Environmental risks of fracking - Environmental Audit Contents

1  Introduction

1. In the US, fracking—a type of 'unconventional gas' involving the extraction of oil or gas using water, sand and chemicals injected under pressure to split shale deposits—has produced a 'shale gas revolution'. In 2013, 11.4bn cubic feet of shale gas from fracking was produced in the US, a nearly nine-fold increase from 2007, and the well-head price of natural gas fell from $6.3/thousand cubic feet in 2007 to $2.7 in 2012.[1] The state of development of fracking as a potential energy source in the UK lags behind the United States, but is now reaching a critical stage. Exploratory drilling has begun, and the Government has introduced tax concessions and is seeking through its Infrastructure Bill to ease the process for fracking operations.

2. The most recent onshore petroleum exploration and development licences were awarded in 2008. Following planning permission, consent was given to drill for shale gas in five locations. Of these, consent for fracking of the shale was subsequently given for two sites near Blackpool. DECC opened the process for awarding the next round of exploration and development licences in July 2014.

3. Cuadrilla, which holds those two fracking licences, is the first company to use modern fracking techniques in the UK. Their exploratory drilling operations at Preese Hall near Blackpool were halted in 2011 until the end of 2012 following two earth tremors linked to their activities. The company has submitted two further planning applications for new exploratory wells near Blackpool. It is expected that, if successful, these applications will pave the way for further planning applications at other sites granted licences in 2008 and from other companies.

4. In Budget 2013 the Government said that it would introduce a new field allowance for shale gas and in July 2013 it launched a consultation on tax incentives for drilling companies. In the 2013 Autumn Statement the Government announced that the tax rate on a portion of fracking companies' profits would be reduced from 62% to 30% and that companies would receive a tax allowance equal to 75% of the capital expenditure on projects. The Prime Minster announced in January 2014 that councils would be able to keep 100% of business rates collected from shale gas sites, doubling the previous 50% under the Government's business rate retention scheme. He said:

    A key part of our long-term economic plan to secure Britain's future is to back businesses with better infrastructure. That's why we're going all out for shale. It will mean more jobs and opportunities for people, and economic security for our country.[2]

The Government estimated that the increase could be worth up to £1.7 million for a typical 12 well site.[3]

5. In the 2014 Autumn Statement the Chancellor stated that "The government is taking steps to ensure that the UK leads the way with shale gas regulation. Shale gas could increase the UK's energy security, support thousands of jobs, reduce carbon emissions, and generate substantial tax revenue."[4] The Autumn Statement announced:

·  a £5 million fund to provide independent evidence to the public about the robustness of the existing regulatory regime.[5]

·  £31 million of funding to create sub-surface research test centres through the Natural Environment Research Council, intended "to establish world leading knowledge which will be applicable to a wide range of energy technologies including shale gas and carbon capture and storage".[6]

·  setting up a long-term investment fund from tax revenues from shale "for the North and other areas hosting shale gas developments, to capture the economic benefits of shale gas for future generations".[7]

·  arrangements to make 'community payments' by fracking companies compulsory if they failed to make them voluntarily (paragraph 7).

The Autumn Statement also included a Government "commit[ment] to maximising the economic benefits of the oil and gas resources in the UK Continental Shelf [UKCS]. With the equivalent of between 11 and 21 billion barrels of oil still to be exploited, the UKCS can continue to provide considerable economic benefits to the UK through increased energy security, a stronger balance of payments position, high-value jobs and further development of the UK's strong, export-focused supply chain."[8]

6. In our Energy Subsidies report in 2014 we criticised the financial support for fracking announced in the 2013 Autumn Statement. We noted that a justification sometimes put forward for subsidies was to promote 'infant industries', including renewable energy technologies, but we criticised the Government's reduction of taxes on fracking profits: "Fracking is not a technology warranting financial support to become viable and competitive, and on that basis it does not warrant subsidy through a favourable tax treatment."[9] The Government's view was that the reduced tax on profits was "not directed specifically at hydraulic fracturing. The [tax] allowance is designed to support onshore oil and gas projects whose small size and technical challenge lead to higher costs, making them economic but not commercially attractive at current tax rates."[10]

