COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT
Date: 2011-10-27
Institutions: European Commission
Subjects: EU waters, environmental liability, man-made disaster, marine pollution, offshore drilling, offshore oil structure, prevention of pollution, safety standard

EUROPEAN COMMISSION 

Brussels, 27.10.2011 
SEC(2011) 1294 final 

COMMISSION STAFF WORKING PAPER 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying the document 

PROPOSAL FOR A REGULATION OF THE EUROPEAN PARLIAMENT AND OF 
THE COUNCIL 

on safety of offshore oil and gas exploration and production activities 

{COM(2011) 688 final} 
{SEC(2011) 1292 final} 
{SEC(2011) 1293 final} 

 
 
 
 
  
 
 
1. 

PROBLEM DEFINITION AND NEED FOR ACTION 

There  have  been  in  the  past  three  decades  at  least  11  major  offshore  disasters1,  and  several 
lesser incidents2 that could have escalated into such. The Deepwater Horizon disaster in April 
2010 reignited discussions on risk management in offshore oil and gas operations.  

The risks remain significant also in the EU despite reductions in some Member States through 
reforms  after  the  Piper  Alpha  (1988)  and  Alexander  Kielland  (1980)  disasters.  A  frequency 
and  cost  analysis  of  accidents  in  Europe  today  puts  the  estimated  levelized  average  annual 
economic  losses  and  damage  from  offshore  accidents  in  the  EU  in  a  value  range  of  €205  – 
915  million3  (this  constitutes  the  IA's  baseline  scenario).  The  situation  requires  action  to 
reduce  the  risks,  ensure  effective  response  to  major  incidents,  and  provide  for  a  quick 
recovery  of  the  affected  regions  and  businesses.  Risk  of  an  event  is  the  product  of  the 
likelihood and consequences of its occurrence. 

The  likelihood  of  a  major  accident  cannot  be  underestimated,  particularly  in  the  face  of  a 
reported4  persistent  lack  of  reduction  in  major  incident  indicators.  The  ever  present 
precursors5  of  potential  major  accidents  ('near  misses')  remind  us  of  the  need  to  keep 
improving practices and reduce the risks.  

Possible consequences of  a  major  accident  in  the  sector  are  extreme.  They  include  multiple 
fatalities,  major  environmental  damage  and,  collateral  damage  to  coastal  and  marine 
livelihoods6.  Even  smaller  accidents  can  seriously  lower  public  and  market  confidence  and 
precautionary  restrictions7  on  production  can  affect  security  of  energy  supply  and  the 
economy.  

Despite similar hazards, the offshore industry operates to different environmental, health and 
safety  standards  in  each  EU  jurisdiction  while  EU  law  covers  only  partially  the  relevant 
aspects  of  offshore  activities8.  This  does  not  create  a  suitable,  comprehensive  and  EU-wide 
coherent regulatory environment prioritizing continuous reduction of risks of major accidents. 
While improvements are justified in all regions, the regulation of offshore hazards outside the 
North  Sea  is  less  developed,  relying  more  on  prescribing  detailed  requirements  rather  than 
effective risk control. The Communication "Facing the challenge of the safety of offshore oil 
and  gas  activities"  (COM  (2010)  560  Final)  identified  shortcomings  and  areas  for  action  in 
EU's regulatory frames and industry practices. This Impact Assessment evaluates alternative 
policy options and their possible impacts.  

