts, the potential role of management failures in causing catastrophes, the need to harmonise inspection standards, and to give the public access to safety records. The extension of the Seveso II Directive to cover oil rig regulation in addition is an option worthy of consideration.

  However, it should be noted that simply removing the exclusion in Article 4(f) would not provide a complete solution to the oil rig problem. Seveso II is a Directive designed to deal with a particular type of situation, ie scenarios where dangerous substances are present in significant quantities over specified thresholds. This may not always be the case for off-shore drilling (consider exploratory drilling or decommissioned rigs for example), and while Seveso II's coverage extends to the anticipated presence of dangerous substances, is needlessly ambiguous. Seveso II deals with major accidents, while in contrast, a comprehensive system of regulation for oil platforms should also aim to address issues such as the incipient oil well leakage which occurs during "normal" operation and the possibility of leaks after rigs have been decommissioned. It applies to "establishments under the control of the operator"—which again, in the context of a platform drilling beneath the seabed, is not an appropriate wording. It covers land use planning but not the parallel of taking into account accident risks during oil field licensing processes.

  In summary, to use Seveso II as a vehicle for regulation of oil rigs (and other deep sea/seabed activities) would require a major overhaul of the Directive, and it may be more appropriate to deal with offshore drilling via separate legislation covering, in parallel, the features of the Seveso II Directive.

  On top of these Seveso II equivalents, other elements are necessary to the regulation of oil rigs, which Seveso II does not deal with, for example the allocation of liability for accidents and compensation mechanisms. These are discussed in the following sections.

  Finally, on the question of health and safety regulation, it should be noted that question marks currently exist over the capacity of Member State inspection authorities to ensure that even the basic worker protection standards contained in current EU legislation are properly adhered to. For example, in the UK, the Health and Safety Executive (tasked with oil rig inspection duties) is under resourced in terms of a sufficient number of properly qualified personnel to carry out this function. It therefore relies to a significant extent on the industry to "self-regulate", providing information on risk management procedures and accident records, which the HSE itself may not have the capacity to verify independently. The possibility of augmenting Member States' inspection capacities via an EU level agency with responsibility for oil rig safety is returned to below.

The Erika packages (I and II) and the Third Maritime Safety Package

  After the Prestige and Erika tanker oil spills off the French and Spanish coasts, the EU passed a number of measures aimed at preventing future accidents of this nature, including (but not limited to):

— Measures linked to port state control (Directive 95/21/EC and Directive 2009/16/EC), ship inspections, safety standards and flag state requirements (Directive 94/57/EC, 2001/105/EC, Directive 2009/21/EC, Regulation 391/09/EC and Directive 2009/15/EC), ship generated waste (Directive 2002/59) and on banning single-hull oil tankers (Regulation 417/2002/EC).

— Measures to increase transparency in relation to the availability of information on ship safety, EU vessel traffic monitoring and information systems (Directive 2002/59/EC), and an EU maritime safety structure (Regulation 2099/02/EC).

— Rules on traffic monitoring, accident investigation, and liability of carriers of passengers by sea in the event of an accident (Regulation 392/09/EC).

— Mandatory requirements for ship-owners to insure against damage to third parties caused by their ships where such damage is not covered by the LLMC Convention (but not the oil pollution conventions mentioned above) (Directive 2009/20/EC).

  The measures introduced in the Erika packages and the Third Maritime Safety Package are aimed at oil pollution from ships. They do not address potential oil rig accidents or indeed other forms of deep sea/seabed activities.

  A key issue for consideration in this context is the role of the European Maritime Safety Agency (EMSA) (established—again in response to Erika—by Regulation 1406/2002/EC, and carrying out a number of key functions in respect of the implementation and enforcement of the measures described above). At the moment, EMSA's mandate specifically refers to ships, and it does not play any role either in relation to the inspection of oil rigs or other, non-shipping related offshore activities, or in relation to any oil pollution preparedness measures specifically aimed at offshore installations. It should be considered whether EMSA's role can, and should be extended in this direction.

  EMSA currently has various responsibilities and areas of experience which might place it well to take on a similar role in relation to oil rigs/other offshore installations. For instance:

— Inspection tasks—EMSA has responsibilities for ensuring that EU legislation concerning ship safety and port control is properly implemented by the Member State authorities responsible for upholding it within their jurisdictions. For this purpose EMSA may undertake visits to Member State authorities. Its role may be seen as "controlling the controllers".

— EMSA provides training for seafarers on safety issues, and also provides training for Member State inspectors.

— EMSA provides support to Member States in investigating serious "maritime accidents". It also maintains a database on accidents, with the aim of making it easier to identify trends and manage risks.

— EMSA has access to qualified engineers and a fleet of vessels for the purpose of assisting with clean up of spills from oil tankers, and a satellite system ("CleanSeaNet") capable of detecting and tracking spills regardless of their source. Part of EMSA's pollution incident response function is to facilitate cooperation between Member States.

