A Comparison Between Shale Gas in China and Unconventional Fuel Development in the United States: Water, Environmental Protection, and Sustainable Development

Brooklyn Journal of International Law, Jun 2016

China is believed to have the world's largest exploitable reserves of shale gas, although several legal, regulatory, environmental, and investment-related issues will likely restrain its exploitation. China's capacity to face these hurdles successfully and produce commercial shale gas will have a crucial impact on the regional gas market and on China’s energy mix, as Beijing strives to decrease reliance on imported oil and coal, and, at the same time, tries to meet growing energy demand and maintain a certain level of resource autonomy. The development of the unconventional natural gas extractive industry will also provide China with further negotiating power to obtain more advantageously priced gas. This article, which adopts a comparative perspective, underlines the trends taken from unconventional fuel development in the United States, emphasizing their potential application to China in light of recently signed production-sharing agreements between qualified foreign investors and China. The wide range of regulatory and enforcement problems in this matter are increased by an extremely limited liberalization of gas prices, lack of technological development, and barriers to market access curbing access to resource extraction for private investors. This article analyzes the legal tools that can play a role in shale gas development while assessing the new legal and fiscal policies that should be crafted or reinforced. It also examines the institutional settings’ fragmentation and conflicts, highlighting how processes and outcomes are indeed path dependent. Moreover, the possibilities of cooperation and coordination (including through U.S.-China common initiatives), and the role of transparency and disclosure of environmental data are assessed. These issues are exacerbated by concerns related to the risk of water pollution deriving from mismanaged drilling and fracturing, absence of adequate predictive evaluation regulatory instruments and industry standards: this entails consequences for social stability and environmental degradation which are inconsistent with the purposes of sustainable development.

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A Comparison Between Shale Gas in China and Unconventional Fuel Development in the United States: Water, Environmental Protection, and Sustainable Development

Brooklyn Journal of International Law A Comparison Between Shale Gas in China and Unconventional Fuel Development in the United States: Water, Environmental Protection, and Sustainable Development Paolo D. Farah 0 0 Part of the Comparative and Foreign Law Commons, Energy and Utilities Law Commons, Environmental Law Commons, International Law Commons , Natural Resources Law Commons, Oil, Gas, and Mineral Law Commons , Science and Technology Law Commons, and the Water Law Commons Follow this and additional works at: https://brooklynworks.brooklaw.edu/bjil Paolo D. Farah* & Riccardo Tremolada‡ INTRODUCTION ........................................................................ 580 I. THE REVOLUTIONARY ROLE OF SHALE GAS THROUGH THE PRISM OF CHINA’S ENERGY MIX: THE GROWTH OF A NEW INDUSTRY ................................................................................ 586 * Paolo Davide Farah, West Virginia University, John D. Rockefeller IV School of Policy and Politics, Department of Public Administration and College of Law (WV, USA); Principal Investigator and Research Scientist at gLAWcal— Global Law Initiatives for Sustainable Development (United Kingdom); Scientific Vice-Coordinator of EU Commission Marie Curie IRSES, EPSEI Project. Dual Ph.D. in International Law at Aix-Marseille University (France) and at Università degli Studi di Milano (Italy). LLM College of Europe, Bruges (Belgium), J.D. University of Paris Ouest La Defense Nanterre (France). Visiting Scholar (2011–2012) at Harvard Law School, EALS—East Asian Legal Studies (USA). EU Commission Marie Curie Fellow (2009-2011) at Tsinghua University School of Law, THCEREL—Center for Environmental, Natural Resources & Energy Law in Beijing (China) and at the CRAES—Chinese Research Academy on Environmental Sciences in Beijing (China). Fellow at the IIEL—Institute of International Economic Law (2004–2005), Georgetown University Law Center (USA). © Paolo D. Farah, 2016. The author has not granted rights to reprint this article under a Creative Commons Attribution-Non-Commercial license. Please contact the author directly for reprint permission. ‡ Riccardo Tremolada, S.J.D. Candidate at Shanghai JiaoTong University (China); Research Associate at gLAWcal—Global Law Initiatives for Sustainable Development (United Kingdom); Ph.D. Candidate at University of Naples Federico II (Italy); Trainee Lawyer at Cleary Gottlieb Steen & Hamilton LLP (Rome Office); Research Fellow (2013), Università degli Studi del Piemonte Orientale, DiSEI— Dipartimento di Studi per l’Economia e l’Impresa (Italy) and EU Commission Marie Curie Fellow (2013) at the CRAES—Chinese Research Academy on Environmental Sciences in Beijing (China) and at Tsinghua University School of Law, THCEREL—Center for Environmental, Natural Resources & Energy Law in Beijing (China). J.D. Università degli Studi di Milano, School of Law (Italy). B. China’s Stake in the Shale Gas Saga............................. 593 II. CHINESE INSTITUTIONAL AND REGULATORY FRAMEWORK 599 A. Regulation of the Shale Gas Industry in China ............. 599 B. Potential Regulations, Policies, and Protections for IV. COMPARATIVE ANALYSIS WITH THE PREVIOUS EXPERIENCE OF THE UNITED STATES: A MODEL OF DEVELOPMENT FOR THE UNCONVENTIONAL GAS MARKET?........................................... 627 A. Pricing and Fiscal Regime ............................................. 632 V. THE PROSPECTS FOR SHALE GAS IN CHINA BETWEEN REGULATORY INTERVENTIONS AND NEW GEOPOLITICAL BALANCES ............................................................................... 649 CONCLUSION ........................................................................... 653 INTRODUCTION Csheinrvaesisobfeslhieavleedgatso, hhaowveevtehre, sweovrelrda’sl lleagragle,srtegexuplalotoitrayb,leenrvei-ronmental, and investment-related hurdles will likely restrain its exploitation. China’s capacity to face these hurdles successfully and produce commercial shale gas will have a crucial impact on the regional gas market and on China’s energy mix, as Beijing strives to meet growing energy demand, and, at the same time, maintain a certain level of resource autonomy by decreasing its reliance on imported oil and coal. The development of the unconventional natural gas extractive industry would also provide China with further negotiating power to obtain more advantageously priced gas. This article, which adopts a comparative perspective, underlines the trends taken from unconventional fuel development in the United States, emphasizing their potential application to China in light of recently signed product-sharing agreements between qualified foreign investors and China. The wide range of regulatory and enforcement problems in this matter are increased by an extremely limited liberalization of gas prices, lack of technological development, and barriers to market access curbing access to resource extraction for private investors. This study analyzes the legal tools tha (...truncated)


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Paolo D. Farah, Riccardo Tremolada. A Comparison Between Shale Gas in China and Unconventional Fuel Development in the United States: Water, Environmental Protection, and Sustainable Development, Brooklyn Journal of International Law, 2016, Volume 41, Issue 2,