With  respect  to  the  safety  of  offshore  oil  and  gas  operations,  the  EU  faces  a  threefold 
problem: 

1 §. 2.1 IA document. 
2 E.g. Brent B 2003, Gullfaks C 2010 , Ganneth F 2011 
3 Assuming a recurrence rate of 35 years for a major incident and an average economic cost range of €5 billion 
(clean-up only) - €30bn (full economic cost), this amounts to  costs of €140 - €850 mi
llion p.a.. Add to this an 
estimated €65 million of annual property losses resultin g from more common less serious documented accidents. 
These estimates are based on detailed probability and accident statistics analyses in Annex I. 
4 http://www.ptil.no/news/rnnp-2010-major-challenges-in-important-areas-article7810-79.html  
5 Oil & gas leaks, failures of production process safety and well control; failures due to invalid design change; 
maintenance backlogs. 
6 E.g. fishing, tourism, sometimes ports, agriculture.  
7 E.g. Moratoria in the Gulf of Mexico 2010, Italy today and in 1988 in the UK (Ocean Odyssey accident) 
8 § 2.1 IA document. 

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1) The risk of a major offshore oil or gas accident occurring in EU waters is significant and the existing 
fragmented legislation and regulatory and industry practices do not provide for all achievable reductions in the 
risks throughout the EU. 
2) The existing regulatory framework and operating arrangements do not provide for the most effective response 
to accidents wherever they occur in EU waters. 
3) Under existing liability regimes, the responsible party (e.g. company leaking oil) may not always be clearly 
identifiable and/or may not be able, or liable, to pay all the costs to remedy the damage it has caused. 

The table below gives an overview of the underlying risk drivers identified in our analysis, 
stakeholder consultations and international investigations.  

Driver category 
Drivers of significant and insufficiently mitigates risks in EU offshore operations 
Industry evolution 

Underlying drivers 

Company-specific 
practice 

corporate 

Drivers 
regulatory framework 

related 

to 

the 

Ageing infrastructure and maturing industrial environment 
Structural shift of the industry towards diversification 
Shift to "frontier" operations and new technologies 
Inconsistent use of state of the art practices and technology 
Failures of compliance with rules and standards 
Inadequate/uneven safety culture in companies 
Uneven technical expertise amongst regulators 
Suboptimal transparency and sharing of information 
Fragmented regulatory framework 

Divers of suboptimal level of emergency preparedness 
State of risk-based planning  

and 

Integration  of  public 
industry plans and assets 
Drivers of inadequate liability provisions 
Clarity  and  comprehensiveness 
of liability provisions 

Inconsistencies in emergency planning between MS 
Cross-border incompatibility of response assets 
Lack of information on industry emergency response inventories 
Inconsistency in the quality of company emergency plans 

Clarity and scope of EU legislation on environmental liability 
Lack of financial capacity and guarantees 
Inadequate compensation schemes for traditional damages 

2. 

JUSTIFICATION FOR EU ACTION 

Table 1  

Industry has the primary responsibility and the means to control offshore risks. Reducing the 
risk  of  a  large  offshore  accident  requires  state  of  the  art  practices  to  become  the  norm 
throughout  EU.  All  operators  can  be  expected  to  have  reviewed  their  practices  after  the 
Deepwater Horizon, yet, reactions are uneven: only few have announced and/or implemented 
specific measures. This underlined the need for complementary action by public authorities.  

In  line  with  subsidiarity  EU  action  has  been  considered  only  where  it  can  achieve  the 
objectives more effectively than the Member States or where actions by Member States alone 
may not deliver optimal improvements. While UK, NL, DK and NO have all apply the goal-
setting regulatory approach, they could improve their systems towards a composite North Sea 
benchmark.  Benefits  could  be  broader  in  the  Mediterranean,  the  Black  and  the  Baltic  Seas 
where some countries have less experience in managing the growing offshore operations.  

The absence of international or EU action would exacerbate one of the main problem drivers, 
the fragmentation of regimes and national policies in the EU.  

Aligning national practices is desirable in prevention, response and liability in the EU where a 
severe accident may lead to a cross-border oil spill. An EU blueprint seems the best means to 
achieve  the  desired  situation  EU-wide.  It  could  also  solve  the  difficulties  of  meaningfully 
comparing industry performance, sharing intelligence and incident data.  

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Proportionality has been ensured by assessing the effectiveness, costs, benefits of EU action 
to achieve the desired outcome.  

