Appendix: Government Response
1. The UK Government welcomes the Welsh Affairs Select
Committee's report Energy generation in Wales: Shale Gas. We value
the opportunity to work together with the Welsh Government on
this important issue. Both Governments have engaged throughout
the process of the Select Committee by submitting oral and written
evidence. We set out below the UK Government's response to the
Committee's recommendations.
2. As we have previously stated in our written evidence,
the UK Government believes that shale gas has the potential to
provide both Wales and the UK with greater energy security, growth
and jobs. The UK Government has committed to ensuring that a world-leading
framework for investment is in place so that if the conditions
are right the industry can prosper. We are encouraging safe and
environmentally sound exploration to determine how much of this
potential can be realised.
3. We welcome the conclusion from the Committee that
it is vital that the UK identifies new sources of gas to safeguard
the UK's security of supply. As we identified in our previous
evidence gas will continue to be a crucial part of our energy
mix to 2030 and beyond. The UK Government's Gas Generation Strategy
also makes clear that gas will continue to play a major role in
the UK electricity mix over the coming decades. With UK offshore
gas supplies declining the UK has become increasingly reliant
on imported gas. In 2003, we were a net exporter of gas. Now,
we are a net importer through pipelines from Norway and Holland
- and Liquefied Natural Gas (LNG), mostly from Qatar. By 2025,
if we continue at our current rate, we expect to be importing
close to 70% of the gas we consume. This demonstrates the importance
of the UK making the most of its indigenous natural resources.
4. We also welcome the Committee's focus on the impacts
for communities, both economic and environmental. Gas produced
in the UK, just like renewables and new nuclear, supports jobs
and tax revenues for our society. As the Committee's report notes,
a report by the Institute of Directors titled 'Getting Shale Gas
Working' published in May 2013, estimated that UK investment could
peak at £3.7 billion a year and support 74,000 jobs in the
oil, gas, construction, engineering and the chemicals sectors.
The UK Onshore Operators Group (UKOOG), the industry body, commissioned
a report by EY on the shale supply chain in April 2014 based on
the IoD high case scenario that identified many significant opportunities
for UK business as part of the same scenario. For example, it
projects a need for £2.3 billion worth of steel, around 50
drilling rigs and £2 billion worth of proppant (sand).
5. The UK has a strong regulatory system which provides
a comprehensive and fit for purpose regime for exploratory activities,
but we want to continuously improve it. There are regulations
in place to ensure on-site safety, prevent water contamination,
air pollution and mitigate seismic activity. The Office for Unconventional
Gas and Oil (OUGO) was established in DECC in May 2013 and tasked
with working across Government to develop a safe, environmentally
sound and effective unconventional gas and oil industry. The UK
Government has taken a number of actions to encourage shale gas
production, including:
· In
the Autumn Statement 2013, we introduced the most competitive
tax regime in Europe for shale gas. Operators or potential operators
have the regulatory and fiscal environment they need to enable
developments. This reduces the tax rate on a portion of a company's
profits from 62% to 30%.
· The
Department for Communities and Local Government (DCLG) has published
planning guidance that clarifies the interaction of the planning
process with the environmental and safety consenting regimes.
Similar guidance has been issued by the Minister for Housing and
Regeneration in the Welsh Government.
· The
UK Government recently launched the 14th onshore licensing round
which opened the bidding process for companies seeking licences
to explore for onshore oil and gas.
· DECC
has published Environmental Risk Assessment (ERA) guidance and
a Regulatory Roadmap setting out all the regulation that applies
to shale operations at the exploration stage.
6. We recognise the Committee's identification of
traffic and noise impacts, seismic risk and waste water management
as key issues for the public, and set out our response below.
The UK Government is clear that developing shale gas and oil will
not come at the cost of public health or the environment. In June
2012 the Royal Academy of Engineering/Royal Society independent
review of the scientific and engineering evidence on risks associated
with UK shale gas development concluded: "the risks can be
managed effectively in the UK, if operational best practices are
implemented and enforced through regulation." Public Health
England's final report of June 2014 evaluated available evidence
on issues including air quality, radon gas, naturally occurring
radioactive material, water contamination and waste water. They
concluded that "the potential risks to public health from
exposure to the emissions associated with shale gas extraction
will be low if the operations are properly run and regulated."
