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INTERNATIONAL ENVIRONMENTAL STANDARDS IN THE OIL INDUSTRY: Improving the Operations of Transnational Oil Companies in Emerging Economies
by Dr Alexandra S Wawryk
In the absence of adequate environmental laws and enforcement in emerging economies, there have been calls for oil companies to voluntarily adopt "best practice" in emerging economies. This article examines five environmental practices that can be seen as "best practice" through their endorsement in national and international oil industry association guidelines, and which will, when adequately implemented, reduce the negative impacts of oil exploration and production.
INTRODUCTION
Emerging economies, also known as "developing countries", "Third World" countries, "emerging market economies", "emerging market systems" and "emerging markets", hold the majority of the world's proved oil reserves, and account for the majority of the world's production of crude oil. The exploitation of oil remains a priority for the governments of emerging economies, as the revenue that comes from subsurface resource exploitation is a major source of foreign income for emerging economies, of which the majority are among the poorest countries in the world, and have large foreign debts. The oil industry is also a source of taxation revenue and employment, and offers the opportunity for the transfer of technology from developed to developing countries.
Oil and gas exploration and production has the potential to cause severe environmental degradation, not only to the physical environment, but also to the health, culture, and economic and social structure of local and indigenous communities. However, environmental laws in emerging economies are often ineffective because they are substantively inadequate and/or because they are inadequately enforced. This has led to calls by academics, practising lawyers and human rights and environmental activists for transnational oil companies to voluntarily improve their performance in countries with inadequate environmental laws.
Oil companies and industry groups have also recognised that international oil companies operating in emerging economies with inadequate environmental laws should adopt best practice. For example, members of the American Petroleum Institute are responsible for "obeying all laws and best practice" as part of the pledge to a program of continuous health, safety and environmental improvements, while the 1997 Environmental Policy of the Australian Petroleum Production and Exploration Association (APPEA) states that APPEA encourages and supports member companies to "comply, at a minimum, with applicable laws, regulations, standards and guidelines for the protection of the environment and in their absence adopt the best practicable means to prevent or minimise adverse environmental impacts".
But what is "best practice" in the international oil industry? What standards should be employed? No treaties have been negotiated with the specific aim of regulating the onshore activities of the oil and gas exploration and production industry operating within the borders of individual states. This stems historically from the view that the regulation of onshore resource exploitation falls within the domestic jurisdiction of states. In this context, the standards, guidelines and best operating practices developed by oil industry association bodies, and nongovernmental and intergovernmental organizations (NGOs and IGOs) constitute the major efforts to achieve uniform standards and operating practices across the globe.
This article examines five environmental principles or practices that are emerging in the environmental codes of conduct, statements of environmental principles, and environmental guidelines that have been developed by oil industry organizations, NGOs and IGOs, which can be identified as existing or emerging "best practice". Part 2 of this article identifies the types of standards that help to protect the environment and describes the organizations that are the most influential in developing these standards and guidelines in the oil industry. Part 3 describes five major practices for protection of the environment that are emerging in the international oil industry and that will, when adequately implemented, reduce the negative impacts of oil and gas exploration and production on the physical and cultural environment. These practices are: environmental and social impact assessment (EIA and SIA); environmental management systems (EMS); environmental performance evaluation (EPE); environmental monitoring and auditing; and environmental reporting. Part 4 discusses the legal implications arising from the use of these standards and guidelines, while Part 5 makes suggestions for future developments.
Dr Alexandra S Wawryk
Barrister and Solicitor of the Supreme Court of South Australia
Lecturer at the University of Adelaide
(added 13 December 2002)
