London -- Mr Chair, distinguished guests,
You have asked me to deliver a speech on 'A European Strategy for Shale?' The most important word or better said 'sign' in this title is actually the question mark itself.
Two meanings: first, is there a need for a European strategy and action on shale gas? And second, what could it be?
My answer to the first question will be very straightforward. Yes, we see a need for action. Why?
Energy is a key ingredient of our existence: it powers our industries, it keeps our vehicles on the move, it heats up and lights our houses. Energy needs to be affordable and its supply has to be secure.
The energy context is changing rapidly. Some energy sources are becoming scarcer, such as conventional gas in the EU. Technology is evolving, making it possible to tap into new energy sources, such as unconventional fossil fuels. Other regions of the world are already developing them, leading to new power balances in energy markets.
All this is happening against the back-drop of an economic downturn, where the EU is taking more time to recover than some of its competitors. Governments in Europe are focusing on getting GDP growth and employment back on track, hoping to revitalise their industries, and banking on measures to boost confidence in the economy in the short term.
In these times of persistent economic crisis in Europe, the 'American dream' is in many people's minds. As you have just discussed, in the US, shale gas has profoundly changed the energy landscape, becoming an important part of the energy mix and contributing to decreasing gas imports and a drop in domestic gas price, profitable to users and consumers. Whether this drop is temporary or not remains to be seen.
In Europe, the high price of energy has regularly been blamed for slowing down growth. It has been perceived as a negative factor for the competitiveness of our companies. However the direct price effect of potential domestic production of shale gas on European regional markets remains to be confirmed. It is likely to be moderate due to relatively low volumes and higher production costs than in the US, and the fact that prices are still largely set through long term oil-indexed contracts.
But even a moderate decrease in gas prices – for instance through increased negotiation power towards non-EU gas providers- would be beneficial for Member States with high import dependency, and in particular to the most energy intensive sectors of the economy (chemicals, steel) and sectors using gas as an input (fertilisers).
Measures against high energy prices are of course a must, for example by strengthening the internal energy market in Europe. But it is even more important to acknowledge, as the estimates of the EIA are showing, that energy prices are likely to stay higher in Europe than in the US and China. This has to be factored into our decisions so that policies and structures are adapted accordingly.
At the same time we cannot ignore the fact that, if left unaddressed, environmental threats will be putting the brakes on future growth. It is therefore equally important to avoid undue pressures on natural resources like land and water, as our society also largely relies on them for its economic well-being.
EU leaders have jointly agreed on a long term strategy for growth and jobs. As part of it, we have agreed on the need to make it an economy which is much less dependent on carbon. This calls for alternatives to the most polluting energy forms, gradually moving away from our dependency on fossil fuels and for EU companies to maintain their competitive advantage drawn from their strong position on energy efficiency… because the energy we don’t consume will always be the cheapest.
EU leaders have also agreed on the need to cut greenhouse gas emissions if we are to remain within the 2°C limits. And the latest International Panel on Climate Change report underlines the urgency of action to avoid the costly consequences of climate change, in both economic and human terms.
But there is no simple solution to these global challenges. In this context, new sources of gas, such as from shale, are attractive: a possible substitute for more polluting fossil fuels, such as coal and lignite, a better security of supply with less dependence on dominant energy suppliers from abroad, as well as a source of public revenues. That was the meaning of the European Council's conclusions in May1. But we should not forget that shale gas is a fossil fuel and that our ultimate goal is a carbon-free society, which will require the development and support of renewable energies. The production and use of shale gas could only be beneficial to the climate if it helps some Member States in decreasing the share of coal in their energy mix. Such a process needs consistent and long-term policies, which are, in most cases, still to be developed.
Ladies and Gentlemen,
We are therefore in a transition period. We have to manage it wisely, and avoid locking ourselves into further unsustainable patterns.
In line with their own national priorities, EU Member States have chosen different ways of dealing with the energy transition. The UK and Poland are currently the frontrunners in looking into the possibility of developing a shale gas sector as part of their energy mix. Shale gas could indeed well bring a positive contribution to economic activity and jobs, and become a part of the energy transition agenda here.
But a coin always has two faces. We have to recognize that the technology used today for shale gas extraction – high volume hydraulic fracturing or fracking - also raises environmental concerns related for instance to water pollution, the use of chemicals, air emissions, induced seismicity, as well as community impacts (linked to transport and land use in particular). Some of these risks and impacts can have cross-border effects.
This has led to public concern in several Member States, including the UK. At times outright opposition has led some Member States to ban fracking or set moratoria. The fact that there is very limited experience in Europe does not help reassure people. Any fracking related incident linked to insufficient preventive measures would lead to further public concern and distrust. It would have a serious effect on the image of the industry and public authorities involved.
