Coalition in the Marcellus establishes first voluntary certification for shale development

Voluntary certification programs have been effective in markets for commercial buildings, forest products, and seafood, channeling growing demand from consumers for environmentally sustainable products. Now a group of environmental organizations, energy companies, and philanthropic foundations have collaborated to establish the first voluntary environmental certification for shale development.

The Center for Sustainable Shale Development (CSSD) established 15 environmental standards for shale development in the Appalachian Basin, with a certification process based on third-party audits. The cost of audits will be shared equally between the operator and the CSSD foundation partners, and gas producers will be able to seek certification later in 2013.

The founding participants of the initiative include four energy companies-Chevron, CONSOL, EQT, and Shell-along with the Clean Air Task Force, Environmental Defense Fund, Group Against Smog and Pollution, Heinz Endowments, Citizens for Pennsylvania's Future, Pennsylvania Environmental Council, and the William Penn Foundation. This group worked for two years to develop the framework and the specific performance standards.

The group's 15 performance standards are designed to protect water and air resources and reflect "best practices" that many operators already follow.

• The water standards include a requirement to recycle a minimum of 90% of flowback and produced water and the elimination of pit storage of drilling fluid and flowback water within two years
• Standards for well casing design, chemical disclosure, and monitoring of existing surface and groundwater sources within 2,500 feet of each well for at least one year following completion are designed to protect drinking water sources.
• On the air side, the standards require green completions of certified wells beginning on January 1, 2014, a year before the EPA's requirement for green completions.
• The standards require a phase-in of cleaner rig engines, fracturing pumps, and trucks to reduce emissions of particulate matter and cleaner compressor engines to reduce emissions of nitrogen oxides and volatile organic compounds (VOCs).
• Low bleed pneumatic controllers, controls on storage vessels, and equipment inspection and maintenance are required to reduce emissions of methane and VOCs.
• All equipment and vehicles must use ultra-low sulfur diesel fuel.

Responses to the CSSD among operators and environmental NGOs have varied. The participants in the initiative have emphasized the importance of collaboration and environmental stewardship in gas development. Paul Goodfellow, Vice President for US Unconventionals at Shell, notes that "This is the type of collaborative model that experts, leaders, and policy makers from around the world believe is necessary to earn and keep a social license to responsibly develop the shale resource that Pennsylvania and the Appalachia region are fortunate to have."

However other operators seem to be skeptical of the effectiveness of a voluntary certification system. Several of the largest operators in the Marcellus region did not participate in the initial process, and their responses to the announcement raised questions about how inclusive the process has been.

Opinions also differ within the environmental community, with some NGOs outside the process challenging the endeavor. The Sierra Club has been the most vocal in the media, with campaign director Deb Nardone calling the new plan "akin to slapping a Band-Aid on a gaping wound" in an interview. Groups entirely opposed to unconventional oil and gas development are unlikely to be swayed by this effort.

As with many new initiatives, the ultimate impact of CSSD will not be clear for some time. Gaining agreement on operational standards from such a diverse group of stakeholders is clearly an achievement, but more operators will need to join the program and seek certification for it to have a lasting impact on development practices in the Marcellus. More fundamentally, it is not clear how the certification will benefit those who attain it. Communities that exhibit preference for allowing CSSD members to develop with their borders could face legal challenges, and it is unclear whether mineral rights owners would offer any preference in their leasing decisions.

If these challenges can be overcome, however, the program could be a model for responsible oil and gas development, and perhaps spread to other geographic locations. At the very least, this effort will be an instructive experiment in stakeholder collaboration and managing development impacts. We will be watching CSSD, and look forward to learning from its progress.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.