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Focus: Climate Change – November 2008

Victorian Government legislates greenhouse gas storage

In brief: The Victorian Parliament has passed legislation to facilitate and regulate carbon capture and storage activities in onshore Victoria. The passage of the legislation is in advance of the Federal Government's 'offshore' carbon capture and storage Bill, which is currently before the Senate. Partner Anna Collyer (view CV), Senior Associate Peter O'Sullivan and Lawyer Damien Hughes report.

How does it affect you?

  • The Victorian legislation contains the processes by which proponents of greenhouse gas storage projects will be permitted to obtain access to geological storage formations located in onshore Victoria. The 'tenure' system under the legislation resembles that applicable under the Petroleum Act 1998 (Vic).
  • All land in Victoria is potentially 'open' to the grant of a licence to inject and store greenhouse gases.
  • The legislation has been passed by the Victorian Parliament and will come into operation on a day to be proclaimed, but no later than 1 January 2010.

Background

The Victorian Parliament has passed legislation enabling the onshore injection and permanent storage of carbon dioxide and other greenhouse gases.

The Bill form of the Greenhouse Gas Geological Sequestration Act 2008 (Vic) (the Act) was introduced into the Victorian Parliament on 9 September 2008. Victorian Energy and Resources Minister Peter Batchelor described the legislation as providing a 'legal framework for the sustainable and timely development of carbon capture and storage' and as helping to 'secure the future of the Latrobe Valley' by continuing Victoria's ability to derive energy from its vast brown coal reserves. The Victorian Parliament passed the Act on 29 October 2008 and it received royal assent on 5 November 2008. The Act will come into operation on a day to be proclaimed, but no later than 1 January 2010.

The timing of the Act is interesting because its Commonwealth 'cousin' – the Offshore Petroleum Amendment (Greenhouse Gas Storage) Bill 2008 – was introduced on June 2008 into the Federal Parliament, where it is still being finalised.

It was expected that the development of the Act may have been delayed until the Commonwealth legislation had been enacted, to afford the states and territories a degree of certainty for the development of their onshore legislation. It was anticipated that issues arising out of settling the federal offshore regime would help shape the Victorian onshore legislation. Once the federal Bill is passed, Victoria will need to enact 'mirror' offshore legislation applicable to Victoria's territorial sea. In any event, storage proponents will be looking for a consistent regulatory approach to greenhouse gas sequestration across the jurisdictions.

While the Act reflects a number of the principles enshrined in the Petroleum Act 1998 (Vic), the onshore regime is contained in its own, specific legislation. In contrast, the federal Bill grafts the greenhouse gas storage provisions onto the 'appropriate' petroleum provisions of the Offshore Petroleum Act 2006 (Cth), thereby regulating greenhouse gas storage and petroleum operations under a single Act.

The Act describes the processes by which proponents of greenhouse gas storage projects will be permitted to obtain access and property rights to geological storage formations located in onshore Victoria. The 'tenure' system under the Act closely resembles that applicable to petroleum exploration and development under the Victorian Petroleum Act.

All land in Victoria is potentially 'open' to the grant of a licence to inject and store greenhouse. The Act will come into operation on a day to be proclaimed, but no later than 1 January 2010.

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Geological storage – a recap

The federal Bill has focused attention on the concept of storing commercial volumes of carbon dioxide in 'unused' geological formations, such as depleted petroleum reservoirs, or saline aquifers. The proposed Commonwealth regime was analysed in Allens Focus: Climate Change - May 2008, and an update on the progress of the Bill.

Storage of greenhouse gases in this manner is commonly referred to as 'carbon capture and storage', or CCS. It should be noted, however, that the Act does not seek to regulate the 'capture' component of CCS.

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Key concepts
Greenhouse gas substances

The Act applies to injection and storage of 'greenhouse gas substances'. A greenhouse gas substance must consist overwhelmingly of carbon dioxide or another 'prescribed' greenhouse gas. These requirements may pose a problem for proponents wishing to undertake storage activities, but whose emissions do not meet the relevant criteria established by the Act because they may not be eligible for an injection and monitoring licence (these licences are discussed below).

Exploring for storage sites

Exploration for greenhouse gas storage formations must be conducted under a 'Greenhouse Gas Sequestration Formation Exploration Permit'. The Act makes it an offence to explore for greenhouse gas sequestration formations without a permit and also provides for the grant of a 'Special Access Authorisation' permitting the conduct of certain exploration activities, which may only be granted to the holder of an existing tenure.