— EMSA performs research and maintains databases of information on safety and technical issues, disseminating information on best practice.

  EMSA has the experience and technical capabilities to respond to oil spills whatever the source, and indeed has provided assistance in the case of Deepwater Horizon. All of these tasks could be extended into the realm of oil rigs and regulation of other deep sea/seabed activities, and potentially be of enormous assistance to Member State authorities.

  Consideration should also be given to whether EMSA could, with appropriate funding, go even further and take on a fully independent role eg in respect of the investigation of accidents or the inspection of installations.

  EMSA's future mandate is currently under review in any event, plus in addition the Commission is working on a feasibility study regarding a European Coastguard service. The potential role of either or both in relation to oil rigs should be a feature of this work. Extra funding will be needed.

In EU law, more rigorous and detailed safety policies and management systems are required for oil rigs, as is a harmonised system of inspections. This could potentially be achieved by extending the provisions of the Seveso II Directive to oil rigs, which it currently excludes, but would be better be done by introducing a separate package of legislation covering the same elements as Seveso II to fill the current regulatory gap, including in particular requirements for:

— operators of offshore installations to have a major accident prevention policy,

— operators to produce safety reports covering specified information,

— operators and Member State authorities to draw up emergency plans, review, revise and update these,[49]

— systematic inspection of installations by Member State authorities according to designated criteria (which should be specific to offshore installations), and production of reports on these inspections, and

— information provision and exchange between the Commission and Member States.

  Measures passed as a response to the Erika and Prestige disasters do not consider potential accidents caused by oil rigs. Off-shore installations need to be controlled and regulated in a similar way to ships.

  EMSA's role should be extended to cover offshore installations including oil rigs. It should have enhanced and independent powers of inspection and enforcement. With appropriate resources, EMSA would be well placed to play a central role in any package of accident response measures.

4.  RESEARCH, MONITORING AND INFORMATION EXCHANGE

 (i)   International law: UNCLOS, OSPAR and Barcelona

  UNCLOS imposes on its Contracting Parties duties of monitoring and international cooperation (Article 197ff).

  The OSPAR Commission monitors the development of North Sea offshore oil and gas installations and maintains an inventory of details such as location, size, type and operational phase. The OSPAR Convention requires its Contracting Parties to provide various items of information to the OSPAR Commission, which collates this and publishes it on an annual basis. This includes information on emissions and discharges from offshore installations, including substances used in drilling operations, and accidental spills. OSPAR's work also extends to projects reviewing the impacts of carbon capture and storage operations. As noted above OSPAR countries are obliged in addition to report on the implementation and effectiveness of Recommendations of the OSPAR Commission.

  The OSPAR Convention also contains a general obligation on its Parties to cooperate in regular monitoring and assessment of the marine environment. Quality Status Reports are produced on a 10 to 20 year time frame. This assessment and reporting includes the effects of human activities in the North Sea, including the impacts of the offshore oil and gas industry.

  The Barcelona Convention likewise contains commitments on monitoring pollution in the Mediterranean area, and on sharing scientific and technical knowledge (see Articles 10 and 11).

In Europe, the most systematic collection and dissemination of data relating to safety and environmental impacts of offshore installations is carried out under the OSPAR Convention. This is valuable, but only has relevance to the North East Atlantic region. Similarly, research and monitoring of pollution including from offshore sources is carried out under the auspices of the Barcelona Convention, but only in respect of the Mediterranean. There is a need for a Europe-wide co-ordination of these activities, building on the work that is already on-going, ensuring consistent standards and sharing results, expertise and best practice across the regions (to include the North East Atlantic, Mediterranean plus the Baltic and Black Sea).

 (ii)   EU measures: the Seveso II Directive, Erika packages and EMSA

  The EU measures described in the previous section, ie the Seveso II Directive and the Erika/Prestige and Third Maritime Safety packages touch on research, monitoring and information exchange in relation to the sectors which they cover. For example, Seveso II requires that prescribed information about safety at the installations it regulates is compiled, reviewed every three years, proactively disseminated to the public and exchanged with other Member States. After major accidents, Seveso II requires operators and Member State authorities to collect specified information so that a full analysis can be performed of the "technical, managerial and organisational" aspects of the incident and recommendations made. Article 19 of Seveso II states as follows:

"Member States and the Commission shall exchange information on the experience acquired with regard to the prevention of major accidents and the limitation of their consequences. This information shall concern, in particular, the functioning of the measures provided for in this Directive. "

  As noted above, EMSA is tasked with maintaining a maritime accident database collating information on the causes and consequences of shipping related accidents. It is developing systems for harmonising the approaches taken by different Member States to investigating maritime accidents and dealing with data on shipping safety standards. One of EMSA's key roles is organising workshops, training sessions and expert discussions to facilitate the exchange of information between Member States, and the European Commission.

