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Challenges of Environmental Licensing in the Oil and Gas Sector

The recent discoveries of vast hydrocarbon reserves off the Brazilian coast in the Pre-Salt layers have expanded the potential for development in the Oil and Gas sector in Brazil, despite the current economic conditions prevailing in the country.

However, despite being the main source of Brazil's energy matrix, this activity, like any other capital-intensive investment sector, requires the State to develop and maintain effective control mechanisms to uphold Brazil's constitutional commitment to sustainable development.

Therefore, natural resources such as oil must be safeguarded for use by current and future generations, and used in the least damaging way possible to the ecosystems with which they interact. One of the legal mechanisms aimed at achieving this sustainable development is environmental licensing, which emerged in Brazil under the National Environmental Policy (Law 6.938/81, article 9, IV), a mandate later embraced by the 1988 Federal Constitution.

Indeed, it is a constitutional requirement that economic activities potentially causing environmental degradation undergo environmental licensing, to assess their feasibility, implementation, and operation, ensuring prevention, mitigation, and compensation for environmental damages inherent to the intended activity.

In this regard, activities in the Oil and Gas sector, due to their nature, inherently require licensing for their proper implementation and operation. The licensing process in the sector is overseen by IBAMA, within the General Coordination of Petroleum and Gas Licensing (CGPEG). This differs subtly from other licensing processes, notably due to MMA Ordinance No. 422/11, which introduced procedural changes.

This regulatory act divided licensing into two phases: before and after production. The pre-production phase includes seismic research licenses (LPS) and drilling operation licenses (LOper). The second phase, preceding actual production, involves licensing for production, oil and natural gas flow, and long-term testing (TLD), resulting in preliminary (LP), installation (LI), and operation (LO) licenses, similar to those required for other projects potentially impacting the environment.

However, MMA Ordinance 422/11 did not include a decommissioning license, which could have been a significant instrument to address the decommissioning phase, missing an opportunity to strengthen the licensing mechanism.

Another notable point in MMA Ordinance No. 422/11 is procedural efficiency. If regional studies validated by IBAMA or Sedimentary Area Environmental Studies (EAAS) and reports in Sedimentary Area Environmental Assessments (AAAS) or administrative reference processes and other studies already exist, the entrepreneur is exempt from providing this information.

It is noteworthy that during the licensing process, especially when obtaining LO, IBAMA (CGPEG) has established as one of the conditions for granting LO the submission of a Decommissioning Project, subject to evaluation and potential adjustments.

However, the legal basis used by the environmental agency to support this requirement comes from ANP regulations (Ordinance No. 25/2002 and Resolution No. 27/2006), which are extremely fragile as they are rules issued by a regulatory agency without undergoing proper legislative scrutiny and without adequately considering socio-environmental impacts in decommissioning procedures.

In fact, environmental licensing regulations end with the issuance of LO, with no provisions in relevant legislation for the decommissioning phase to ensure that the environmental agency monitors relevant decommissioning impacts.

Thus, current legal norms do not address "decommissioning," which requires special attention from entrepreneurs, as at the end of petroleum activities, there is an obligation to repair any damages or compensate for them, in addition to the need to restore the affected area.

Therefore, the Oil and Gas sector presents unique challenges that require entrepreneurs to exercise exceptional caution when engaging in activities, particularly regarding environmental licensing and compliance with its conditions.

For this reason, a feasibility analysis of the project should always be conducted meticulously and on a case-by-case basis, requiring careful monitoring throughout the licensing process, both in obtaining licenses and complying with their conditions.

Alexandre Sion