The UK Government believes that the UK has a strong regulatory
regime for exploratory activities; we want to continuously improve
it.
7. All onshore oil and gas projects, including shale
gas, are subject to scrutiny through the planning system, which
addresses impacts on local residents such as traffic movements,
noise, working hours, etc. They will subsequently be scrutinised
by the relevant environmental agency, in Wales Natural Resources
Wales, and by the Health and Safety Executive (HSE).
8. We have produced a number of accessible booklets
for the public which explain the potential impacts of shale gas
operations and how those will be mitigated. They are available
on the gov.uk website at: https://www.gov.uk/government/policies/providing-regulation-and-licensing-of-energy-industries-and-infrastructure/supporting-pages/developing-shale-gas-and-oil-in-the-uk
. We have also distributed hard copies in selected areas.
9. We will work with local authorities to support
meetings between local communities, regulators and recognised
experts best placed to discuss general and local concerns. OUGO
is ready to engage local communities further, in partnership with
local authorities in Wales and the Welsh Government.
10. These UK Government actions aim to provide operators
with the regulatory and fiscal environment they need to efficiently
seek the relevant permissions to explore and assess the commercial
viability of the UK's shale resource, whilst informing local communities
and providing reassurance that shale gas exploration will not
come at a cost to safety or the environment.
11. We recognise the Committee's concern for the
development of renewable energy technology, but emphasise that
exploring for shale gas and oil is consistent with the UK Government's
action to move to a lower carbon economy. Investment in shale
gas will not come at the cost of investment in renewables. Gas
is the cleanest fossil fuel and therefore part of the answer to
climate change, providing a cost-efficient bridge for our transition
to a green future, particularly in enabling a move away from coal.
To meet our challenging climate change targets we will need significant
quantities of renewables, nuclear and gas in our energy mix.
12. The UK is making good progress towards meeting
our EU legal commitment to provide 15% of our energy from renewable
sources by 2020. Renewable electricity is supported in the UK
by the Renewables Obligation (RO) at the commercial scale and
the Feed-In Tariff (FIT) at the micro scale. Electricity Market
Reform (EMR) will provide future support for all low carbon technologies,
including renewable electricity.
13. Both the Welsh and UK Governments have recently
taken action in line with the Committee's recommendation to recognise
the importance of the UK's outstanding landscape and scenic beauty.
The UK Government has recently published new planning guidance
for England for unconventional oil and gas onshore activity. This
guidance clarifies the strong protections that exist for National
Parks, Areas of Outstanding Natural Beauty and World Heritage
sites. Where applications represent major development, planning
permission should be refused in National Parks, the Broads and
Areas of Outstanding Natural Beauty except in exceptional circumstances
and where it can be demonstrated they are in the public interest.
14. The Welsh Government issued a clarification letter
to Chief Planning Officers in Wales on national planning policies
that apply for onshore unconventional gas and oil development
on 8 July. This letter stated that 'minerals development should
not take place in National Parks and Areas of Outstanding Natural
Beauty save in exceptional circumstances'.
Recommendations
15. The UK Government response to each of the Committee's
recommendations is set out below in the same order they appear
in Chapter 10 of the Report: Conclusions and Recommendations.
Recommendation 1 - We recommend the UK Government
and Welsh Government work with commercial companies and others
to provide a reliable range of estimates of shale gas available
in Wales. This should be published by the end of 2014.
A Welsh Government commissioned report, "A Study
of Potential Unconventional Gas Resource in Wales" was published
on 25 June and is available on the Welsh Government website at:
http://wales.gov.uk/about/cabinet/cabinetstatements/2014/unconventionalgas/?lang=en
The study, undertaken by the British Geological Survey,
identifies a number of geological horizons in Wales that might
be prospective for shale gas but states that due to the limited
geological information available, accurate forecasts of potential
resources would need further research and exploration.
