Unconventional oil and gas consultation: analysis of responses

10. The regulatory framework (Q7)

10.1 This chapter discusses respondents' views on the regulatory arrangements which might apply to an unconventional oil and gas industry in Scotland.

10.2 The final section of Part 2 of the consultation paper (pages 50–53) discussed the current regulatory framework in Scotland, which 'covers the vast majority of activities requiring control and monitoring as part of unconventional oil and gas developments'. The paper described the licensing system, the planning permissions process, and the requirement for an environmental impact assessment, as well as the roles of the main bodies involved in regulating the industry ( HSE, SEPA, SNH, and local authorities). The paper also summarised the views of the Scottish Government's expert panel in relation to areas where the regulatory framework could be strengthened.

10.3 Question 7 in the consultation asked respondents for their views as follows:

Question 7: What are your views on the regulatory framework that would apply to an unconventional oil and gas industry in Scotland?

10.4 Altogether 3,913 respondents commented on Question 7. This comprised 120 organisations, 14 discussion groups, 2,533 individuals, 185 petition signatories, and 1,061 standard campaign respondents.

Overview of responses to Question 7

The pattern of views in the responses to this question was slightly different to the general pattern of responses set out in Chapter 3 of this report.

The predominant view among respondents, particularly those opposed to unconventional oil and gas, was that no acceptable regulatory framework could ever be developed for the industry. The (often unknown) risks were seen to be too great; no regulation, however strongly enforced, could offer adequate protection. A related view was that the power of the industry, and the prioritisation of profit over safety and standards, would result in inadequate regulations, poor compliance and ineffective enforcement.

Those respondents who discussed regulation in more detail thought a robust regulatory framework would be vital if unconventional oil and gas extraction was allowed to go ahead in Scotland. This was seen to be a relatively new industry and a well-defined and strictly enforced regulatory framework would be required to build public confidence and to manage the risks.

There was, though, a common view that the current framework would need to be augmented and strengthened. Capacity and capability would have to be built; the gaps in the framework would need to be addressed; and the responsibilities of each of the key players would have to be clarified. A small number of respondents, particularly those in favour of establishing an unconventional oil and gas industry, were confident these changes could be achieved; others, generally those opposed, were more sceptical.

10.5 The views of respondents are considered in the sections below, which focus on the following themes: general views on regulation of the industry; gaps in the framework; co-ordination and structuring of responsibilities across different regulatory bodies; capability and capacity for strong regulation; the costs of regulation; and public confidence. A final section covers other issues raised. It should be noted that many individuals used the question to restate their opposition to the unconventional oil and gas industry or said, simply, that 'a regulatory framework wouldn't be required if fracking was banned', 'the framework should ban fracking' or 'the framework should be so strict it wouldn't be worth doing'. Others said they did not have the knowledge to comment, or simply said 'don't know'.

General views on regulation of the industry

10.6 Most respondents who commented on this question offered only general views on the issue of regulation of the unconventional oil and gas industry.

10.7 The predominant view, expressed mainly by those opposed to the development of an unconventional oil and gas industry, was that the industry could not be effectively regulated because of the inherent risks and dangers. The (often unknown) risks of hydraulic fracturing were seen to be too great; no regulation, however strongly enforced, could offer adequate protection. A related view was that the unconventional oil and gas industry would not be effectively regulated given the perceived power of large corporations, the relative weakness of the regulatory system, and the consequences these would have for any framework, its application and enforcement. There was a belief that profit would be prioritised over standards and safety.

10.8 Among other respondents, however, there was general agreement that a robust regulatory framework would be vital if the decision was made to proceed with an unconventional oil and gas industry in Scotland. This was seen to be a relatively new industry and a well-defined, independent, transparent and strictly enforced regulatory framework would be required to build public confidence and manage risks. This view was common among those who supported the development of the industry; however, some of those opposed to the industry also stressed the importance of strong regulation should a decision be taken to allow it to go ahead in Scotland.