  The second "Erika Package" of EU legislation put in place monitoring systems to track and report on ships carrying hazardous goods.

  None of these monitoring and information systems apply to offshore installations or accidents involving oil rigs or other types of deep sea/seabed activities, and there is no equivalent centralised EU system.

Within the EU, there are several systems in place for carrying out research, monitoring activity and sharing information in the realm of shipping, and EMSA plays a central role, but no equivalent exists for offshore installations. An equivalent framework is needed. Once again, EMSA's remit should be extended so it can carry out similar functions in relation to oil rigs and other forms of deep sea/seabed activities. This role could include liaising with the OSPAR and Barcelona Convention bodies to leverage the research and information sharing experiences already developed in the regions with which they deal.

5.  IMPACT AND ENVIRONMENTAL ASSESSMENTS

 (i)   International law: UNCLOS, the Espoo Convention 2001 and the Kiev Protocol 2003

  UNCLOS imposes on its Contracting Parties duties of monitoring and environmental assessment (Articles 204 and 205).

  The Espoo Convention (Convention on Environmental Impact Assessment in a Transboundary Context 2001) requires its Parties to "take all appropriate and effective measures to prevent, reduce and control significant adverse transboundary environmental impact from proposed activities" (Article 2(1)). The Convention requires that transboundary environmental impact assessments are carried out where significant adverse impacts are likely to result from a proposed activity, and the responsibility falls on the "Party of Origin", ie the party in whose jurisdiction the activity in question is going to take place.

  Appendix I of the Espoo Convention lists offshore hydrocarbon production as an activity with potential to cause significant adverse impacts, but not other possible deepsea/seabed activities, for example in relation to carbon capture and storage (see below).

  An oil spill from an offshore rig affecting more than one country would constitute a "transboundary impact" with a significant "impact" on the environment (including the marine environment).

  Importantly, the environmental and human health impacts which Parties to the Espoo Convention are required to prevent by taking relevant measures, are defined very broadly, and are not restricted to specific elements of the environment (as is the case, for example, with the EU Environmental Liability Directive, as explained further below). However, countries vary in their interpretation of whether adverse impacts are "likely". Guidance produced by UNECE on the Convention recommends that assessments are performed for projects whenever there is even a low likelihood of significant transboundary impacts,[50] but this is not a requirement of the Convention itself.

  The Kiev Protocol on Strategic Environmental Assessment 2003 is intended to support the Espoo Convention by ensuring that individual Parties integrate environmental assessment into their more general plans and programmes at an early stage, thereby helping to lay the groundwork for sustainable development. The Kiev Protocol entered into force in June 2010.

  The EU is a signatory to both the Espoo Convention and the Kiev Protocol, which makes them integral parts of EU law and immediately binding on EU Member States (see above). The EU rules on EIAs and SEAs (described in the next section) do incorporate transboundary requirements, but there are question marks over how well transboundary EIAs are operating in practice. In addition to improving procedures under the EU Directives, guidance at EU level on when a project may be expected to have transboundary effects would be useful.

The application of the Espoo Convention and the effectiveness of transboundary environmental impact assessments within the EU appears to vary considerably and could be improved by EU wide guidance on when transboundary consultations should be carried out. It should be the case that transboundary EIAs are mandatory for offshore drilling, given the strong potential for a spill in the marine environment to have effects on more than one Member State. It may be necessary to amend EU legislation in these areas to ensure that international rules on transboundary assessments are properly incorporated.

 (ii)   EU Environmental Assessment Rules

  Oil rigs are subject to requirements under various EU rules on environmental assessments, such as:

— The Environmental Impact Assessment (EIA) Directive (Directive 85/337/EC as amended by Directive 97/11/EC): commercial petroleum extraction projects of more than 500 tonnes of oil a day are subject to mandatory environmental impact assessment (as they are Annex 1 projects);

— The SEA Directive (Directive 2001/42/EC) under Article 3(2)(a); and

— Appropriate assessments under Article 6(3) of the Habitats Directive (Directive 92/43/EEC), which applies to any plan or project that may have significant effects on sites protected under that Directive.

  The EIA Directive is currently under review and a number of issues arise in relation to its application to offshore installations which should be built in to this process with a view to making necessary improvements.

  Some of the issues arising in the context of the EIA review include:

— Ensuring that exploratory drilling for oil or for any other resources or any other reasons is covered by the requirement for an EIA in every case. Currently an EIA is required under Annex I of the Directive for "Extraction of petroleum and natural gas for commercial purposes where the amount extracted exceeds 500 tonnes per day…". It is conceivable that this could result in no mandatory EIA requirement for exploratory drilling projects, drilling for research purposes or other sea bed drilling activities not related to hydrocarbon extraction, which may not actually result in an oil rig producing more than 500 tonnes per day but may nevertheless pose serious environmental risks.