Recommendation 2 - We recommend both the UK Government
and the Welsh Government assess the overall impact of shale gas
supply on the level and mix of energy produced in Wales and the
UK. This should include an examination of how the combination
of nuclear, hydro-power, coal, wave and solar, alongside efforts
to reduce overall energy demand, impacts upon carbon emission
targets.
We are not currently in position to estimate the
overall impact of shale gas supply on the energy mix in both Wales
and the UK. While we recognise the importance of understanding
how our energy mix may change, we are at an early stage in the
development of UK shale gas and until more exploration is undertaken
we do not know how much shale gas is technically and economically
recoverable.
As the Committee has noted the UK is committed to
reducing our carbon emissions by at least 80% by 2050 and by at
least 34% by 2020 relative to 1990 levels. The UK Government is
fully committed to achieving the UK carbon reduction targets and
was pleased to be able to announce, in February, that we had met
the first carbon budget for the period 2008 to 2012. The UK Government's
latest published projections show that we are also on course to
achieve the second and third carbon budgets (to 2022), based on
the projected impact of already announced and funded policies.
A number of policies are helping to put us on the
right trajectory, including reforming the electricity market;
supporting continued take-up of energy efficiency measures through
the Green Deal and Energy Company Obligation; building a market
for renewable heat through the Renewable Heat Incentive; and continuing
to push for the European Union to agree an ambitious 2030 package.
A recent report Potential Greenhouse Gas Emissions
Associated with Shale Gas Extraction and Use by David Mackay and
Tim Stone, concluded that the carbon footprint of UK produced
shale gas would likely be significantly less than coal and also
lower than imported LNG. The UK Government has accepted all the
recommendations of this report and undertaken to carry out a detailed
scientific research programme to monitor emissions relating to
shale gas exploration and production. This can help ensure that
shale gas production helps us to reduce our carbon emissions whilst
helping to reduce our need for imported gas.
Recommendation 3 - We encourage the Welsh Government
to begin considering now how the employment opportunities presented
by shale gas production could be maximised. This should include
a detailed examination of the skills required by the industry
and the extent that Wales already has people with those skills.
Although shale gas exploration is at the early stages
in the UK, work has been done to attempt to maximise the possible
economic and employment opportunities that shale gas could bring
to the UK.
In April 2014 the Department for Business, Innovation
and Skills (BIS) supported the production of the EY supply chain
report title Getting Ready for UK Shale Gas. This report projected
significant benefits for jobs and growth from a successful UK
shale industry: over 64,000 jobs at peak, with more than 6,000
jobs on shale gas pads themselves. They predicted that the jobs
on the sites will be highly skilled, with pay levels higher than
the UK average. EY made a number of recommendations, including
around skills which UK Government are considering how best to
take these forward.
The Welsh Government has commissioned a report on
the potential benefits to Wales of shale gas exploration and production.
They expect this to be available before the end of 2014.
Recommendation 4 - In its response to this Report,
we ask the Government to provide further information about how
local communities in Wales will benefit, financially or otherwise,
from shale gas operations in their area.
Communities that host shale gas developments should
share in the benefits created. UKOOG has published its Community
Engagement Charter that includes an offer of financial benefits
to the community. This is alongside an equally important commitment
to engage with communities early at each stage of development.
The benefits package includes £100,000 per hydraulically
fractured well site at exploratory stage paid to communities and
1% of revenue at production. It's important to stress that the
1% is from revenues, not profits, so communities have greater
certainty and will be the first to benefit, particularly in early
years when operators may not yet be making profit. The UK Government
has welcomed the industry offer on community benefits.
Based on production and gas in place scenarios produced
by the Institute of Directors (IOD) in its May 2013 Shale Gas
report, the industry has estimated that community benefits under
the new scheme could be worth in excess of £1.1 billion across
the UK over a 25 year production timescale, with much of this
benefit coming in the first 10 years. This will depend on local
geology and flow rates. The IoD report in its high case scenario
estimated a total of 100 production sites, equating to a potential
community benefit per site in the region of £5m-£10m.