7. The Infrastructure Bill[11] includes provisions for the Government to produce a strategy for "maximising the economic recovery of UK petroleum"[12] (which includes oil and gas). It also includes provisions "to introduce a right to use deep-level land" for "petroleum or deep geothermal energy", including fracking, which will ease the planning difficulties that energy companies would otherwise face in getting access rights to shale deposits under landowners' properties.[13] At present, a drilling company must reach agreement with each landowner to obtain rights of access. The new provisions follow a Government consultation in 2014 on its Proposal for Underground Access for the Extraction of Gas, Oil or Geothermal Energy.[14] That consultation included a voluntary community payment of £20,000 for each horizontal well, previously agreed with the industry, and the Bill includes provisions allowing the Government to impose such community payments (paragraph 5).[15]

8. Fracking raises both climate change and wider environmental issues. On climate change, the UK's overall emissions—from all types of energy generation as well as from other sectors—are required to be limited by 'carbon budgets'. Those budgets are set under the Climate Change Act 2008, which requires the UK's greenhouse gas emissions to be reduced by at least 80% by 2050 against a 1990 baseline. As a fossil fuel, fracked gas could impinge on those carbon budgets. Environmental protection has been a central issue for much of our work during this Parliament. We summed this up in our 2014 Environmental Scorecard report,[16] in which we identified inadequate progress on a range of areas including air pollution, biodiversity, soils, the freshwater environment and water availability—all areas which might be vulnerable from onshore fossil-fuel drilling operations.

Our inquiry

9. We received 70 written submissions, including from community groups potentially affected by fracking operations. We took oral evidence on 14 January from Tom Burke of E3G, Professor Paul Stevens from Chatham House, Dr John Broderick from Tyndall Centre Manchester, Dr Tony Grayling and Mark Ellis-Jones from the Environment Agency, Jane Burston from the National Physical Laboratory, Lord Smith who chairs the Task Force on Shale Gas, and Steve Thompsett from UK Onshore Oil and Gas. We have undertaken our inquiry against a backdrop of the Infrastructure Bill (paragraph 7) and we have resolved to publish this report to inform the Report-stage and Third Reading of the Bill on 26 January. We are grateful to all of those who gave evidence against the necessarily tight time-horizon of our inquiry.

10. Other Committees have undertaken inquiries into fracking.[17] The purpose of our own inquiry has been to identify the extent to which fracking would be consistent with the UK's climate change obligations (Part 2) and the environmental risks (Part 3).

1   U.S. Energy Information Administration, Release Date: 4/12/2014 and Release date 31/12/2014; See also Q10 Back

2   Prime Minister's Office, 'Local councils to receive millions in business rates from shale gas developments', 13 January 2014 Back

3   Prime Minister's Office, 'Local councils to receive millions in business rates from shale gas developments', 13 January 2014 Back

4   Autumn Statement 2014, para 1.121 Back

5   Autumn Statement 2014, para 1.121 Back

6   Autumn Statement 2014, para 1.122 Back

7   Autumn Statement 2014, para 1.123 Back

8   Autumn Statement 2014, para 1.124 Back

9   Environmental Audit Committee, Ninth Report of Session 2013-14, Energy Subsidies, HC 61 Back

10   Government Response to Energy Subsidies report, Seventh Special Report of Session 2013-14, HC 1103 Back

11   Infrastructure Bill, as amended in the (Commons) Public Bill Committee, 16 January 2015 Back

12   Infrastructure Bill Explanatory Memorandum, paras 224-229. (Clause 37 of the Infrastructure Bill, as amended in the (Commons) Public Bill Committee). Back

13   Infrastructure Bill Explanatory Memorandum, para 234-247. (Clauses 39-40 of the Infrastructure Bill, as amended in the (Commons) Public Bill Committee). Back

14   Consultation on Proposal for Underground Access for the Extraction of Gas, Oil or Geothermal Energy, DECC (May 2014) Back

15   Infrastructure Bill Explanatory Memorandum, paras 248-250. (Clause 41 of the Infrastructure Bill, as amended in the (Commons) Public Bill Committee). Back

16   Environmental Audit Committee, Fifth Report of Session 2014-15, An Environmental Scorecard, HC 215 Back

17   Environment Food & Rural Affairs Committee, Defra's responsibilities for fracking, Letter to Secretary of State following one-off session, HC (2014-15) 589, September 2014; Committee; Energy & Climate Change Committee, Seventh Report of Session 2012-13, The impact of shale gas on energy markets, HC 785, and Fifth Report of Session 2010-12, Shale gas, HC 798; Welsh Affairs Committee, First Report of Session 2014-15, Energy generation in Wales: Shale gas, HC 284; Economic Affairs Committee, Third Report of Session 2013-14, The Economic Impact on UK Energy Policy of Shale Gas and Oil, HL 172 Back

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Prepared 26 January 2015