— The quality of EIAs in some cases is a serious issue. There is currently no system for ensuring that those responsible for carrying out impact assessments perform this work to an appropriate standard, using reliable information and analyses; such as a system for accreditation of consultants, or for independent review. The Commission's current review of the EIA Directive already highlights the potential use of guidelines on specific issues to be taken into account in preparing EIAs for particular sectors.

— Current experience as detailed in the Commission's EIA review shows that transboundary EIAs are hampered by practical issues including differing standards, guidelines, timetables and language difficulties cross-border.

— The definition of environmental impacts for the purposes of the EIA Directive is broad. However, climate impacts may not be considered, and there may be a need to refer expressly to these (liability for climate damage is discussed in more detail in the next section of this paper).

— In the case of exploratory drilling for sea-bed oil, it may be the case that the risks of a particular project do not fully emerge, or change in nature, as the drilling progresses. There should be a requirement that any material change to the information in an EIA which comes to light after a project has been consented be notified to the competent authorities.

In the EU, specific rules exist in relation to environmental impact and strategic environmental assessments. In relation to oil rigs, the implementation of the EIA, SEA and Habitats Directives (as well as the Espoo Convention) needs to be monitored to ensure assessments are properly carried out and all provisions relating to environmental impact assessments are being applied consistently throughout the EU.

The current review of the EIA and any potential recast should address the following points:

— All sea-bed drilling and deepwater activities should require environmental impact assessment. The EIA Directive should be amended so that any sea bed drilling, or at least any sea bed drilling beyond a certain depth, is included in Annex I. This would enable coverage of carbon capture and storage activities, as well as any exploratory drilling which could otherwise be in danger of falling through the gaps.

— EIAs must be carried out to a satisfactory quality level. Key suggestions for improving quality include—accreditation of consultants, independence requirements for consultants, independent external review of EIAs, and guidelines on specific issues aimed at both the author of the EIA (ie what information should be covered) and the decision makers (how to weigh and assess the information).

— The suggestion that sector specific guidelines are employed should definitely be built into the updated EIA Directive in respect of offshore installations. The guidelines should ensure that all of the potential consequences of an accident involving deep sea/seabed activities or installations, including oil rigs, are fully covered and assessed as accurately as possible, building on scientific/technical knowledge gained from previous accidents including Deepwater Horizon. A centralised database on oil rig and other relevant accidents (maintained by EMSA for example) would be of assistance to this end. All impacts and potential impacts need to be properly explored, including accident impacts, leaks following decommissioning or blocking of a drilling site, and oil leaks during "normal" operation.

— New requirements should be made for EIAs for "hyper-hazardous" activities (such as deep water drilling) coupled with a prohibition on Member States' authorities granting development consent where the EIA reveals that risks cannot effectively be mitigated, or where technology to perform the activity safely does not exist.

— The EIA Directive's procedures for transboundary impact assessments need to be improved, with procedural requirements properly harmonised.

— EIAs should be required to take into account climate damage caused by oil rigs either during the course of normal operation or in the case of an accident resulting in large discharges of greenhouse gasses.

6.  LIABILITY, COMPENSATION AND FINANCIAL SECURITY

 (i)   International conventions on maritime liability and compensation for oil pollution

  With the exception of the OSPAR and Barcelona Conventions, which state the "polluter pays principle" but do not go on to provide details as to how this should operate in practice, the "polluter pays" principle is not expressly applied in international law, and in particular no liability or compensation frameworks exist under international law with respect to the consequences of an accident involving pollution from an offshore installation. Commitments in the Barcelona Convention (Article 12) to develop detailed provisions for determining liability and compensation have not yet been adopted.

  International conventions dealing with liability in relation to oil pollution (and for that matter, other forms of pollution) arising from shipping, or with the limitation of liability for maritime claims, do not apply to pollution arising as a result of accidents on oil rigs or other offshore installations. They are restricted in their application to pollution incidents caused by ships. Therefore, none of the following conventions would apply to an oil rig accident:

— The Convention on Limitation of Liability for Maritime Claims (LLMC) 1976.

— The International Convention on Civil Liability for Oil Pollution Damage (CLC) 1992.

— The International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (the Fund Convention) 1992.

— The International Convention on Civil Liability for Bunker Oil Pollution Damage (the Bunkers Convention) 2001.

— The International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (the HNS Convention) 1996.

  The above instruments set out various systems for assigning liability for the consequences of spills to ship owners and operators, liability limits, funds to which ship operators contribute and which provide readily accessible compensation up to maximum limits, and mandatory insurance requirements.

 (ii)   Compensation and financial security in the EU

  Plans to introduce a number of collective compensation schemes, or a fund providing a financial guarantee for civil liability, and to establish a wider principle of liability on the part of carriers and cargo owners were introduced under the Erika and Third Maritime Safety packages but never realised. The proposal included an EU level fund to top up the maximum compensation levels available under the various international conventions (described above) in the case of an oil spill from a tanker. Provisions for financial guarantees have been incorporated to a limited extent into the Mining Waste Directive but only in relation to the period after the mine closes (eg after decommissioning) and for land rehabilitation (in Article 14). However, in any case, neither the Mining Waste Directive nor the liability and insurance rules of the Erika and Third Maritime Safety packages extend to operators of offshore installations.

