/>iRecently, the Court of Justice of the European Union (“CJEU”) held that EU Member States are not obliged to require an environmental impact assessment for all exploratory drillings. However, the Court’s decision can also be interpreted as requiring Member States to demand such impact assessment if the drillings can be classified as “deep drillings” and, on the basis of specified criteria (e.g., size and location of the project), they are “likely to have significant effects on the environment.” The CJEU also held that when assessing whether an exploratory drilling operation must be subject to an environmental impact assessment, its potential environmental impact must be assessed “jointly with other projects” in the same area.
The CJEU’s decision is also relevant and provides some clarity in the European regulatory landscape on hydraulic fracturing where, in the absence of EU specific rules, Member States continue to adopt divergent legislation. In effect, the Court’s decision can be interpreted as following a stricter approach on exploratory drillings than the European Commission’s Recommendation on Hydraulic Fracturing.
Facts and Legal Framework
The CJEU decision was in response to a request for a preliminary ruling from the Austrian Higher Administrative Court (“Verwaltungsgerichtshof”) on whether Directive 85/337/EEC (“Environmental Impact Assessment Directive” — “EIA Directive”)[1] requires that exploratory drilling operations be subject to a mandatory environmental impact assessment. The request was referred to the Court in the context of litigation proceedings initiated by the municipality of Straßwalchen and 59 of its inhabitants against a decision of the Austrian Federal Minister for Economy, Family and Youth authorizing the company Rohöl-Aufsuchungs AG to undertake exploratory drilling up to a depth of 4,150 meters without a prior environmental impact assessment.
Article 4(1) and Annex I of the EIA Directive oblige EU Member States to require an environmental impact assessment before the start of listed operations including those on the extraction of petroleum and natural gas “for commercial purposes” if the extracted amount exceeds 500 tons/day, in the case of petroleum, or 500,000 cubic meters/day, in the case of gas. Most shale gas extraction installations have a maximum daily production rate of no more than 250,000 cubic meters/day.
In addition, Article 4(2) and Annex II of the EIA Directive provide that Member States must determine on a case-by-case basis or on the basis of thresholds or criteria whether “deep drilling” projects must be made subject to an environmental impact assessment. Member States must make this determination on the basis of the specific criteria listed in Annex III to the EIA Directive (e.g., size and location of the project, cumulative environmental impact with other existing projects).
Importantly, Article 2(1) of the EIA Directive also states that Member States must require an environmental impact assessment for “projects likely to have significant effects on the environment by virtue, inter alia, of their nature, size or location.”
CJEU Findings
Not All Exploratory Drillings Are Subject to a Mandatory Environmental Impact Assessment
The CJEU first held that exploratory drillings do not fall within the category “extraction of petroleum and natural gas for commercial purposes [in quantities above 500 tons per day in the case of petroleum and 500000 m3 in case of gas]” listed in Annex I to the EIA Directive and subject to a mandatory environmental impact assessment. Although the Court acknowledged that exploratory drilling constitutes an operation carried out for commercial purposes, it argued that the reference to specific volume thresholds suggests that the category listed in Annex I does not include exploratory drilling because it is not possible to determine with certainty the extraction volumes of exploratory drilling operations before they are started.
Deep Exploratory Drillings That Are Likely to Have Significant Effects on the Environment Must Undergo an Environmental Impact Assessment
However, the Court’s decision also suggests that exploratory drillings must be subject to an environmental impact assessment if they constitute deep drilling and they are likely to have significant effects on the environment.
First, the Court held that an exploratory drilling at a depth of 4,150 meters is a form of “deep drillings” listed in Annex II to the EIA Directive for which Member States may require an environmental impact assessment on the basis of the criteria laid down in Annex III to the Directive. The Court argued that the category of deep drillings of Annex II to the EIA Directive covers all types of deep drillings, including exploratory drillings, other than drillings for investigating the stability of the soil.
Second, the Court noted that the level of discretion enjoyed by Member States when determining whether a deep drilling project must be made subject to an impact assessment “is limited by the obligation set out in Article 2(1) of the directive to make projects likely, by virtue inter alia of their nature, size or location, to have significant effects on the environment subject to an impact assessment.” As the Advocate General argued in his opinion, the Court’s reasoning means that “the need for an environmental impact assessment may . . . arise directly from Articles 2(1) and 4(2) of, and Annex II to, the EIA Directive if the project falls under that annex and is likely to have significant effects on the environment.” In other words, the Court’s decision can be interpreted as requiring Member State authorities to demand an impact assessment for all deep exploratory drillings that, on the basis of the criteria of Annex III, are likely to have a significant impact on the environment.
The Potential Impact on the Environment of Exploratory Drillings Must Be Assessed Jointly with Other Projects in the Same Area
Finally, the CJEU held that, when assessing the potential impact of an exploratory drilling operation on the basis of the criteria of Annex III to the Directive to determine whether such project should be subject to an environmental impact assessment, Member States must take into account the cumulative impact of other projects in the surrounding area. According to the Court, this must not be limited to projects of the same kind, but should include any project that would make the environmental effects of the drilling project greater than it would be in the absence of such other projects.
This post was written with contributions from Luca Tosoni.
[1] Directive 85/337/EEC and its three amendments have been codified by Directive 2011/92/EU of 13 December 2011, which has been further amended by Directive 2014/52/EU. However, the rules on extraction of petroleum and natural gas have remained substantially unchanged after the 2014 review of the Directive.