As  a  result,  EU  action  is  proposed  only  where  the  objective  can  be  achieved  more  cost 
effectively  than  by  the  Member  States.  Cost-effectiveness  is  sought  where  administrative 
costs  are  involved  (e.g.  transparency).  Industry's  self  regulation  (e.g.  response  technology) 
and international options (e.g. civil liability) are also duly taken into account. 

As  most  problem  drivers  are  global,  international  solutions  are  desirable  in  parallel. 
However,  discussions  in  OSPAR,  NSOAF,  IRF,  the  G-20  and  IMO  suggest  that  rapid 
progress  is  unlikely  through  these  fora  alone  as  they  lack  overarching  authority  to  drive 
progress or ensure compliance.  

3. 

MAIN POLICY OBJECTIVES 

Considering the three-fold problem, an EU initiative should attain two general objectives: 

1.  Prevent a major incident from occurring in EU offshore oil and gas exploitation (relating, 

in particular, to major accident hazards (MAH)). 

2.  Allow the EU deal effectively with a major emergency, should preventive measures fail. 

These are broken down to four specific objectives to act on the full scope of the sector from 
prevention to response and remedy:  

1.  Ensure a consistent use of best practices for major hazards control by oil and gas industry 

offshore operations potentially affecting EU waters or shores; 

2.  Implement best regulatory practices in all European jurisdictions with offshore oil and gas 

activities; 

3.  Strengthen EU's preparedness and response capacity to deal with emergencies potentially 

affecting EU citizens, economy or environment; 

4.  Improve and clarify existing EU liability and compensation provisions. 

4. 

POLICY OPTIONS 

Several  distinct  policy  options  can  be  envisaged  depending  on  the  degree  of  change  in 
offshore  practices  or  policy  ambition  sought.  Each  policy  option  consists  of  a  package  of 
measures which will act upon the risk drivers identified in chapter 1. Four policy options are 
developed in addition to the do-nothing baseline option (option 0): 

Option 1 ("North Sea basic") is the entry level for meaningful EU intervention. It introduces 
in  EU  law  the  major  hazards  report  (MHR)  as  a  concept  building  on  the  safety  and  health 
document  required  by  Directive  92/91/EC  but  going  further,  reflecting  recognized  good 
practice in several North Sea jurisdictions. 

Option  1+  ("North  Sea  +")  goes  beyond  Option  1  by  introducing  in  addition  to  MHR  a 
number of soft law measures inspired by widely recognized good practices available in some 
North  Sea  jurisdictions  concerning  e.g.:  tight  consideration  of  the  technical  capacity  of 
applicants  for  offshore  oil  and  gas  licenses;  converging  national  emergency  response  plans; 
developing  compatible  national  and  industry  owned  response  assets  and  making  them 
available to other countries at need; and clarifying the scope of the environmental provisions 
relevant to the liability of operators (e.g. applicability of waste legislation) as regards offshore 

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oil  and  gas  accidents.  The  EU  would  also  propose  to  EU  based  companies  voluntary 
agreements on using EU standards beyond EU waters.  

Option 2 ("EU Best practice") develops a more comprehensive package of reforms based on 
widely  recognised  global  best  practices  in  major  hazard  risk  control.  These  would  be 
mandated EU-wide and environmental risk assessment would be incorporated into the MHR. 
This option would lead to further improvements also in the North Sea region and would create 
preconditions for EU-wide regulatory dialogue amongst competent national authorities. 

Option  3  ("EU  Agency")  further  reinforces  the  impact  of  Option  2  by  introducing  an  EU 
agency to institutionalise and thereby consolidate the reforms achieved by option 2. It would 
undertake  inspections  and  investigations,  monitor  and  enforce  consistency  in  performance, 
develop intervention capacity and assist capacity building in adjacent non EU countries.  