  The Environmental Liability Directive (discussed in detail below) does not contain provisions for guarantees of financial security, or (as a general liability framework) collective compensation mechanisms for particular sectors.

  As matters stand therefore, nothing exists under EU law in terms of a compensation fund, automatic liability or mandatory insurance or other financial security requirements for oil rig/offshore installation operators. As seen in the previous section, there is no framework under international law either which would cover this gap.

  As such, it is essential that consideration be given to a new EU mechanism requiring either contribution to a collective compensation scheme, and/or other types of financial security, including insurance, to provide for the costs of remedying environmental damage. Precedents such as the IOPC Funds for ship based oil pollution, and the EU rules on ship pollution liability are available. Other sectors, such as waste, have related requirements—for example the Landfill Directive (Directive 1999/31/EC) provides that Member State authorities may not issue landfill permits unless satisfied that adequate provision has been made by way of financial security to cover operations including after-care of a landfill site. Voluntary industry schemes already exist—four of the major oil companies have instigated a scheme of their own following the Deepwater Horizon disaster, to deal with accident response. OPOL, involving operators on the UK continental shelf, is an industry funded arrangement guaranteeing compensation up to a certain level, including in the event that the operator responsible cannot pay. However, arrangements need to be mandatory and contributions must be calculated to cover the realistic costs. Clearly, detailed consideration will need to be given to what the appropriate contributions and compensation limits need to be, in view of the maximum costs of the Deepwater Horizon clean up and in consultation with industry, regulators, and observers.

International conventions on liability and compensation for oil and other pollution only apply to ships, not to oil rigs or other offshore activities. Therefore they will not provide any funds or compensation in relation to an oil spill caused by an oil rig or any other environmental damage caused by any deep sea/seabed activities.

Given the potentially enormous quantities of oil which could be released by an oil rig accident, for example, as compared to a tanker accident, the absence of an equivalent framework for compensation and liability covering oil rigs (and increasingly also other types of deep sea/seabed activities) is a gross imbalance.

No system exists at EU level to fill this gap. The Environmental Liability Directive (see below), contains no requirements relating to compulsory financial security or insurance requirements for operators undertaking Annex III dangerous activities. Neither does any other EU law. This is a crucial feature of any comprehensive liability regime, as without guarantees that funds will be available in the event they are needed, liability will be a pyrrhic victory.

Drawing from the international conventions listed above, and considering what is necessary in the context of offshore drilling, the following elements should be covered in a liability and funding framework:

— An agreed system assigning liability in the event of a pollution incident involving an offshore installation to the party or parties responsible. This should entail all potentially responsible parties on a joint and several basis. Liability should be strict (see also comments in the following section).

— A fund, to which compulsory payments must be made as a condition of being granted operating licences for offshore activities. This fund would guarantee resources for clean-up operations and compensation payments for personal injury, property and other environmental damage (broadly defined), up to set limits. Research is needed on the basis of the costs of previous spills in order to decide what the appropriate payments and limits should be, and there should be widespread public consultation on that issue.

— In the event that the party responsible for the pollution is unable to pay, for example in case of insolvency, the fund should be available to meet costs.

— Financial security conditions should extend to the period after a well is decommissioned, for example by requiring bonds or funds regarding potential future liabilities.

— Consideration should also be given to whether insurance is an appropriate vehicle for financial security.

— The system should apply to any entity which wanted to undertake offshore drilling or any other type of offshore activity in the deep sea/seabed for any purpose including oil, gas, other deep sea minerals, CCS and including exploratory drilling.

— The Hydrocarbons Directive should be amended so the Member States may not issue licenses for off-shore drilling unless the operator can demonstrate it has emergency funds and/or insurance for environmental damage in place up to a sufficient minimum level.

 (iii)   Liability in the EU: The Environmental Liability Directive

  The key piece of liability legislation relevant at EU level is the Environmental Liability Directive. As seen above, at international level, virtually no framework exists for regulating liability with respect to oil rigs or other deep sea/seabed activities. Likewise, no formal compensation structure exists at either EU or international level as far as such activities are concerned, though there is precedent in the form of oil tanker regulation, and voluntary industry agreements.

  The Environmental Liability Directive (ELD—Directive 2004/35/EC) establishes rules that implement the polluter pays principle by making "operators" carrying out certain "dangerous" activities (see below) automatically, and regardless of fault, responsible for preventing and remedying significant damage to water (defined by reference to the Water Framework Directive (Directive 2000/60/EC)), soil (if there is a risk to human health) and biodiversity (certain habitats and species protected under the Habitats Directive (Directive 92/43/EC)). It also imposes fault-based liability in relation biodiversity damage only (as just defined) as regards all "occupational activities" (not just certain "dangerous" ones).