Each year, operators will publish evidence detailing
how the commitments within the community benefits package are
being met. The industry have committed to reviewing the community
benefits agreement as the industry develops in the coming years
and pledged to consult further with local communities on an on-going
basis.
To ensure community benefit funds from exploration
are managed and distributed independently of the operators UKOOG
is partnering with UK Community Foundations (UKCF) on a pilot
scheme for communities using a UK-wide network of community foundations.
As in the response to recommendation 3, there is
potential to provide jobs and economic benefits in the shale gas
and oil industry, both directly and in the supply chain. The report
commissioned by the Welsh Government should provide a clearer
estimate as to just how much potential there is for Wales to benefit.
Recommendation 5 - We call on the UK Government
to outline in its response an analysis of the Welsh water resources
required to service the unconventional gas industry in other parts
of the UK.
Hydraulic fracturing for shale gas and oil typically
uses 10 to 30 million litres per well. Whilst we are currently
uncertain about the size of the industry, even at the highest
potential, the amounts of water used would still only be a small
proportion of the total quantity of water currently used by households,
industry and agriculture each year.
We expect that water for hydraulic fracturing operations
will be provided by local water companies and this is where the
water used in the one hydraulic fracturing operation to date was
sourced. All water companies in England and Wales are required
to prepare and maintain statutory water resources management plans.
These set out the estimated demand for water by households and
businesses over the long term and the means by which the water
companies will meet that demand. Water companies' water resources
plans set out estimated water available from different sources
including, where appropriate, sources in Wales. However, plans
do not match specific sources of supply to specific uses and so
it is not possible to identify where water from Wales may be used
in other parts of the UK for hydraulic fracturing. Water company
water resources plans are available via each company's website.
In November 2013, UKOOG and Water UK (who represent
the major water supply companies in the UK) signed a Memorandum
of Understanding which ensures their respective members will cooperate
throughout the shale gas and oil exploration and extraction process.
A key aim of the agreement is to give the public greater confidence
and reassurance that everything will be done to minimise the effects
on water resources and the environment.
Recommendation 6 - The UK Government and the Welsh
Government must ensure that the regulatory and planning framework
gives due weight to the traffic and noise caused by commercial
shale gas operations, in addition to the visual impact and other
environmental risks associated with hydraulic fracturing.
Planning policy in Wales is a devolved matter. Traffic
and noise are matters covered in existing guidance contained in
Minerals Planning Policy Wales (MPPW). Further advice was also
provided to Chief Planning Officers in Wales on 8 July 2014. A
copy of the letter can be found at the following link:
http://wales.gov.uk/topics/planning/policy/policyclarificationletters/2014/cl-04-14/?lang=en
All onshore oil and gas projects, including shale
gas, are subject to scrutiny through the planning system, which
addresses impacts on local residents such as access and traffic
movements, noise, visual intrusion and other issues to ensure
that proposals do not have unacceptable adverse impacts on the
environment and amenity of local residents. Each proposal will
also be scrutinised by the relevant environmental regulator, in
Wales Natural Resources Wales, and by the Health and Safety Executive.
Recommendation 7 - We recommend that the UK Government,
the Welsh Government and commercial companies work together to
assess the extent of facilities currently available in Wales for
the safe disposal of wastewater and to identify improvements that
will need to be made as the shale gas industry develops.
The UK and Welsh Governments agree with the Committee
that it is of utmost importance that wastewater from hydraulic
fracturing is treated appropriately and does not lead to contamination.
The regulatory framework makes operators responsible for ensuring
the safe disposal of wastewater from shale gas and oil activities.
However, as the Committee noted, prior to issuing a permit, Natural
Resources Wales will require operators to demonstrate arrangements
are in place with a company holding a radioactive substances activity
permit for the treatment and safe disposal of their waste. We
believe this is a robust framework for waste water for exploration
at the exploration stage.