The public acceptance issue is extremely important. It was highlighted in surveys the European Commission conducted a few months ago. Three quarters of the respondents said they would be worried if a shale gas project were to be located in their neighbourhood. Why? Because of the lack of adequate legislation and proper risk management. Respondents agreed that harmonised and consistent approaches to the management of unconventional fossil fuels should be developed in the EU. They called for the need for public information. “Doing nothing at EU level” was the least favoured policy option by the majority of respondents.
For all these reasons, we do see a need for action.
What are our objectives?
In the last two years, we have analysed existing studies and best practices, discussed with/listened to the views of many stakeholders and carried out a thorough assessment of the economic, social and environmental impacts of the different policy options. The sort of issues we looked at included: areas of legal ambiguity/uncertainty and gaps, and good practices that could be worth building on - for example, disclosure of chemicals, baseline monitoring of water, hydrogeological modelling, well integrity and capture of methane, monitoring and clean‑up.
Experts from the International Energy Agency and other reputed organisations stress the need for robust and appropriate rules to accompany shale gas developments. With the effective application of best regulatory and technical practices, they trust possible negative impacts and risks can be managed and systematically reduced.
Looking across the EU as a whole, we came to the conclusion that there was a case for a set of common general principles and measures, much along the lines of the ones proposed in the Golden Rules of the International Energy Agency.
These principles could be summarised as follows:
- First, our approach must be clear and simple to understand… to implement … and to achieve. It appeared that the existing EU legislative framework applies to shale gas, but does not necessarily fully address the specific impacts and risks associated with fracking as it was designed before the technology became widely available. As shale gas exploration activities progress, Member States have started to interpret, sometimes in different ways, the EU legislation, and some are developing specific national rules. This may result in differing requirements from one Member State to another, with a fragmented and complex operating framework within the EU. A lack of legal clarity is not helpful to those wishing to reap the benefits of shale gas. It makes the operating environment unstable and unpredictable. And as you all know, uncertainty is never conducive to an investment-friendly climate. Member States and industry itself are asking the Commission for clarification.
- Second, a certain degree of flexibility is needed. We are indeed well aware that local features matter a lot, as many of the risks depend on the geological and geographical features of a project, for instance the proximity of an underground water reservoir, a natural reserve or a densely populated area.
- Third, we have to create a level playing field in Europe. Different approaches by public authorities to managing the complex set of administrative and technical decisions may give rise to recurrent concerns regarding the suitability of the environmental safeguard and precaution measures. There is a risk of national interpretations becoming legally challenged and of the internal energy market being jeopardised. Once again, Member States and industry itself are asking the Commission for clarification.
- Fourth, the issue of public acceptance must be tackled. This is a question of increasing transparency in decision-making and providing safeguards. Addressing health and environmental risks will be of paramount importance for the shale gas industry to gain its social licence to operate.
Ladies and Gentlemen,
There are some basic facts we should not forget.
Member states have the right to define their own energy mix. They also have to take into account jointly agreed policy orientations. The EU has an agreed climate/energy policy up to 2020. It is known as 20/20/20 (20% CO2 reduction, 20% share for renewables, 20% increase in energy efficiency). In the longer term, we have agreed the need for 80-95% CO2 reductions by 2050 if we want to remain inside the 2oC temperature rise. The Commission is currently intensively discussing the next steps to 2030.
We all know that today's investments into tomorrow's energy supply are determining our energy mix for the next decades. Long term predictability for investors in an absolute must, as is the reassurance to the public that any concrete investment decision will also respect the protection of human health and the environment.
In that context the Commission believes that an EU-wide risk management framework for unconventional fossil fuels extraction, with a view to ensuring that harmonised provisions applying across all Member States, would best address the above concerns. Our objective is to put in place a framework that would reap the potential economic and energy benefits of shale gas, and ensure that extraction activities using fracking are carried out with proper climate and environmental safeguards.
In other words, we want to establish public confidence and reassure people, provide legal clarity and predictability for competent authorities and operators and create a level playing field within Europe, while meeting the EU's commitments towards decarbonisation and resource efficiency.
Whether shale gas becomes a success story in Europe or not, whether it is profitable or not, we need to remain consistent with our long term strategy of a low carbon, resource-efficient economy. Just as we must do everything necessary to sustain and improve our global European competitiveness, we must also do everything necessary to live within the limits of our planet. There is simply no reasonable alternative.
1: European Council's discussion on energy, held on 22 May 2013, indicated that there is a need to develop 'indigenous energy sources to reduce EU's external energy dependency and stimulate economic growth', while recalling the need to assess ways to ensure their 'safe, sustainable and cost-effective' extraction.