  The ELD applies in Member States' exclusive economic zones. Crucially however, the ELD does not cover any category of marine water damage.

  Out of the damage categories covered by the ELD, only biodiversity damage could be a relevant consideration in relation to an oil rig accident, and only where the incident caused serious damage to a protected species or habitat. To trigger liability under the ELD, such damage would need to have a significant adverse effect on species or habitats protected under the Wild Birds Directive (Directive 2009/147/EC), or Habitats Directive (Directive 92/43/EC), as regards their reaching or maintaining favourable conservation status (see Article 2(1)(a) of the ELD).

  Annex III of the ELD lists a number of activities which are perceived as dangerous (and regulated as such under EU law), or which involve dangerous substances. Thus, it includes the management of extractive waste pursuant to the Mining Waste Directive, but also the:

"7. [m]anufacture, use, storage, processing, filling, release into the environment and onsite transport of:

(a) Dangerous substances as defined in Article 2(2) of Council Directive 67/548/EEC…"

  Annex I of Directive 1272/2008/EC, replacing the Annex I of the abovementioned Directive 67/548/EEC, lists the substances referred to in Article 2(2) of Directive 67/548/EEC (which still applies today). Hydrocarbons and crude oil are included. Under the same Directive 1272/2008/EC, the definition of "manufacture" includes the "production or extraction of substances in the natural state" (Article 2(14)).

  The drilling and extraction of crude oil is therefore covered by Annex III of the ELD, and any damage caused by such activity which caused significant adverse effects to any such sites or species protected under EU law would trigger strict liability on the part of the operator under the ELD.

  In cases where liability is established under the ELD, the rules require that the damage must be reinstated and/or complementary and compensatory remedial measures might also be required (see Article 6 and Annex II of the ELD). Both the operator and the competent authority are under a duty to take action, with costs incurred by a competent authority being recoverable from the operator (see Articles 5, 6, 7 and 11 ELD). There are also requirements relating to the prevention of damage where there is an imminent threat of it occurring (Article 5).

  However, major problems exist with the application of the ELD generally and some of these problems are particularly pertinent in respect of oil rig accidents (or accidents relating to other deep sea/seabed activities).

  Firstly, the ELD covers only specific types of environmental damage, and not damage to biodiversity, water or soil in general. Namely, as already explained, it relates only to areas of environmental protection in relation to which the EU has made specific rules (eg water status and protected species and habitats). However, other types of environmental damage including damage to habitats, species and ecosystem services outside of the framework of special EU protection would not be covered by the ELD. This stands in stark contrast to other, generally applicable directives, such as the EIA and SEA Directives and, importantly, the Mining Waste Directive, which apply much more broadly to risks to "the environment" in general (see for example Article 4(1) of the Mining Waste Directive).

  Oil pollution from an oil rig accident could have widespread environmental effects which would not be captured by the ELD as it currently stands. Against this background it should be noted that the EU Natura 2000 network of protected sites under Directives 79/409/EEC and Directive 92/43/EEC has not yet been fully designated in the marine zone, which has knock-on effects for the coverage provided by the ELD.

  Secondly, the damage thresholds that trigger liability under the ELD are set at a very high level, which is incredibly difficult to establish (the ELD has been in force since 2007 and has been applied very infrequently). On the other hand, the Mining Waste Directive (which has aims very closely connected to those of the ELD and is listed in Annex III of the ELD—see further below), sets a much lower damage threshold in its general requirements: danger to human health, harm to the environment, in particular risks to water, air, soil, and fauna and flora (Article 4).

  Thirdly, as already explained, the ELD introduces two different liability regimes (Article 3(1)). In relation to activities listed in Annex III of the Directive, it imposes strict liability. In relation to other "occupational activities" (essentially, all other commercial or business activities), liability for biodiversity damage is fault based, and there is no liability at all in relation to water and soil damage.

  It is questionable whether the Annex III definition is robust enough to capture exploratory drilling activities, and other types of sea-bed drilling not entailing the extraction of hydrocarbons, plus activities in connection with sealing and decommissioning a drilling site once its use was at an end.

  If the ELD were extended to apply to marine water damage, then it would be important that strict liability rules extended to this category of damage for all occupational activities, not just Annex III activities.

  It should also be noted that the ELD does not apply to environmental damage arising from incidents in relation to which certain international oil (and other) pollution liability conventions (listed in the above section on compensation funds and financial security) are triggered. However, these conventions are restricted in their application to oil (and other) pollution from ship sources, not from oil rigs.

The Environmental Liability Directive applies to oil pollution caused by oil rig accidents in very limited circumstances, namely where significant damage is caused to biodiversity with protected status under EU law. As the extraction of crude oil falls within the list of dangerous activities in Annex III of the ELD, strict liability (ie liability regardless of fault such as negligence) would attach to the operator of the oil rig in these circumstances.