10.9 Occasionally, supporters of unconventional oil and gas commented that the regulatory framework should not be overly bureaucratic, and that it should protect the environment and communities while simultaneously enabling the development of a viable industry.

10.10 Respondents, including some from the oil and gas industry and other related organisations, expressed confidence in the current framework, which they thought was 'complex but effective', 'fit for purpose' and 'tried and tested'. In particular, they endorsed current offshore (and onshore) regulatory regimes which they felt provided a good basis for future developments of the unconventional oil and gas industry and emphasised that the arrangements in the UK were much better than those elsewhere (especially in the United States).

10.11 However, others thought that the current regulatory framework would need to be strengthened, and augmented. Moreover, these respondents thought that capacity and capability in regulation would have to be built, and the roles and responsibilities of each of the key players would have to be clarified.

10.12 In contrast, those opposed to an unconventional oil and gas industry in Scotland were more sceptical. They highlighted what they saw as significant gaps and inadequacies in the current and proposed framework – some cited the 'vast' number of recommendations for improvement noted across the Scottish Government's research as evidence that a suitable system was not in place – and were concerned that these could not or would not be effectively addressed. They highlighted a range of issues such as a lack of evidence, lack of resources and expertise, and perceived systemic shortcomings in the approach to regulation (including over-reliance on self-regulation and reporting) in explaining their concerns.

10.13 The more detailed comments offered by a small number of respondents regarding the regulation of an unconventional oil and gas industry in Scotland are presented below.

Gaps in the regulatory framework

10.14 The consultation paper identified a number of gaps with regard to how the current regulatory framework might be applied to the unconventional oil and gas industry and explained that regulations would need to be strengthened or augmented to address these. The specific areas highlighted in the consultation paper related to air quality (and in particular fugitive gas emissions), decommissioning and induced seismic events. The consultation paper also suggested there should be a requirement for a health impact assessment, an environmental impact assessment, and a traffic management plan to be undertaken as part of the planning process. In addition, improvements in the engagement with local communities, increased transparency especially in relation to operational standards and the use of chemicals, and improved baseline data for monitoring were all thought to be required.

10.15 Respondents endorsed all these suggestions for addressing gaps in the current framework, but also drew particular attention to issues relating to the siting and integrity of wells, the monitoring of methane gas emissions, and waste disposal. There was, though, scepticism among those opposed to the unconventional oil and gas industry that identified shortcomings could be adequately resolved.

10.16 Issues relating to decommissioning, site restoration and aftercare were a particular concern. There were examples given of cases in which contractors had defaulted on their obligations in the past (particularly in relation to open cast mining in some areas of Scotland) and it was thought important that the responsibility for decommissioning should be borne by the industry. There was support for a licensing system which would incorporate payment of a compulsory 'bond' to provide guaranteed funds to cover decommissioning costs.

10.17 Other issues highlighted as gaps to be addressed were: local authority policies for managing impacts on historical environment assets; stronger risk assessments in relation to environmental, geological and health concerns; and regulations to cover the environment for fish and fisheries. There was also a view that landowners needed protection from any possible liabilities arising from damage caused by hydraulic fracturing.

10.18 At a more general level, stronger enforcement powers were thought to be required; this was especially mentioned by those who were opposed to fracking who offered examples (mostly from England and Wales) of breaches of the regulation which had not been followed up by any punitive or remedial action. Respondents questioned whether the current regime had sufficient 'teeth', and called for strict enforcement and tough penalties for non-compliance.

Co-ordination and structuring of responsibilities

10.19 There was widespread recognition of the importance of having an integrated framework in which the roles, responsibilities, and communication channels of the various individual regulatory bodies was clearly defined. Those who were supportive of the development of an unconventional oil and gas industry highlighted that the industry was no different to others in having multiple players involved in regulation; those against had serious concerns about the impact of fragmentation, duplication and lack of strong communication links across the regulatory system.

10.20 There was a range of views on the necessity and desirability of having a new regulatory body, rather than an evolution of the current arrangements. If a new body was going to be formed, respondents suggested it would need to be independent, and to involve all relevant stakeholders.