Each  option  is  constituted  by  a  set  of  specific  measures,  some  common  to  more  than  one 
option,  some  option  specific.  For  example,  as  Option  1+  builds  on  Option  1,  it  includes 
measures from Option 1 and complements them with some others. Option 2 contains in part 
additional measures, partly retains measures included in the previous options but implements 
them by different means. This reflects the fact that a measure can be implemented by different 
means, often offering a trade-off between effectiveness and complexity/practicality.  

The  measures  have  been  derived  through  stakeholder  consultation  and  research.  The  table 
below gives a complete list of measures and their presence or absence in individual options; it 
also  indicates  the  general  implementation  means  for  each  measure  within  different  options. 
As  result,  each  of  the  policy  options  is  characterized  on  one  hand  by  the  set  of  measures 
retained in the option and by the preferred implementation means for each measure under that 
option. 

No.  Measure 

1 

2 
3 

4 

5 
6 
7 
8 
9 

10 

11 

Detailed verification of the technical capacity of potential 
operator 

Establishing regular inspections and a penalties regime 
Submission of formal safety assessments for acceptance 
by the regulator 
Extension of MHR into a comprehensive risk 
management model 
Extending EU practices to overseas operations 
Establishing a Competent Authority 
Establishing a platform for regulatory dialogue 
Comprehensive information sharing and transparency 
Preparedness for effective emergency response to major 
offshore accidents 
Ensuring cross-border availability and compatibility of 
intervention assets 
Clarifying the scope of environmental liability 

Option 
0 

0 (= not 
done) 

0 

0 

0 

0 
0 
0 
0 

0 

0 

0 

Table 2 Comparison of policy options 

Option 
1 

0 

Law 

Option 
1+ 
G 
(guide-
lines) 
L 

L 

0 

0 
0 
0 
0 

0 

0 

0 

L 

0 

G 
0 
0 
0 

G 

G 

G 

Option 
2 

L 

L 

L 

L 

G 
L 
L 
L 

L 

L 

L 

Option 
3 

EU 
agency 

EU 

EU 

L 

EU 
EU 
EU 
L 

EU 

EU 

L 

In addition to the measures listed in table 2, three other measures have been identified dealing 
with (i) product safety, (ii) financial capacity guarantees and (iii) compensation schemes for 
traditional  damages.  These  measures  would  act  on  the  drivers  listed  in  table  1  but  they  are 

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insufficiently mature to be included in this impact assessment, and are deferred for separate 
assessment. 

5. 

IMPACT ASSESSMENT OF OPTIONS 

The  impact  assessment  evaluated  each  option  regarding  the  extent  to  which  it  mitigates  the 
risks, its impact on compliance costs of EU MS, industry and the Commission, and the wider 
non quantifiable impacts (social, economic and environmental).  