However, this is the extent of the ability of the ELD to respond to environmental damage caused by an oil rig accident. Environmental damage as a general concept is not covered. Damage to marine waters per se, independent of any particular biodiversity damage, is not covered, unlike inland water damage. Damage to the global climate is highly unlikely to be captured. In effect, damage categories under the ELD are extremely narrow, and damage thresholds are extremely high.

The ELD is scheduled to be reviewed in 2013-14 (see Article 18), and its current weaknesses should be remedied at this opportunity. With adequate amendments, the ELD could provide an effective solution to regulating liability for oil rig pollution and other deep sea/seabed incidents. However, if this cannot be achieved, it is essential that separate legislation is passed in parallel to the ELD to address these types of activities specifically. Liability regimes specific to particular activities are necessary where the risk profile of those activities demands it, as in the case of seabed drilling.

The following points should be addressed in such legislation (as well as being considered more broadly in the wider ELD review):

— Damage thresholds need to be materially lower than those in the current ELD. The ELD, and any specific oil-related (or deep sea/seabed activity related) liability legislation, should contain wide-ranging definitions of "environmental damage" as do the EIA and Mining Waste Directives. The definition should be broad enough to include damage to the global climate.

— There must be strict liability coverage for all seabed activities, including phases of a project before the "production or extraction of substances" has actually commenced. There must be coverage for activities in relation to sealing and decommissioning of a site as well as its operation. As concerns the ELD, Annex III should be extended to cover all of the potentially environmentally damaging activities listed in the annexes to the EIA and SEA Directives.

— Liability for offshore pollution must be capable of attaching to all potentially responsible parties on a joint and several basis (not only to the owner or "operator" of the oil rig or other installation). Any one potentially responsible party must be capable of being found liable for the maximum costs of clean-up and compensation. The designation of liability as between joint venture partners, subcontractors, and so on, should be allocated by those parties between themselves without prejudice to the position of clean up operations and victims of environmental damage.

— The 30 year temporal limitation under the ELD needs to be reviewed, and such a limit is certainly inappropriate in the context of specific regulation addressing liability in the case of offshore drilling. Capped wells may leak decades after they go out of use. At the moment there is no system assigning liability for oil spilt from a decommissioned well which has been abandoned by its original operator. The regulation of sea-bed drilling should reflect the regime for (for instance) waste as set out in the Landfill Directive, where the responsibilities of the site operator during an after-care period are acknowledged. Operators should remain liable for drilling sites after closure.

— Mandatory financial security provisions are required to complement the liability regime—see the previous section.

 (iv)   Liability for climate damage

  In addition to the problems described above for dealing effectively with liability in general, no mechanism currently exists, either at EU level or internationally, for dealing with liability for the damage to the global climate which could result from a marine disaster. In addition to oil spill fires, including controlled burns such as those deployed in response to the Deepwater Horizon incident, such damage could result from methane or other greenhouse gas emissions released by sea bed drilling. Climate damage constitutes a special kind of damage, which, because it may not necessarily result in local damage to habitats or humans, or protected species, runs a very high risk of falling through the cracks of liability regimes such as the Environmental Liability Directive. As well as their physical consequences, large releases of climate forcing emissions pose an additional problem in that they risk pushing legally binding carbon budgets and emissions trajectories out of line. A method therefore needs to be found for accounting for such accidental releases in frameworks such as the EU Emissions Trading Scheme.

  The issue of liability for climate damage has arisen in the context of carbon capture and storage (CCS), and legislation regulating this sector does at least acknowledge and attempt to deal with the issue. Where leakage occurs from CCS sites, there will be (1) strict liability under the ELD where local damage also results, (2) financial liability, to buy carbon credits under the EU ETS to cover the amount of the leak, and (3) liability in tort where there is property or health damage to a third party.

  There are serious failings with this approach. Firstly, as we have seen, the scope of the ELD is very limited and it is easy to envisage a situation where a climate damaging release of gasses would have no immediate effect on an EU protected site or species, so that the ELD would not apply. Secondly, a requirement to buy carbon credits is not a penalty in itself. It simply limits liability for climate damage to the current carbon price. In addition, the quantity of gasses released may be impossible to quantify, and the solution is limited to carbon dioxide, ignoring other climate forcing emissions such as sea-bed methane. Finally, tort liability would only arise where the leaked gasses caused personal injury, damage to private property or economic loss, so again, does not respond to the full range of environmental damage.

The EU liability regime needs to be capable of capturing significant damage to the global climate, whether this results from CCS activities or any other marine activities including offshore oil drilling. As already discussed in the context of the ELD, definitions of "damage" in the environmental liability regime should be as comprehensive as possible, but in any event should cover damage to the global climate. A liability system designed specifically to address offshore/seabed activities should encompass legal obligations to take corrective measures where accidental releases of greenhouse gasses occur. Corrective measures may often involve domestic offsets. A mechanism also needs to be found to incorporate estimations of these significant additional emissions into greenhouse gas reporting frameworks and account for them in carbon budgeting.