10.21 There was also some debate about whether regulation of the industry should be UK-wide or specific to Scotland, and the extent to which Scotland's approach might diverge from that of the UK. Some – particularly those opposed to fracking – expressed concern at the UK's approach in allowing an unconventional oil and gas industry to proceed and wanted to see Scottish Government-led regulation. Others thought a UK-wide system made more sense for the industry or doubted Scotland's capacity to develop a separate system.

Capability and capacity for strong regulation

10.22 Those who were supportive of the development of an unconventional oil and gas industry highlighted the availability of existing skills and expertise within the offshore sector. They felt that this gave a good platform for developing capability and capacity for an onshore industry. Current regulatory arrangements were praised, with regulators and staff described as 'highly experienced' and 'able to cope with challenges'. Respondents thought there was an opportunity for Scotland to build on this and become a world leader in the field.

10.23 By contrast, those who were against the establishment of an unconventional oil and gas industry highlighted what they saw as serious deficits in the capability and capacity of the regulatory sector ( HSE, SEPA, SNH and local authorities). There were concerns expressed about the inadequate resourcing of the current regulators, especially in the light of reduced budgets and staff cutbacks in recent years. Particular concerns were raised about the lack of relevant expertise in local authority planning departments with regard to underground developments, decommissioning and site restoration; and it was thought that the wide variety of technologies used within the unconventional oil and gas industry presented challenges for the processing of planning applications. This group also considered the reliance on self-reporting within SEPA's processes to be inadequate.

The costs of regulation

10.24 The costs of regulation were highlighted only by those who were opposed to the development of an unconventional oil and gas industry in Scotland. These respondents were concerned about the potential costs of developing and implementing an appropriate regulatory system and about who would bear those costs. They also thought the costs of regulation should be factored into the decision making about the viability of the industry. If proper regulation were to be very expensive, this would change the economic scenario modelling and might mean that the industry would not be considered to be viable.

10.25 Linked to this, respondents noted that funding for statutory regulatory bodies – and for enforcement activities – would be borne by the public purse, and that it would be difficult to find funds for (additional) regulation at a time of austerity and public sector cutbacks. However, there was also a view that public funding of regulatory bodies amounts to an industry 'subsidy', and that the costs of regulation should be met by the industry itself.

Public confidence in the regulatory framework

10.26 Respondents thought it was important that the public had confidence in the regulatory framework; they thought that transparency was required to build trust; and that there should be early consultation with affected communities on the various options as a way to secure their trust. Respondents supportive of an unconventional oil and gas industry were optimistic that these conditions could be met, and they believed that sharing emerging information from England would help to build that confidence.

10.27 More often, however, respondents indicated a serious lack of trust and confidence in the (current and potential future) regulatory framework. These respondents made a range of points indicating the reasons why they did not trust the regulatory process, with some saying that their views were based on personal experience ( e.g. of working in the oil industry or the regulatory sector, or of living close to industrial developments). They argued that:

• Experience in the UK in a range of industrial settings showed significant failures in regulation ^[21]
• Experience in the offshore oil industry and in other major manufacturing sectors has demonstrated the shortcomings of the regulatory regime
• Reports of incidents, accidents and negative impacts from around the world demonstrated that companies do not adhere to best practice, and that regulatory and enforcement systems are not effective
• Regulatory systems are inevitably biased towards industry interests, given the power of big corporations – firms routinely bypass regulations which are in any case designed to operate in their favour, there is a lack of enforcement action in response to regulatory failures, and any fines are minimal compared to 'cost savings' of 'cutting corners' in relation to safety.

Other points

10.28 Respondents made a number of additional points as follows:

• Leaving the EU would have implications for regulation, much of which currently stemmed from EU directives, and there was concern about the potential dilution of regulatory requirements.
• There was no guarantee that any regulatory system established at this point would be maintained in the future.
• There was currently not enough knowledge or evidence about the potential impact of the unconventional oil and gas industry to allow an effective regulatory regime to be established.