On 14 July, the Welsh Government published jointly
with the UK Government, Scottish Government, and Northern Ireland
Department of the Environment, the UK Strategy for the management
of Naturally Occurring Radioactive Material (NORM) waste. The
strategy states that there will be a need for additional NORM
waste treatment and disposal capacity for shale gas activity in
the medium term and that consideration of waste capacity of all
kinds, including knowledge, skills and treatment infrastructure,
should form an integral part of the plans of business proposing
developments for shale gas and oil.
Recommendation 8 - We recommend that the UK Government
considers the case for minimising ground level shale gas operations
in sensitive areas in Wales, such as Areas of Outstanding Natural
Beauty, Sites of Special Scientific Interest, and National Parks.
In its reply to this report, the Government must set out how it
would ensure that such development did not compromise designated
sites, in particular those in environmentally sensitive areas.
The UK Government recognises that there are areas
of outstanding landscape and scenic beauty where the environmental
and heritage qualities need to be carefully balanced against the
benefits of oil and gas from unconventional hydrocarbons.
As stated above, planning is a devolved matter. The
UK Government issued planning guidance for England in July 2014
that makes clear that in these areas, the environmental and heritage
qualities need to be carefully balanced against the benefits of
shale gas and oil. Where applications represent major development,
planning permission should be refused in National Parks, the Broads
and Areas of Outstanding Natural Beauty except in exceptional
circumstances and where it can be demonstrated they are in the
public interest. To be certain that this guidance is being applied
the Communities Secretary will give particular consideration to
recovering planning appeals arising from these types of developments
for at least the next 12 months.
DECC will also require the Statements of Environmental
Awareness which have to be submitted with licence applications
to demonstrate applicants' understanding of the environmental
sensitivities relevant to the area proposed to be particularly
detailed for these areas.
In Wales, Minerals Planning Policy Wales identifies
issues that must be addressed to ensure that minerals proposals
do not have an unacceptably adverse impact on the environment
and provides guidance on minerals proposals within Special Areas
of Conservation, Special Protected Areas, Sites of Specific Scientific
Interest, Special Protection Areas, Special Areas of Conservation
and locally designated sites. The Welsh Government issued a clarification
letter to Chief Planning Officers in Wales on national planning
policies that apply for onshore unconventional gas and oil development
on 8 July. A copy of the letter can be found at the following
link:
http://wales.gov.uk/topics/planning/policy/policyclarificationletters/2014/cl-04-14/?lang=en
This letter stated that "minerals development
should not take place in National Parks and Areas of Outstanding
Natural Beauty save in exceptional circumstances".
Recommendation 9 - We encourage the Welsh Government
to develop a Technical Advice Note for unconventional gas.
On 8 July the Welsh Government issued a clarification
letter on the national planning policies that apply for onshore
unconventional gas and oil development, referred to above in recommendation
8.
The letter clarifies that the general policy considerations
set out in Minerals Planning Policy Wales are applicable in considering
planning applications in Wales. The letter also refers to the
responsibilities covered by other regulators outside of the town
and country planning system. A copy of the letter can be found
at the following link:
http://wales.gov.uk/topics/planning/policy/policyclarificationletters/2014/cl-04-14/?lang=en
Recommendation 10 - We recommend that the UK Government
and the Welsh Government require commercial companies to pay for
an independent Environmental Impact Assessment at the exploratory
stage of any significant shale gas development.
The 1999 EIA Regulations fall under Town and Country
Planning legislation and are a devolved matter. In Wales applications
for both the exploratory and appraisal stages of unconventional
gas development fall under Schedule 2 of the Town and Country
Planning (Environmental Impact Assessment) Regulations 1999 and
require an Environmental Impact Assessment (EIA) if they exceed
the applicable threshold, or if any development is to be undertaken
in a sensitive area. It is considered unlikely that exploratory
drilling activities not involving hydraulic fracturing, or not
sited in a sensitive area, will require an EIA.
However, the UK Government welcomes the commitment
from operators through UKOOG that they will carry out and pay
for an EIA whenever their operations use hydraulic fracturing.
| 