The Directive on geological storage of carbon dioxide (Directive 2009/31/EC) was an example of a missed opportunity to install a fit for purpose liability regime able to cope with the risks represented by a particular sector, with the result that CCS activities will currently proceed under a limited liability framework. The picture for CCS could be remedied by a new regime covering oil rigs, but extending to all seabed drilling projects in addition.

7.  COMPANY TRANSPARENCY

  Company transparency is a vital aspect of ensuring that individual companies properly manage the environmental risks associated with their activities. The Deepwater Horizon disaster and related market losses have demonstrated the potential vulnerability of investments in companies operating in sectors with high environmental risks, where companies have not taken sufficient precautions to guard against such risks.

International framework

  Currently, there is no system of environmental reporting requirements within international accounting frameworks, such as the International Financial Reporting Standards. Many companies produce corporate social and environmental responsibility reports, but frequently on a voluntary basis (depending on national requirements) and these vary widely in terms of their coverage and quality because no global standard exists. The Global Reporting Initiative (GRI), an organisation established in alliance with the United Nations Environment Programme and consisting of a network of businesses and NGOs, has developed a set of Sustainability Reporting Guidelines to promote a standardised approach to reporting of (amongst other issues) companies' environmental performance. A Sector Supplement to the Guidelines is being developed for the oil and gas industry which will cover, amongst other items, reporting of emergency preparedness and response measures taken by oil and gas companies. However, the GRI Guidelines are currently subscribed to on a voluntary basis only.

  The GRI has recently collaborated with the Prince's Accounting for Sustainability Project to set up an International Integrated Reporting Committee (IIRC) to develop a globally accepted framework for sustainability accounting. Importantly the IIRC will include input from standard setting bodies such as the International Accounting Standards Board. While such international accounting standards are not mandatory as such, compliance with them is generally required for the signing-off by auditors of the accounts of public companies, so that incorporation into these standards of suitably rigorous environmental reporting requirements could have significant effects.

EU requirements

  EU law contains some basic requirements for reporting by companies on environmental issues. The main piece of legislation on this topic is the Accounts Modernisation Directive (Directive 2003/51/EC). This amended the Fourth Council Directive on the annual accounts of certain types of companies (Directive 78/660/EEC) to include the following provision:

"To the extent necessary for an understanding of the company's development, performance or position, the analysis [to be included in the annual report] shall include both financial and, where appropriate, non-financial key performance indicators relevant to the particular business, including information relating to environmental and employee matters;"

  Commission Recommendation 2001/453/EC (on the recognition, measurement and disclosure of environmental issues in the annual reports of companies) led up to the adoption of the Accounts Modernisation Directive and contained detailed discussion of what the Commission considered to be appropriate for company disclosure in relation to environmental issues. The Recommendation set out guidelines for how environmental liabilities and environmental expenditure should be recognised and measured in company reporting and on the sort of environmental disclosures companies should make, for example information on energy performance energy, materials and water use, emissions and waste disposal. However, the Recommendation has no legal force.

  The Commission has in recent months undertaken a series of workshops and discussions with stakeholders on the subject of improving company reporting of environmental issues. No legislative proposal has yet emerged from this process.

  Various international accounting standards have been adopted as EU law (see Regulation 1606/2002 and Commission Regulation 1126/2008), so that companies traded on regulated markets within any of the Member States must prepare their annual accounts and reports in accordance with them. Incorporation of environmental reporting requirements into such international standards, via the work of the IIRC for example, could lead to such measures being adopted as EU law and becoming legally binding in EU Member States.

Enhanced mandatory disclosure on environmental issues and corporate governance is essential to ensure improvements in environmental practices. Voluntary environmental reporting standards exist internationally, but there is currently no framework with legally binding effect. Systematic environmental reporting requirements should be built into international accounting standards, and these should be incorporated into EU law.

The current EU rules on environmental disclosure are not sufficiently stringent. The Commission should bring forward, as a priority, its initiative to enhance company environmental, social and governance disclosure, and a rigorous, mandatory and enforced framework for disclosure on these matters.

September 2010

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47   See, for example, case 104/81 Hauptzollamt Mainz v Kaupferberg, explaining the duty of EU institutions, as well as Member States, to ensure compliance with the obligations arising from international agreements. Back

48   Note this does not extend to a comprehensive system for assigning ultimate liability for pollution damage and/or a compensation system-discussed further below. Back

49   Note this is a requirement of the international OPRC Convention, but as discussed below, implementation of this is patchy in Europe and an EU law requirement would be beneficial in ensuring all Member States' procedures were in line. Back

50   http://www.unece.org/env/documents/2006/eia/ece.mp.eia.8.pdf Back

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Prepared 6 January 2011