Following the release of acreage by the Minister, proponents will be entitled to apply for the grant of a permit by submitting a proposed work program and budget (similar to petroleum exploration under the Victorian Petroleum Act), together with details of the proponent's relevant technical qualifications.

Exploration permits will have a term of five years, renewable once for a further five years.

Permit holders are permitted to carry out seismic surveys, to make wells, and to inject liquid or gas for the purpose of testing the adequacy of sites. Test injections must be conducted under an approved 'injection testing plan'.

Retention and injection

The holder of a permit who locates a geologically suitable storage formation is entitled to apply for the grant of a 'Greenhouse Gas Substance Injection and Monitoring Licence', or alternatively, a 'Greenhouse Gas Sequestration Formation Retention Lease'.

A retention lease will enable the holder of an exploration permit to retain the right to apply for an injection and monitoring licence over a suitable storage formation area, which is not yet commercially viable to develop, but may become viable in the future. A retention lease will have an initial term of five years, with a maximum of two further five-year renewals.

A licence is required for the injection of the greenhouse gas substance into an underground formation for the purpose of permanent storage. To be granted an injection and monitoring licence, the proponent must demonstrate to the Minister that it has access to a commercially viable volume of greenhouse gas substance. The licence will remain in force until it is surrendered with the consent of the Minister or cancelled by the Minister. A royalty is payable by the licence holder based on the volume of greenhouse gas substance injected within the licence area.

Before starting, proponents are required to prepare, and have approved, an 'injection and monitoring plan'. The Act also makes provision for operating plans, insurance and rehabilitation to address the risks associated with any greenhouse gas sequestration operations.

Third parties wishing to store greenhouse gases within a licence area can reach agreement with the licence holder. If agreement cannot be reached, the Minister may direct the licence holder to inject and store the third party's greenhouse gas substance provided certain conditions are met, including that the Minister considers it is in the public interest, and that an amount of compensation to be paid to the licence holder has been agreed or determined.

Activities in the 'public interest' and overlapping tenure

CCS titles may 'overlap' with existing mineral and petroleum titles. Understandably, incumbent titleholders will desire assurances that their existing entitlements and operations will not be adversely affected by co-located CCS activities. Conversely, CCS project proponents will want relative freedom to identify and exploit suitable storage formations.

The Act regulates the interaction between CCS activities and the interests of existing mineral and petroleum titleholders. For instance, the Act requires proponents undertaking 'injection testing' (injecting liquid or gas for the purpose of testing the adequacy of sites), or work under an injection and monitoring licence, to take 'all reasonable steps' to obtain the consent of any existing titleholders whose resources will be at significant risk of contamination. However, despite this provision, the holders of the overlapping titles are not under an obligation to reach agreement.

Absent agreement, the Act enables the Minister to approve the CCS activities if he or she considers it to be in the 'public interest'. Before making this determination, the Minister must refer the matter to an independent panel or relevant public authority.

The Act also provides for compensation to be payable by the CCS proponent to the affected mineral or petroleum titleholder.

Unit development

Similar to the regime under the Petroleum Act, the Act provides for the unitisation of geological storage formations extending over a number of licence areas, including at the direction of the Minister.

Ongoing monitoring of permanently stored greenhouse gases

In order to surrender a licence, the licence holder must satisfy the Minister that the stored greenhouse gas substance is behaving in a predictable manner, and a long-term monitoring and verification plan has been approved by the Minister.

While the State will be responsible for the post-surrender monitoring of the storage site, the licence holder will be required to meet the outstanding costs of such monitoring before surrendering the licence (these costs are separate from the required storage site 'rehabilitation bond').

Land open for storage

Although all land in Victoria is potentially open for the grant of a permit, lease or licence, the nature of the underlying land will dictate the extent of any consent requirements.
Operations on private land will require the consent of the land owner and occupier, and the observation of processes required by the Native Title Act 1996 (Cth).

The Act provides for the payment of compensation to owners (including native title holders) or occupiers of land affected by greenhouse gas storage operations.

Transportation of greenhouse gas substance

The Act enables the Minister to exempt pipelines used for conveying greenhouse gas substances from the application of the Pipelines Act 2005 (Vic). To qualify for exemption, the pipelines must form part of a facility capable of injecting greenhouse gas substances. The Minister may impose conditions before granting such an exemption.

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The future of the Act

Queensland, South Australia and Western Australia have also enacted legislation to regulate CCS activities; however, Victoria is the first state to enact stand-alone CCS legislation. It will be interesting to see whether any other states adopt the Victorian approach.

It will also be interesting to see whether the results of the CO2CRC demonstration CCS project already underway in the Otways, together with the new legislation, will pave the way for development of commercial CCS projects.

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