Option 0 (no EU action) has no additional cost nor impact on the baseline cost range €205-
915m7.  It  does  not  affect  the  problem  drivers  consistently  across  the  Member  States.  While 
some  improvements  in  national  legislations  and  Member  State  and  industry  practices  are 
expected,  their  effect  may  be  counterbalanced  by  increase  in  risk  levels  due  to  growing 
complexity of offshore operations (more complex and remote drills, etc.).  
Option  1 results in an increase in compliance costs of ca €36m/year , falling mainly on  the 
industry.  The  option  secures  consistent  risk  assessments  by  industry  and  regulators,  an 
upgraded sanction/penalty regime and a partial improvement in the safety culture of industry. 
The  resulting  reduction  in  risk  expressed  against  the  baseline  cost  is  estimated  at  ca  €7  – 
30m/yr, an average 3% decrease in baseline risk. 
Option  1+  introduces  additional  running  costs  on  Member  States  of  ca.  €3m   and  a  further 
€16m  on  industry  so  cumulative  indus try  compliance  costs  become  ca  €52m .  It  secures 
limited improvement in technical capability verification; clarifies the liability of operators for 
pollution; and formalises the goal of making emergency assets and plans suitable for sharing 
across MS borders. It begins to secure some influence for EU to raise global standards. The 
benefit of Options 1+ is €25 - €109/yr
Option 2 represents additional annual compliance/implementation costs for industry of €70m 
making  a  cumulative  industry  total  of  ca  €122m;  a  further  €9-15m  administrative  costs  are 
calculated  making  a  cumulative  sum  of  ca  €12  –  18m   for  Member  States,  plus  one-off 
administration costs of ca €18 -€44m. It addresse
s all of the identified problem drivers. The 
measures under this option together cut the baseline risk costs by between €103 – 455m/year  
- a 50% reduction in baseline risk.  
Option  3  consolidates  the  benefits  of  option  2,  promotes  regulatory  coherence,  offers 
technical  assistance  to  new  or  evolving  national  regimes  and  strengthens  coordination  and 
transparency.  However,  risk  base  regimes  fear  it  could  reduce  benefits  by  compromising 
regional or national priorities with institutional, or averaged, objectives. It introduces annual 
running  costs  for  the  Commission  of  c.  €34m/yr   and  €18-44m  one-off  start-up  costs  plus 
€10's  million  for  purchase  of  capital  response  assets.  Compliance  costs  for  industry  and 
Member States, and overall benefits under the option are comparable with Option 2. 

, an average 12% reduction in baseline risk. 

6. 

PREFERRED POLICY OPTIONS AND LEGAL INSTRUMENT  

The  preferred  policy  option  is  Option  2,  i.e.  a  comprehensive  offshore  reform  raising 
throughout EU, through new law, the level of risk management and emergency preparedness 
in the offshore industry to best practices. Apart from consistency this option increases greater 
transparency of industry and regulator performance. 

This  option  can  in  the  most  decisive  way  (50%)  reduce  the  baseline  risk  through  enhanced 
prevention and mitigation should an incident nonetheless occur. The risk reduction in average 
monetary terms (ca. €279m p.a.) compares favour ably with the estimated cumulative costs of 
its implementation (€12-18m p.a. in administra tive costs for Member States and a €122m p.a. 

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in  compliance  costs  for  the  industry).  Option  2  is  more  affordable  administratively  and 
economically  as  the  additional  running  costs  of  Option  3  (ca  €34m  p.a.)  fail  to  bring 
corresponding decrease in risks. Option 1+ is a choice with modest positive impact (12%) and 
modest enforcement possibilities while the benefits of Option 1 are insufficient to justify the 
costs  –  albeit  small.  Among  the  stakeholders,  the  NGOs  and  classification  societies  tend  to 
favour changes more than regulators and, in particular, industry. 

A Regulation is proposed to implement Option 2. It has advantages over a Directive due to 
its clarity, consistency and speed  of implementation through direct application9 and  because 
its  primary  purpose  is  to  secure  conformity  of  application  of  regulations  where  currently 
implementation is fragmented amongst Member States. By acting directly on the industry, the 
Regulation  would  also  provide  for  a  more  level  playing  field.  It  would  also  cater  well  for 
emergency planning to fight transboundary pollution. 

7. 

MONITORING AND EVALUATION 

An evaluation of the effects of the Regulation should be done not later than five years from 
the entry into force of the legislation. Safety performance indicators and data on compliance 
verification  activities  should  be  used  in  that  context  (See  IA  Chapter  8).  The  proposals  to 
improve transparency and reporting are expected to facilitate evaluation and monitoring and 
compare offshore risks across the EU.  

In  addition,  regular  meetings  with  the  competent  authorities  will  allow  the  Commission  to 
monitor  the  sector.  They  will  also  help  knowledge  sharing  between  traditional  and  new  EU 
offshore regions. 

9 There has been a preference for Directives in legal acts covering high risk/ high value industries (e.g. IPPC, 
SEVESO II Directive), whereas narrower high risk sectors (e.g. civil aviation) often use Regulations.  

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